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Article 20 min read

How to build a customer referral program in 2024 (+ examples)

Companies create customer referral programs because word-of-mouth is a powerful and cost-effective form of marketing. Get tips and ideas for building your own so you can expand your audience and generate more revenue.

By Court Bishop, Contributing Writer

Last updated March 15, 2024

When you’re trying to find a new brunch spot, looking for another show to binge-watch on Netflix, or seeking out the perfect pair of jeans, where do you turn? Before you start researching options on your own, you’ll likely ask your friends and family for their recommendations—and trust those suggestions.

This is why customer referral programs are so effective.

If someone you know tells you to try a particular product or service, chances are you’ll at least consider it. Businesses know word-of-mouth marketing works, so many ask their best customers to serve as brand advocates and refer people in exchange for incentives (like a discount or gift). Both parties win when the new customer makes a purchase—the advocate gets a reward, and the company gets a sale.

Customer referral programs can widen your customer base and generate ongoing revenue for your business. But before you start building one, set yourself up for success by learning the basics.

What is a referral program?

A referral program is a word-of-mouth marketing tactic where existing customers tell their friends, family, and colleagues about your brand, products, or services. Typically, the customer receives a loyalty reward from the company when the person they refer makes their first purchase.

To encourage referral program participation, businesses will promote the rewards they offer—such as gift cards, ecommerce “cash-in” points, or branded swag. Customers who sign up can spread the word by sharing referral links or discount codes with people in their network.

Benefits of customer referral programs

Companies leverage referral programs because they’re beneficial for attracting new customers, establishing trust, and boosting sales.

  • They build trust

    According to a 2020 BrightLocal survey, 79 percent of consumers said they trusted online reviews as much as they trusted recommendations from their friends and family. But in 2021, BrightLocal reported only 49 percent of shoppers still felt this way. Within one year, reviews lost much of the value they once held (presumably due to fake reviews)—this makes personal recommendations more important than ever.

    People may not trust every random customer, but they likely trust their friends, family, and colleagues. According to a Sprout Social report, 71 percent of U.S. consumers’ purchase decisions are at least somewhat influenced by social media posts from people they know.

  • They attract new customers at a low cost

    A referral marketing strategy allows companies to reach new users simply through word-of-mouth recommendations from happy customers. The only expenses come from any initial paid promotional efforts you make for kicking off your program and the rewards for your participants. So, referral programs have a lower customer acquisition cost (CAC) than most other digital marketing tactics.

  • They’re revenue machines

    Semrush reports that word-of-mouth drives more revenue than paid ads and results in five times more sales. According to a SaaSquatch report, more than half of referral programs use credit dollars as a reward, and 90 percent of these programs equate a purchase with a “successful conversion.” Essentially, companies are using their referral programs to encourage existing and potential customers to buy, leading to a better bottom line.

How does a referral program work?

A successful referral program combines the right technology, products, messaging, and—perhaps most importantly—the right referral incentives.

When building and executing a referral program, most businesses will use a marketing software tool that tracks a customer’s shared referral code or link. Then, when a new buyer uses that code or link to purchase something, your existing customer earns a reward. The new customer can then repeat the referral process with someone from their network, and so on. This repetition creates a sustainable flow of new business—often referred to as a “viral loop”—all because of a single customer.

The psychological concept of social currency helps explain why referral programs work so well. As defined by Referral Rock, social currency is “your influence on social networks, online and offline communities, and the degree by which your business is shared by others.” Forbes states that social currency is “influence currency;” it’s how consumers measure a brand’s credibility. When your company provides value to customers, it’s gaining social currency.

People are generally willing to share something—typically knowledge—if it makes them look or feel good. So, they often use (or “spend”) their social currency to share their customer experience or suggest brands they like and believe others will also enjoy. When these promoters’ social media connections see a product recommended by a trusted source, they’re more willing to buy that product. When they make a purchase, it increases both your company’s and the recommender’s social currency—along with your revenue.

This repetition creates a sustainable flow of new business.

When your business is trustworthy, is present and engaging on social media, and uses its social currency to promote relevant content, it will be easier to increase brand awareness and develop more meaningful relationships with your audience. In turn, some of those customers—brand advocates—will use their social currency to refer others to your company.

Because your brand advocates are the ones making recommendations, referral programs can lead to more than just another sale—they often lead to additional customer loyalty. Your advocates know what they love about your brand and products, so they’re going to seek out people in their network who appreciate the same characteristics and benefits.

How to build a customer referral program in 5 steps

Creating and implementing a customer referral program can be a daunting task, but taking it step by step will make the process feel less overwhelming. You need to choose incentives that are attractive to your specific audience and customize your program to your company’s unique KPIs and products. Preparation is essential to any successful referral campaign, so ensure you have everything in place before launching your program.

Free customer experience guide

Find out how to create great customer experiences that will lead to loyal customers, improved word-of-mouth promotion, and increased revenue.

Customer referral program ideas

Customer referral programs can be a lead generation goldmine. In Influitive’s 2022 State of Customer Marketing Report, 78 percent of respondents said customer referrals were “very” or “extremely” valuable when compared to other marketing tactics.

