How to Design, Launch and Automate a Referral Program for Your Business

Alessandro Oliveri

Alessandro Oliveri

Alessandro Oliveri

7 min. read

Updated October 25, 2023

You’ve probably heard of referral marketing, but have you ever tried it before?

If not, now is the perfect time to get in on this effective and easy-to-implement user acquisition channel. In this blog post, we will cover how you can design a referral program that’s right for your business and then launch it with ease. We’ll also discuss how to automate your referral marketing so that you don’t need to spend all your time manually tracking who gets what rewards.

How referral marketing works

Referral marketing is a user acquisition channel that allows you to leverage your existing user base for growth by incentivizing them with rewards.

After the initial setup, most of your marketing efforts are carried out by your own consumers and those participating in the referral program. This is why referral programs are a great low-risk channel. Participants in the referral program, often known as referrers, make recommendations for your business by offering incentives in exchange for referrals.

Referral incentives are often designed to encourage participants to make as many referrals as possible.

Referral marketing campaigns are very effective since everyone participating in the program benefits in some manner. The company earns new business and referral program participants get their rewards. The active participants receive their rewards, the company receives new business.

The key to an efficient and effective referral campaign is in the planning stages. Like any other user acquisition channel, your efforts need to be cost-efficient. It’s not out of the norm to have initial setup costs and show ROI early into your first campaign. Referral marketing is one of the most cost-effective ways to grow your business because it leverages the trust you’ve already built with customers.

To start, you’ll need to ask yourself questions like:

  • What kind of incentives would your users actually care about? 
  • Is it desirable enough for them to share but still profitable for you?

Why you should launch a referral program

The most apparent advantage to setting up a referral program is that it will bring in new consumers, resulting in increased income. Everyone is happy when (monthly recurring) revenue rises, but there are several more advantages beyond simply the bottom line:

Brand building

Stronger brand awareness means you’ll have an easier time earning more market share as you scale up. Every conversation someone has about your brand is an opportunity for a new set of eyes on what you have to offer. Since your most loyal, trusted customers are the most likely to talk about your brand, launching a referral program is a no-brainer. Regardless of if a referral converts or not, it still builds brand awareness for your company.

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Cost-efficient user growth

Referral marketing is one of the most cost-efficient user acquisition channels, so you can grow your company without breaking the bank.

In addition to being acquired for cheaper than other acquisition channels, referred signups are more likely to make repeat purchases. Referred signups on average have a higher customer lifetime value (LTV) than non-referrals.

Lowers churn

Every SaaS business should be tracking and monitoring its churn rate. In fact, every SaaS should be optimizing as best they can to reduce churn. After all, it’s more expensive to gain new customers than it is to maintain the ones you already have.

Churn rate is defined as the percentage of customers that cancel their subscription to your product or service over a given period of time. It is usually measured per month and in comparison to previous months to benchmark performance. The higher your churn rate, the more likely it is that customers aren’t happy with your solution.

Customers who sign up for a business following a referral have a 37% higher retention rate than non-referrals. This means that referral signups have the power to help stabilize your MRR by lowering the number of people that unsubscribe.

How to set up your first referral program

The advantages are apparent, and the metrics are ready to be calculated and measured. It’s now time to start a referral campaign, but first, there’s some preliminary work to do to make sure it runs effectively and, even more importantly, provides a good customer experience.

Set goals

The first step is to set effective goals for your campaign. What do you want to accomplish with a referral marketing campaign? More customers, more sales, and more subscriptions are all common goals for a referral program. However, it’s worth delving a little further to see what might be accomplished and how broad goals may be achieved on a smaller scale.

Within a customer segment, you might want to increase the number of sign-ups. You could try to sell a certain product to those who are referred. There are many different objectives that may be established. It’s important to set them from the beginning, think about them, and check them as the campaign progresses. There is no need for concern in adding or changing your goals as you go forward. Just make sure you don’t move the goalposts so that you can reach them more easily and you’re golden.

Don’t forget to establish measurable data-driven objectives and linked KPIs for each goal so you can measure success against your targets. Common KPIs used in referral programs include engagement rate, participation rate, and conversion rate.

Pick your referral rewards

When deciding who gets the prize, there are two typical configurations: one-sided incentive and two-sided incentive. Depending on the number of rewards and incentives provided, referral marketing efforts are more successful.

One-sided incentive

The next stage is to only provide one individual with a reward, which could be the referrer or the referred person. For example, if an existing customer gives a new client 500 account credits, this is an example of referral marketing. This is similar to affiliate marketing but with a focus on their personal network rather than established public audiences.

Two-sided incentive

The most popular type of referral marketing is two-sided incentives, in which everyone wins something. When Uber debuted, they utilized a two-sided incentive by providing credit to the referrer and giving the first ride for free to those being referred.

Talk to your customers

There are several ways to connect with your current consumers. At the beginning stages of installation and planning, you may inquire about where they prefer to talk online, what rewards they want to see offered to existing clients, and more.

Choose promotion channels

Now it’s time to think about the nitty-gritty aspects of the referral process, such as how you’ll get your offer in front of your clients and what channels they’ll use to promote your referral program. A fantastic place to begin is to consider which channels are presently successful for you. 

If you’ve had little or no success with a previous email campaign, there’s no sense in starting one now. Twitter, Facebook, and Instagram are the social media channels where referral marketing has performed best.

Automate tracking and promotion with referral software

The most time-consuming aspects of the installation are now behind you. Now it’s time to make the referral campaign go more smoothly and quickly thanks to referral software.

Referral software makes it simple and less time-consuming to manage campaigns. You’ll be able to track the results of your entire campaigns, individual participants and be able to optimize to grow your business more effectively. Manually keeping track of successful referrals, which rewards go to whom, and generating referral links can be a time-consuming process. Referral software cuts out all of that with automation.

Common features of referral software include:

  • Referral Link Generation and Tracking
  • Embeddable Elements
  • Email Automation
  • Referral Reward Automation
  • Fraud Protection
  • Campaign Analytics

Key takeaways

Referral marketing is one of the most cost-effective acquisition channels because it taps into the trust you’ve already built with your customers. There’s no better way to sustainably grow your business than putting a system in place to spark word-of-mouth marketing.

As with all things in business, preparation and planning will pay off in the end. After you’ve chosen your rewards, what channels to promote on and your automation is in place, there is little to zero maintenance required. Referral marketing can be a turn-key operation with proper setup and hopefully, this guide has helped put you on that path.

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Content Author: Alessandro Oliveri

Alessandro Oliveri is a Content Marketer at Venngage, the design platform, and infographic maker. After many years working as a journalist, he now enjoys writing on visuals, SEO, and content creation. His aim is to help people to simplify the content marketing process and take visuals to the next level.