It goes without saying that while the push to attract new customers is important, gaining your customer’s trust, and being able to convert those customers into tried and true, lifetime patrons is key to increasing sales. Yet, this mission is one of the most daunting tasks you can face as a marketer. This is where the use of a referral program is able to swoop in and help reshape the loyalties of your customers. Let’s explore the ins and outs of referral programs for your eCommerce website.
What is a Referral Program?
To understand what a referral program is, we must first touch on referral marketing. Referral marketing is the process of getting new customers using your already existing customer base, and utilizing them as brand advocates. Referral programs incentivize customers to refer through offering things like discounts, cash, credits for future purchases, priority service, or free access to people who might also be interested in the business. Basically what you're doing is telling your customer to get someone that they know to sign up to make a purchase, and you'll give them a reward.
For example if you have a customer that enjoys your products or services, by giving that customer an exclusive referral offer or code will in turn give them the opportunity to share a benefit to someone else who might also be interested in your products or services. This is known as a referral program. By using this process, not only do you create another sale and loyal customer, but you now have a small network of people all referring others to your brand.
On the flip side, people who promote your website through word of mouth are not considered to be a part of referral marketing. Since word of mouth can not be influenced nor tracked properly, and because the nature of its behavior is relatively chaotic, it is not reliable enough to be considered a part of referral marketing. Additionally, affiliate marketing is also not part of referral marketing since those who might be affiliated with your company, may not be actual consumers of your business as they are typically being compensated to promote your business in one way or another. While this may be a great way to gather reviews, it can not be considered as referral marketing.
When managed and implemented effectively, referral programs can be a great addition to your marketing strategy. While happy customers say they'd be willing to provide referrals directing traffic back to your business, few of those customers actually do. That's why businesses introduced a structured and systematic program that can be constantly managed, controlled, and tracked. Referral programs within businesses range from basic spreadsheets built within the company, to sophisticated automated software platforms from third parties.
Why are Referrals Important?
Referrals are based on trusting someone you know personally, hearing about a business product or service that they enjoy, and acting on it with confidence. Customers who engage with your business due to referrals, are more likely to appreciate your product or service better than those who do not come from a referral, and are even more likely to recommend your business further. This is because naturally, people connect when they have similar interests, attitudes, and even buying habits. Therefore if someone who is already enjoying the company refers a friend, the odds the friend will enjoy your company too is very high. This has been proven to be true since referral leads have a 30% higher conversion rate than leads from any other channel. While managing a referral program can be complex given the several key metrics that must be tracked, such as reach, share rate, conversion rate, and return on investment, the importance of referrals is significant.
3 Types of Referral Program Examples for eCommerce Website
One example of an effective referral program comes from Snapwire. Snapwire is an online business that connects creators with businesses and brands that are in need of creative imagery. Unlike most stock photo websites, buyers can get custom photos that math their projects perfectly. Because their model is unique, they need a powerful way to spread the word about their business.
When buyers invite their friends, Snapwire offers referrals $20 off their first purchase and buyers get their own $20 credit when the invited friend makes a purchase. Not only does this program look like a great deal to your buyer, but it works because you are able to capture a new customer who might also refer other customers. It has been proven that referred customers’ lifetime value is over 16% higher than that of non-referred customers. So essentially, by giving buyers money back for referrals, will only pay you back in the future.
Another common working example of a referral program for eCommerce websites is from Canva. Canva is an online design platform customers can use to create digital designs for social posts, flyers, presentations, business cards, and more. Using Canva credits, customers can buy premium images for their designs.
When a referred friend creates their first design in the platform, both the friend and customer receive free Canva credits. Allowing users to redeem referral credits for premium features. This program works because the offer is useful for the user base while also costing Canva virtually nothing.
Gusto serves as another great example of an online business using a referral program. Gusto offers cloud-based payroll, benefits, and HR management software to U.S. businesses. Gusto uses a four-tier system for their incentive program which allows every client that an accountant refers to Gusto to earn that accountant rewards. The more clients who sign up for Gusto, the higher the rewards. Gusto’s referral program works well because the user base gets usage out of the upgraded features while also not costing Gusto too much.
Overall, referral programs can produce so many benefits to your eCommerce business, if managed, tracked, and used strategically. While it can be a difficult task, building a loyal customer base is really valuable when it comes to your business’ overall ROI and lifetime value. If you’re just getting started on building your customer base, check out POWR’s free eBook 7 Steps to Turning Visitors Into Customers for more help.