The 3 Kinds of Referral Programs

The best way for an online business to get a word of mouth campaign is through a referral program. Turning your customers into your marketers, you get free advertising that is highly tailored to each individual.

“A good referral program can give you a quick path to more ideal clients.” – Sitepoint.com

Consider your audience, your product, and your goals before deciding on a plan for building your referral program. Here are three types of referral programs that I’ve noticed to help you get started:

1. References

This is your standard program – usually both parties (new and existing customers) gain from the new person signing up and it’s some sort of discount or bonus. This is where you try the Ibotta – the app that gives you you send them a picture of your receipt and you get cash back on certain grocery items  – and we both get some cash.

Hey! Thought you would enjoy Ibotta (if you don’t already). It’s an easy to use, cash back rewards app.  I use it every time I shop, and thought you would like it too! Use my referral code, efikegc, and you can get a $10 welcome bonus. Sign up at https://ibotta.com/r/efikegc – Default invitation for Ibotta

There’s a clear incentive for both parties. The existing customer turns from someone who might mention it to their friend or family member to someone who encourages others to sign up through their link.

2. Free Sample

The free sample approach is very similar to the reference. There’s a a clear incentive for both parties to sign up and both benefit. Your current customers become your marketers. The difference comes in the product. The free sample hooks the new customer and encourages the obsession of the existing customer.

Join Robinhood and we’ll both get a stock like Apple, Ford, or Sprint for free. Make sure you use my link. https://share.robinhood.com/brians2786 – Default invitation for Robinhood

The stakes are the same as the reference – new and existing customer get free stuff. But the impulse and the tone is changed. The reference is about the recommendation. The free sample is about the monetary reward. Ibotta says “hey, I think you’ll like this,” while Robinhood says “we’ll both get free stuff and I need more stocks” or put another way:

If you have a product that will hook people, you don’t need to rely on the trust behind a personal recommendation like a reference – you just need to rely on the power of a free sample.

3. Commission

Amazon’s model for gaining referrals is the least similar, but Amazon’s Affiliate Program is likely the most used referral program online. Because Amazon is a sales platform, it doesn’t really care about the exact product that is bought. Amazon just cares that a site links to them. So if I suggest you go buy Rosie Revere, Engineer but you go to Amazon and realize that you want to buy a tiny house, I still get paid (I’d actually get paid more because it’s a higher priced item).

Commissions are one-sided (the new customer doesn’t get a kickback for signing up) but it does encourage your existing customers to become sales people – which Amazon has perfected.

A steady stream of customer referrals can transform a struggling business into a profitable one. Crafting an effective customer referral program takes time, but the return on investment can be startling. In fact, a study performed by The Wharton School of Business found that a referred customer is 18 percent more likely to stay with a company over time than the average, off-the-street customer. – Salesforce.com

Photo by Christin Hume on Unsplash

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