The success of your referral program depends on its structure. Review these ideas to find one that works best for your brand, products, and audience.

Referral recipient models

Customer referral recipient models can be one-sided or two-sided, depending on who benefits from the reward. If we were to use a car analogy to explain the difference between referral recipient models and referral reward models, recipient models would be the “make” in “make and model.”

  • One-sided rewards

One-sided customer referral reward programs provide incentives to either your existing customer or the person they referred, but not both.

Choosing to reward only your current customer has its pros and cons. You can offer a bigger and better incentive because you’re rewarding only one person, which will increase your customer’s motivation to refer new people to your business. But it can also seem self-serving, which may deter the receiver from taking action.

Your other option in a one-sided program is to reward only the referral recipient. In this case, your existing customer may feel unmotivated to share. If you choose this option, your referral program participants must be very loyal to your brand.

  • Two-sided rewards

Two-sided customer referral reward programs provide incentives to both the current customer and the person they referred—or what we call a “win-win.” A SaaSquatch report shows that more than 90 percent of referral programs are two-sided. Referral program designers believe there’s value in incentivizing both parties. Because each person is receiving a “gift,” this type of program typically has the highest engagement.

You can offer existing and potential customers the same reward or different rewards. Test out what types of incentives work best for your business and your buyers—free trials, credit toward a purchase, swag items, etc. Whatever you land on, make sure it fits within your budget so you’re not throwing money down the drain.

Referral reward models

Customer referral reward models are about how recipients receive incentives, not who is receiving them. If recipient models are the “make” of the car (in our previous analogy), reward structures are the “model.” These reward structures can be paired with either one- or two-sided campaigns.

  • Standard reward program

With this structure, you provide the same incentive for every referral and reward your customer once the referred person completes a purchase with your company. If you’re running a two-sided rewards campaign, you can give the sender and the receiver the same reward. Or, you can present one reward for senders and one reward for receivers.

If you use this type of program, you won’t have to track the number of referrals, which can take some of the work off of your plate. However, because of its standardization, the program may lose some of its effectiveness over time.

  • Tiered reward program

A tiered program structure offers different levels of incentives, which are typically based on the number of referrals a customer shares. For example, your customer may earn a $10 reward for the first five successful referrals and then $25 for each subsequent referral.

Another way you can use a tiered structure is to provide unique referral links that your customers can share to receive rewards that increase in value as their successful referrals increase in number.

If you want to adopt a two-sided rewards campaign, decide how the tiers will be structured for each side.

  • Multi-step reward program

This type of program structure rewards customers once their referral reaches and accomplishes different steps.

A multi-step program may look something like this:

  • Customer X earns $10 when one of their referrals schedules a demo.
  • Customer X earns another $10 when that referral books a training session for using the product.
  • Finally, Customer X earns $25 when the referral submits payment for the product.

A multi-step program structure is similar to a tiered program structure in that it offers different rewards at specific points along the referral timeline. But note that tiered program rewards are typically based on the number of referrals, while multi-step program rewards are based on the sales funnel stage a customer’s referral reaches.

  • Gamified reward program

A gamified program structure turns referral marketing into something fun (and competitive) by offering a high-value reward to the customer who refers the most people within a set time frame. You can structure this type of reward program as a contest, which can be especially exciting for customers during special seasons and times of year (like the holidays).

A gamified referral program is engaging, but it’s one of the more complex structures. Before developing one, make sure you have the resources to offer a valuable prize and the tools to track referrals coming in from each customer.

7 great customer referral program examples

Referral programs have great customer benefits, and there are equally great benefits for businesses with referral programs. According to SaaSquatch, referred customers are 18 percent more loyal, have a 16 percent higher customer lifetime value, and spend 13 percent more than non-referred customers. Discover how some of today’s top brands use referral programs to draw in new customers while delighting their existing ones.

1. Harry’s Shave Club

Harry’s is a hip brand that sells grooming and shave supplies for men.

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  • Program type: Two-sided and tiered
  • Current customer (referrer) reward: Referrers receive free products in exchange for referring a certain number of people. Here’s a look at the company’s tiered structure:
    • Refer five people, get free Harry’s shave cream. Refer 10 people, get a free Harry’s razor.
    • Refer 25 people, get a free “premium” Harry’s shave set.
    • Refer 50 friends, get free Harry’s razor blades for a year.
  • New customer reward: 10 percent off their initial purchase
  • How to earn a reward: Before the brand even launched, users submitted their email addresses on a branded landing page. They were then directed to a second web page that contained a shareable link that was specifically created for them. This page also featured social media buttons that users could click on to quickly share their referral link on Facebook or Twitter. The more people who signed up with the user’s custom link, the bigger the prize they could earn.
  • Bonus: Harry’s current referral program rewards existing Shave Club members with $5 off their next purchase every time they refer someone who becomes a new Shave Club member (they must first purchase the Starter Set). An existing customer shares their referral link, and then new customers use that link to make their first purchase. To get a unique referral link, customers must log in, go to the “Your Details” page, and select the option to “Refer a friend.” Users can send the referral link via email or copy and paste it into a social media post. The new customer receives a $5 credit as well.

