Everyone knows customers that are referred by a trusted friend convert faster, have a higher lifetime value, and are more likely to refer more friends.

Just like any other customer acquisition channel, referral programs should be designed, tested, and optimized to maximize your growth potential.

Here are the things you need to define in order to build an effective referral program:

What constitutes a referral?

Most often, a referral is defined as when an existing customer or user refers a friend to sign up for your service. This could mean that they create an account or it could mean that they create an account and they pay.

I’ve also seen companies build referral programs where they incentivize users to refer friends to leave a review on products that they have listed on their website. For example, Software Insider gives you a $10 dollar gift card to Amazon every time you review a software product listed on their site. If you refer a friend and they leave a review, you can earn an additional $5 dollar gift card.

This referral system works for them because the more reviews that are left on their site, the higher they rank in Google search.

Take away: Define your referrals in a way that aligns with your business strategy.

Finally, you need to understand what type of referral campaign are you building.

Here are some other types of campaigns.

The most common is what I call a 1 to 1 campaign. This is where both the customer advocate (person referring friends) and the new referred customer get a reward. Uber is probably the example you’re most familiar with. Both the advocate and the new user get cash towards rides.

One way is when just the advocate earns a reward.

Multi-level is when the advocate unlocks different rewards for referring more friends. For example: refer 1 friend get 10% off, refer 2 friends get 20% off.

The key for a multi-level referral system is to make sure that the referral count required for the higher value rewards is achievable enough for some of your really motivated referrers to achieve but a high enough count that it won’t break your bank account fulfilling the rewards.

What rewards do your users want? (that you can afford to give them!)

Equally as important as defining what constitutes a referral is defining what the rewards will be. Again, make sure that you define a reward that meets your business’s needs.

For DropBox, this meant rewarding users with more storage. This not only incentivized users to share but also incentivized them to use DropBox’s services more!.

One of the first questions I ask my BETA customers when I’m onboarding them is “What’s your revenue model”.  Their answer helps me think about

  1. What they have that their customers might want
  2. What type of reward could make the most sense for their business.

Like anything else in marketing, you should a/b test different rewards to see what get’s your users referring the most friends.

As my BETA uses progress with their referral campaigns I’ll be doing specific case studies on the types of in-app rewards that I’m seeing. 

Sign up for early access to our in-app referral plugin and API or Launch your pre-launch campaign today!

You’re not limited to just rewarding users with in-app purchases, more storage, or some other in-app activity. You can also opt to just give them cash, gift cards, and other prizes.

One company I know in Santa Barbara even added a contest on top of their normal rewards program. They gave the top referrer for the month a free drone!

Now you’ve got some ideas for what a referral can be and what rewards you should give out.

What else do you need to think about?

Content that communicates your referral program to your customers is key! Whether you’re using our plugin or building a completely custom campaign with our API, you need to make sure that the copy on the popup or landing page with your referral links clearly communicates what rewards your customers will earn and how many referrals are required to earn each reward.

Also, I always leverage email automation to handle onboarding for referred customers and to continue to nurture my customer advocates.  For each referral campaign, be sure to create an onboarding sequence for new referred customers as well as a campaign to remind existing customers to refer their friends.

For your advocates, share tips on where and how they can drive referrals. What facebook groups should they belong to and post in? What’s types of people could use your product? The goal is to make it as easy as possible for them to think of someone who could use your service and who would likely be a good referral.

Much of the above also applies to pre-launch referral campaigns. The main difference with this is that (obviously) your product hasn’t launched yet so there really isn’t a need to automate in-app rewards. In my experience, the best pre-launch campaigns are multi-level and offer an extra bonus reward for the top referrer.

This gives your early signups a sense of competition and some high-value rewards for the higher referral counts. Just remember my warning above about the balance between the value of the reward and how many referrals are needed to earn the reward.

Sign up for early access to our in-app referral plugin and API or Launch your pre-launch campaign today!

Setting up an in-app referral program