If your company is new to referral marketing, how do you develop a program from scratch? How do you harness the power of your existing customers and turn them into your most vocal fans? What do you offer as rewards? How do you ensure that your program optimizes for new leads and brand loyalty, all while remaining manageable and measurable?

In almost any successful customer journey, there’s at least one “moment of delight,” a point at which the customer is happiest with or most excited about your product, service, or brand. These “moments of delight” are perfect opportunities to present customers with the opportunity to refer others to your product or service. This is also where it can be very beneficial to have insight into how your prospects funnel through to become customers and the journey thereafter.

How Do I Get Started With Referral Marketing?

Getting started with referral marketing can be overwhelming, but it doesn’t have to be! The best place to start is with your customers. Determine what motivates your customers and create incentives around those factors.

In some cases, existing customers will spread the word about your products and services to their friends, family, and social networks simply because they love them that much. However, this isn’t the norm – no matter how jazzed they are about your brand. People are often reluctant to give up space on their personal platforms to brands or companies – it’s all about image, after all, and we each painstakingly craft one whether we know it or not. That’s why providing the right incentives for customers is so important, it gets them over that hurdle.

A good incentive will provide some type of desirable reward for your existing customers while also equipping them to share an incentive with others. Consider what motivates people to buy your brand in the first place, and design a program that speaks to what customers really want.

How Do I Choose The Best Referral Incentive?

Choosing the best referral incentive structure for the right audience at the right time is dependent on understanding your customers. The most successful incentive structures are easy to explain and easy to implement.

While there’s no one-size-fits-all approach to developing an incentive structure, here is the 3-step framework to planning what and how to reward your best customers for referring your brand.

how to generate referrals from existing clients icon 1

Step 1: Determine What Activity to Reward

Start by selecting the specific action that members in your referral program, will be rewarded for. In other words, what is the ideal activity that should occur after a referral link is shared? Whether it’s product purchases, completed demos, or newsletter signups — aim for the outcome that will help you achieve your desired objective.

how to generate referrals from existing clients icon 2

Step 2: Choose Between Non-Monetary or Monetary Rewards

After you pinpoint activity that will be rewarded, choose between these two types of rewards:

Non-Monetary: loyalty points, early access, swag or any other reward without direct monetary value.

Non-monetary rewards are enticing for companies that want to spice up their customer outreach and give away branded merchandise or exclusive perks. While it’s always great to shake up the traditional customer experience, the problem arises when determining the one-to-one value of these interactions. How many company t-shirts would rightfully reward customers for new business they’ve driven your way? Non-monetary rewards are great add-ons when you want to thank your customers, but they aren’t typically motivating enough to encourage advocates to drive more referrals.

Monetary: incentives with a monetary value like cash, rebates or discounts, gift cards, and commissions.

Nothing is more straightforward than a cash reward. Cash referrals create a direct link between brand ambassadors and new revenue. Plus, it’s much easier to calculate your customer acquisition cost when cold hard cash is involved.

And not every incentive has to be directly linked to referrals. For example, are there ways that you can reward customers who make X or more purchases within a given timeframe? Offering free shipping, doubling rewards points, or providing additional discounts for your most loyal and enthusiastic customers is a great way to energize true word-of-mouth referrals.

how to generate referrals from existing clients icon 3

Step 3: Decide How to Reward

A critical aspect of developing an incentive structure is determining how much it will cost you. It’s important to consider the customer lifetime value and customer acquisition cost as you determine how much, and what to reward. Consider these two types of rewards:

Single incentive: the original referrer is rewarded for the new sale generated as a result of their activity.

Dual incentive: both the referrer and the new customer are rewarded.

A study conducted by the University of Pittsburgh and Korea University revealed that the referral benefits and costs of single and dual incentive structures are largely dependent upon the strength of a brand. Strong brands, defined as well-established brands with a high level of brand awareness, found success with dual incentives. Weak brands defined as less-established, low-awareness brands found success with single incentive structures.

Based on our experience, many of our clients have found success with dual incentive structures because both parties feel like they’re being rewarded and valued. Instead of looking for a textbook answer to your incentive structure questions, build a program that suits your company and what you want to reward.

What Can I Do To Scale Referrals?

Scaling referrals is dependent on having a process (and preferably a platform) in place to collect data to continuously optimize your program. Marketers that want to generate referrals at scale need to actively analyze campaign data and new leads.

By enabling your customers to share your brand with others, you can also gain a better understanding of consumer behavior for your products and services. The more you understand your customer base and the leads they generate, the more efficiently you can hone marketing strategies, gain customer insight, and grow revenue.

Don’t let this data slip away without tapping into its full potential. Before you launch a program, decide how you will collect, store, and examine the intel and data points you retrieve.

Is referral marketing technology necessary to generate more referrals?

While technology isn’t technically a requirement for referral marketing, for your program to be successful, it needs structure and commitment. This means more than just the basic functionality of rewarding referrals using manual entry and spreadsheet management.

Your team might be able to build a referral program with basic tracking and reporting capabilities, but what happens when the referral program matures beyond entry-level functionality? If the in-house program wasn’t designed around flexibility and extensibility, it can create very large barriers to scale.

It’s a smart idea to view referral marketing as an investment, and a program that is an enjoyable experience for existing and future customers. And from an operational standpoint, the last thing you need is managing a referral program to sap staff resources. For this reason, many brands leverage referral marketing technology to automate and streamline processes.

For a referral program to consistently deliver truly exceptional results, your brand’s referral marketing strategy must take all marketing channels into consideration. Basically, your program should be woven into who you are and how you operate. The best referral marketing strategies share a common thread: Referrals are embedded into every aspect of the user experience.