How To Develop A Profitable Referral Program For Your E-Commerce Store

Guest post from Si Quan Ong at Referral Candy

Some of the largest and most popular companies today were built on the back of successful referral programs.

We’re talking about commonplace names like Uber, Airbnb, Dropbox, and PayPal.

While you might have noticed that the names above are mostly tech companies, referral programs can be just as powerful for ecommerce stores.

Look no further than the world’s largest ecommerce retailer, Amazon, who has invested greatly in building a successful referral program that drives tons of customers for them.

Which means -- the missing puzzle piece in your customer acquisition efforts -- could be a referral program.

And the best part is - if you already have a great product that your customers love, a referral program can help to incentivize your best customers, and supercharge word-of-mouth for you bringing down your cost of acquisition and increasing your revenue.

That get you started, here’s a guide to developing a profitable referral program for your store.

Let’s dive right in.

Why Referral Programs

Why are referral programs so powerful?

Spreading the word about positive experiences is second nature to us as humans – and that’s what referral marketing is, except that referral marketing is a deliberate way of influencing people to talk specifically about your products and services.

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A staggering 92 percent of consumers trust recommendations from people they know. And according to McKinsey & Company, people also pay twice the attention to recommendations from friends. Furthermore, referred customers are proven to be more loyal and bring you higher profit margins (up to 25 per cent higher than non-referred customers!

But if that is the case, why aren’t your customers spreading the word for you? If word-of-mouth is so powerful, why aren’t they bringing in more customers for you?

Here’s a sad truth - 83% of satisfied consumers indicated that they are willing to refer your products to their friends, but only 29% of them ACTUALLY do it.

Huh? Why the discrepancy?

Because customers are forgetful and distracted. When the “exact moment” to share your product with their friends is over (usually after they just purchased your product, or experienced something wonderful), there is no longer any reason for them to tell their friends about it.

So if you want more customers to your store, you simply cannot leave this up to chance.

You’ll have to find some way to incentivize them, keep your product top-of-mind, and encourage them to share with all their friends.

How?

A referral program.

Setting Up Your Referral Program

Creating an effective referral program isn’t as hard as it sounds. You can easily integrate your store with referral program solutions like ReferralCandy, and begin setting up your soon-to-be-profitable referral program.

Then, once you’ve connected the app with your ecommerce store, pay attention to these three components.

1. Getting your incentives right

In general, there are two types of incentives to consider: The referral reward (for customers who successfully refer your products), and the friend offer (an incentive for referred friends to purchase your products).

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For referral rewards, you need to figure out if your customers are likely to make repeat purchases. If they are, your best bet would be to provide discounts (cash discounts for products above $100, and percentage discounts for products below $100).

If not, discounts would be useless, so reward them with cash instead. If you’re offering pre-orders, you can consider cash discounts as an incentive.

As for friend offers, the key question to ask is this: What do your customers care about the most? Find out what motivates them, and what they want, and tailor the incentive to match their needs.

2. Getting your messaging right

To work towards a message that creates a memorable referral program your patrons would want to share with their friends, you should know what your value proposition is, and reflect that in your referral messaging.

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Take a look at the example above. As a cloud storage company, Dropbox knew what its biggest value to their customers were. Space.

With a referral program using strong but simple messaging (“get free space”), Dropbox created one of the most successful referral programs of all time.

Bear in mind how your product solves a certain problem for your customers, and how your customers want to help their friends solve the same problem.

These factors will motivate your consumers to take part in a referral program.


3. Getting your referral emails right

Crafting an email may seem simple, but is in fact one of the hardest things to get it right.

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The first thing you must get down is your subject line. The Privy blog has tons of articles on how to write a good subject line, but here’s the biggest thing you should remember:

Be clear, not clever.

According to a 2011 survey by AWeber Communications, a clear subject line (e.g. “10 new fonts for your marketing campaigns”) receives 541 per cent more clicks than a clever one (e.g. “It’s finally here!”).

State upfront why they should open the email. Tell them what they expect to find - and then fulfill that expectation.

After you’ve gotten your subject line down pat, you should keep the email simple and easy to understand. Always remember the golden rule from Steve Krug - “don’t make them think.”

If the recipient has to figure out how to take the next step, he or she would rather move on to something more important (like cat videos) than refer their friends to you.

Keep the email short and to the point, and end it off with a clear call-to-action that drives home the message.

Lastly, focus on tapping into your customer’s main purchase motivation, and highlighting how a referral benefits both the referrer and the referee (not forgetting the conditions of the deal).

Promoting Your Referral Program

Now that you’ve set up your referral program, the next step is to promote it.

Airbnb famously botched up their first referral program by not promoting it (even their internal employees didn’t even know they had one!) They eventually managed to salvage the situation by emphasizing on promotion.

Be sure to invite past and existing customers to take part, update your website (especially on the home page) with details of the referral program and a relevant call-to-action, and promote it on social media – the easiest and most affordable way to reach out to the masses.

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You can also implement post-purchase pop-ups that invite patrons to the referral program.

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Customers are often most likely to support a brand further after buying a product, receiving the product, and solving a problem with the product. Don’t miss the prime opportunity after a purchase to ask for a referral!

Finally, email reminders are useful for keeping the referral program at the top of your consumers’ minds, but make sure not to overwhelm them with spam mail.

Measuring and Optimizing

After successfully creating a referral program, you’ll want to optimize it and strengthen its ROI.

The most obvious strategy is to get as many eyes on your referral program as possible, using the promotional tactics previously listed.

Master the art of writing referral emails to maximize conversions, and appeal to the inner motivations of your customers through copy and visuals.

Creating a Profitable Referral Program

As with any marketing strategy, it takes effort and skill to convert a simple referral program into higher sales and revenue.

Nonetheless, with this guide dispensing top tips in every step of the way, the process of developing a successful referral program won’t seem as daunting as before.

Si Quan Ong is the Content Marketing Manager at ReferralCandy. ReferralCandy has helped thousands of ecommerce stores run successful referral programs. Try ReferralCandy free for 30 days here.