A referral code is simply a unique combination of numbers, letters, or both which are used as an identifier.

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Businesses use referral codes for their referral programs. As we all know, a referral program is a powerful way to generate word of mouth.

Referral codes, in these types of programs, are used to track the origin of a referral. The reason a business uses a referral code is so they can connect the referrals to the people who sent them in.

This way if rewards are used, credit can be distributed to the correct person. The credit is often times monetary but doesn’t have to be.

Let’s explore what is a referral code and how you can leverage them to your advantage!

What is a Referral Code?

A referral code is a unique string of letters, numbers, or a combination of both, used in referral programs.

These programs are typically run by businesses to encourage their existing customers to recommend their products or services to new potential customers.

While the terms “referral code” and “referral link” are sometimes used interchangeably, they actually refer to different components of a referral program:

  • Referral Code: This is a specific code that uniquely identifies the referrer. It’s a distinct sequence of characters (letters, numbers, or both) assigned to an existing customer. When a new customer uses this code, typically by entering it on a website or app, it indicates who referred them.
  • Referral Link: This is a complete URL that an existing customer shares with potential new customers. It includes the referral code within the link itself. When a new customer clicks on this link, they are directed to the company’s website, and the embedded referral code automatically tracks who made the referral.

In essence, the referral code is a key part of the referral link, serving as the tracking element, while the referral link is the mechanism through which the referral code is shared and used.

How Does a Referral Code Work?

Let’s explore the step-by-step process of how a referral code works:

Step 1. Assigning a code to a customer

First, you’ll need to issue a referral code to a person who wants to refer you business… Some businesses choose to use a static code, where all the referrals use the same code.

While others choose to assign unique code per individual (the person referring).

If you plan on giving out incentives per each successful referral, you may choose the latter option. This way you can tie the referral to the referrer easily.

(we’ll get into creating a code later in the article)

Step 2. Have the customer to share the code

You have to decide on how you are going to get customers/partners to share their code. Thanks to the influx of internet and social sites, It’s very easy for people to send their referral codes.

Most commonly, a referral program allows its members to send their code easily, via email, social media post/message, or text.

There are, however, plenty of cases where the referral program member will share their referral code in-person to a friend, who will later use it. In this instance, the ‘code’ might just be the person’s name and not necessarily a generated number.

Step 3. Getting code redemption from the referral

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As a business you are on the receiving end, so you’ll need a way to collect the referral code. In the online world, it’s easier to rely on links and cookies to track referrals for you.

If that’s not possible, however, you have options. You can have the new customer enter it themselves into a form or at an e-commerce checkout. Or, if you’re a brick and mortar business, you can train your staff to take the code.

An even better option is to have a page dedicated to that referral code…

Now we are getting into fancy referral software (but you can still run a program without it).

On the back end, you’ll need to tie that code to the referrer somehow. Hopefully, you kept a list of the codes you created, so that all referrals and those who referred are connected.

Why Would Someone Use a Referral Code?

That’s one of the trickier points.

Often times a referral code doubles as a discount code. The code represents the incentive/discount. In other words, a person is incentivized to enter the code, as it leads to their reward.

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This is where incentives, like the double-sided reward, comes in. Rewards motivate the individuals to do both step 2 (share) and step 3 (redeem).

Note: If done with a link and browser cookie tracking… you don’t need to enter a code (the link, in this case, acts as the code). Instead, the action required is to make a purchase through the link.

Ex: The referral can’t get the discount unless they use the link provided, and the referrer can’t get rewarded unless their link is used.

Is a Referral Code Required for Me to Run a Referral Program

No. However, when dealing with multiple referees, it’s recommended.

Why?

Well, can you remember all your customer’s names? For example, if you’re an online business like eCommerce… Good luck with that!

Codes also create trust, they make the whole process seem more official.

It’s not just someone filling out a name and form, and wondering what the next steps are. It puts the onus on the new person to use the code. But it can be positioned to be used as a discount, which can take away the ‘burden’. Hence, leading to a 2-way incentive.

How Do I Generate a Referral Code?

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A referral code comes from the business or destination of the referral. As a business, it’s up to you to generate the codes. You can use referral program software and automate the process. Or, you can even come up with the referral code(s) on your own.

If you choose to do it on your own, make sure to keep a good record. You may want to create a spreadsheet or use accounting software, CRM, etc.

What Are Some Referral Code Best Practices

  • Make it easy to remember
  • Try not to use O’s and zeros. Or capital I’s and lower case L’s.
  • Make it case insensitive
  • Personalize if possible (about the person, not the brand)
  • Keep short enough to be memorable but long enough to be unique

Summary

Now you have a better idea of what is a referral code.

Referral codes are essential to every referral program, in fact, they are what makes them work.

Without the use of referral codes, no one would be able to track the effectiveness of the program. Worst of all, there would be no way to track incentives, which would make it very unappealing for those who want to refer.

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