2. Stitch Fix

Stitch Fix is a curated personal styling subscription for women and men. Based on customers’ distinct style preferences, Stitch Fix works with stylists to hand-select clothes and accessories that are delivered right to customers’ doors.

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  • Program type: Two-sided and standard
  • Current customer (referrer) reward: $25 in Stitch Fix credit for every referral sign-up
  • New customer reward: $20 styling fee waived on first order
  • How to earn a reward: Each Stitch Fix customer gets a personal referral link they can share via text, email, or social media. Once someone uses the referral link and completes the checkout process, the referrer gets a credit to their account. Customers can earn up to $599 in referral credit each year.

3. Dropbox

Dropbox is a cloud-based storage system used to “keep life organized and keep work moving.” It provides a secure location to access all your files and collaborate with colleagues.

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  • Program type: Two-sided and tiered
  • Current customer (referrer) reward: For Dropbox Basic accounts, 500 MB per referral (up to 16 GB); for Dropbox Plus, Family, or Professional accounts, 1 GB per referral (up to 32 GB)
  • New customer reward: Same as the referrer reward (see above)
  • How to earn a reward: A Dropbox user with an existing account has to sign in, navigate to “Settings,” go to “Plan,” then click “Invite a friend” to send an email to someone they’d like to refer. Once the referral is sent, the receiver needs to click the link in the email and accept the invitation to sign up. Then they must download the Dropbox desktop app, sign in from there, and verify the email address connected to the account. Both parties receive the reward once these steps are complete

4. Quip®

Quip® is a subscription company selling electric toothbrushes, toothpaste, refillable floss, and other dental care products. It was created by dentists and designers to “guide habits that matter.”

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  • Program type: Two-sided and standard
  • Current customer (referrer) reward: $5 credit for every referral sign-up
  • New customer reward: One-time $5 credit
  • How to earn a reward: Customers have to sign up for an account to get their custom referral code and link. They can share the code and/or link directly with their referrals, but they cannot post the code and/or link publicly. If the receiver uses the sender’s code or link, both parties get a $5 credit toward their next purchase. If Quip customers share their referral information publicly (i.e., on social media), they will not be eligible for the referral program.

5. Google Workspace

Google Workspace includes Gmail, Google Meet, Google Docs, Google Slides, Google Sheets, etc. Many of us likely use it every day.

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  • Program type: Two-sided and tiered
  • Current customer (referrer) reward:
      • Cash rewards—directly deposited into a customer’s bank account—based on the Google Workspace plan: Business Starter plan: $8 per user Business Standard plan: $15 per user
      • Business Plus plan: $23 per user
    • A unique aspect of this referral program is that the cash rewards multiply depending on the number of users that have been referred. For example, a customer can earn $23 if they refer one user who signs up for a Business Plus plan. If the customer refers a company that signs up for a Business Plus plan and it has 10 users within its domain, the customer will receive $230. For a single referral, Google will reward referrers for up to 100 users (for a maximum referral reward of $2,300); customers can refer up to 100 times per year.
  • New customer reward: 10 percent discount on their first year using a Google Business plan
  • How to earn a reward: Google Workspace has a sign-up form for paying customers who want to participate in the referral program. After joining, Google Workspace customers can share their personal referral link and promo codes with their network.

6. T-Mobile

T-Mobile is a well-known wireless carrier with the (self-proclaimed) first and largest nationwide 5G network.

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  • Program type: One-sided and tiered
  • Current customer (referrer) reward: $50 per referral paid to a customer’s virtual prepaid MasterCard; limit of $500 per calendar year
  • How to earn a reward: Customers join T-Mobile’s Refer-a-Friend program. Once a customer has joined, they will receive a unique link to share with their network. Referred customers click the link, enter their information, and activate a new account within 15 days of accepting the referral. Once the referred customer has been active for 30 days, the referrer will receive a $50 prepaid MasterCard in their email. Existing customers can earn up to $500 per year.

7. Tesla

Most people know Tesla for its electric cars, but the company is also a pioneer in solar panel and solar roofing technology.

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  • Program type: Two-sided and standard
  • Current customer (referrer) reward: $300 per referral for solar roof or solar panels
  • New customer reward: Same as the referrer reward (see above)
  • How to earn a reward: Customers—who must be at least 18 years old—need to download the Tesla app to view and share their custom referral link. Current customers must use the specified link to place all referral orders. Tesla states, “Friends and family who order through your referral link can earn $300 for solar roof or solar panels upon permission to operate.” So, the solar roof or panels must be operational before anyone is eligible to receive referral rewards.

Supercharge your growth with a customer referral program

Referral programs provide powerful growth channels for today’s brands. These programs help increase customer retention by turning one-time (referred) buyers into loyal customers through rewards and incentives.

If you want to build and manage a customer referral program for your business, Zendesk offers impressive app integrations that can turn your CRM into a one-stop referral marketing shop.

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