Referral Incentives & Rewards, All You Need To Know
Each business works differently and needs a different referral reward program. If one incentive proves to be suitable for one business, it may be entirely wrong for another. The essential part is to create a referral program plan which encourages a customer to take action.
A couple of things can help you when making an incentive for the program. Deciding on what kind of incentive you need is as important as advertising the referral program afterward. This post will cover what you need to take into consideration when setting up your referral program.
Why Give Rewards?
Planning a referral program incentive has its pros and cons. There are numerous things to consider when creating a referral program, such as whether or not the incentive will be there in the first place.
The most important aspect is that a business has to present a genuine reason for sharing. Once you have it all setup, it should come as a bonus or a part of persuasion. Except for choosing the right incentive, the customer has to have a positive experience. When customers are satisfied, it’s only a matter of time for word of mouth to spread. Let’s see the pros and cons of giving incentives.
Creates customer motivation
The cost of the incentives can go up very fast
The customers could take advantage of the system (looking for more rewards)
The reward program may not be appropriate for the customer
Who Should Get the Rewards?
After you’ve determined which reward type suits you best, you need to choose the people who are most fitting to get the incentive. When deciding, consider whether the targeted group aligns with your end goals. Sometimes, the perfect solution could be to offer incentives to both customers and referrers when you aim for more sales.
If you want to create stronger relationships with customers, think about giving a reward to the referrer. Try to evaluate how the given rewards affect the business in general and what will work well with the customers.
What If You Decide Not to Offer Incentives
Some businesses have their referral programs made without incentives. Occasionally, the problem is of financial nature, and the business is not able to give such rewards. Other times, the owner simply refuses to give additional rewards or discounts, hoping that the majority of customers will refer automatically.
Example: A customer is satisfied with the service he got from a particular hairdresser and refers a friend.
The positive side to it: People give out referrals if they are happy with the service. Notably when they want their friends to be pleased as well. Also, referrals mostly occur without an incentive. You’ll often find a tradesman or a hairdresser because of your friends.
The negative side to it: Word of mouth is not always bound to happen, even though the customers might promise to give the referral. They fail to do so because the program requires from them to go out of their way to do it.
Conclusion: Referral programs without an incentive make the most sincere recommendations. Sadly, with the non-incentivized programs, the majority of customers lack the engagement actually to refer.
Single-Sided Incentives for the Existing Customers
In single-sided incentives, the advocate (the existing customer) is the only one who receives an incentive. A great number of programs offer incentives exclusively to the existing customer, and not the new customer (referral).
The positive side to it: There’s more motivation from the advocate’s side, and they are happy to refer their friends.
The negative side to it: The the referrals sometimes know that the referrer gets a monetary compensation. It can look like the referrer is doing so only to receive an incentive.
Conclusion: Single-sided incentives are perfect for getting many referrals, but the recommendations may sound fake.
Double-sided Incentives for Both Parties
Double-sided incentives give out rewards to both existing customers who referred someone and to the new customers (referrals) who are often given discounts.
“Email your friend with a 20% discount, and earn $20 yourself.”
“Tell your friend about us, and you both get $20.”
The positive side to it: There are more positive referrals and satisfaction from both parties. The program makes them happy to engage and creates a higher level of reputation for your business. This kind of incentive produces the most successful referrals.
The negative side to it: Not every business owner is comfortable with offering a lot of incentives. What’s more, the business has to develop an efficient tracking system for both parties, and that means more work to do.
Conclusion: Whatever your decision may be, it’s undeniable that double-sided programs create much more successful referrals than the single-sided programs. This way, people on both sides are motivated to take action.
Types referral program incentives you could offer
Customer referral programs can help get new customers into your business. They can motivate satisfied customers to share their experiences. How can you create a program that gives good results?
You also need referral incentives that make sense for your business. There are a lot of referral program ideas out there to consider.
A cash reward over coupons makes more sense to some business that doesn’t get a lot of repeat customers or where customers don’t make regular purchases.
For example, if you sell sofas, the customer won’t come back each month to buy another one. In this instance, it would be better to offer a customer $50 in cash each time they refer a friend.
Lots of companies give discounts through their referral programs. Like discount coupons towards their next purchase. This makes a lot of sense when your customers are likely to make repeat purchases through your e-commerce store. But if they are not buying often from you, it would not make sense, for example, if you were selling sofas.
Some businesses prefer to give out credit. Uber, for example, gives $10 off your next ride for making a referral. Another great example would be Airbnb who give $35 off your next stay for referring a friend.
If you have a useful product and it gets used on a daily basis then giving credits keeps the money with you and works well for “pay-per-use.” type companies that want to build loyalty with their customers.
4. Gift Cards
Giving out gift cards is a great alternative to handing out cash to show your appreciation for the referral.
Amazon Gift cards is a great example. You could give $25, $50 and $100 gift cards depending on how many referrals your customer made.
Offering free swag to your customers brings a bit of fun into your referral program. You could give t-shirts, hats, mugs and other stuff. It works well for two reasons. It promotes your brand and is also a great incentive reward for customers.
The trick with getting swag to work is that it needs to be cool and desirable. Customers need to be excited about it, don’t offer them something boring like a regular t-shirt, it should have a unique print on it that they can’t get from anywhere else.
The Reward Structure
There are a few things to take into consideration when deciding how much to give and when.
When should you give the reward?
Will your reward be given when the referral clicks on a link, signs up, registers or makes a purchase on your site?
Will you use tiered rewards?
You could use different incentives based on the number of referrals made. For example, refer 1 and get X. Refer 5 and get Y. Refer 10 and get Z. You could offer a higher reward for the first referral.
By having a high value for the first incentive, it can encourage sharing and help improve program engagement.
You could try the opposite. Start with a smaller reward and then increase to a larger reward.
Will you reward for each referral?
Maybe you want to reward every single time or after a set amount of referrals? If you can only offer a small reward, you may want to do so for each referral. But your customers may not find value in spending their time referring for such a small reward.
How much will you pay your referrers?
If your reward is going to be cash or credit, decide on the amount you will give away.
How can you prevent fraudulent entries into your campaign?
Will you be able to stop people from referring themselves?
Using referral software will help you manage and prevent such fraud.
Think carefully about your reward and how it will fit your target audience. Will it help increase your campaign conversion? Also, take into consideration your acquisition cost. All these factors are critical when deciding on the type of rewards to give.
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