Understanding Customer Referral Incentives

Finding the Right Referral Incentive

By Tony Mariotti @tonymariotti

Before you launch your customer referral program, you’ll need to make an important choice --

What referral incentive will you offer to maximize customer acquisition?

The referral incentive you offer will affect both your sharing rate and referral conversion rate.

The referral incentive you offer will affect both your sharing rate and referral conversion rate.

• Sharing Rate is the percentage of

people who share when presented

with an opportunity to do so.

The referral incentive you offer will affect both your sharing rate and referral conversion rate.

• Sharing Rate is the percentage of

people who share when presented

with an opportunity to do so.

• Referral Conversion Rate is the

percentage of referred visitors

who convert.

How do you determine the best referral incentive for your business?

How do you determine the best referral incentive for your business?

1 Choose Your Referral Incentive Structure

How do you determine the best referral incentive for your business?

1 Choose Your Referral Incentive Structure

2 Brainstorm Referral Incentive Ideas

How do you determine the best referral incentive for your business?

1 Choose Your Referral Incentive Structure

2 Brainstorm Referral Incentive Ideas

3 Select the Referral Incentive That Best Fits Your Business

1 Choose Your Referral Incentive Structure

There are three types of referral incentive structures:

There are three types of referral incentive structures:

There are three types of referral incentive structures:

There are three types of referral incentive structures:

No Incentive

Present your share widget without a reward. This is pure social sharing.

No Incentive

Present your share widget without a reward. This is pure social sharing.

• Rewards are not always required to create a successful program; sometimes customers just love to share for the sake of sharing.

No Incentive

Present your share widget without a reward. This is pure social sharing.

• Rewards are not always required to create a successful program; sometimes customers just love to share for the sake of sharing.

• This works best for announcing seasonal promotions or sales, charity initiatives, special events, or new product launches.

One-Sided Incentive

Offer a reward (such as cash or store credit) to either the sharer or their friend.

One-Sided Incentive

• You can offer a bounty to your customers if they successfully refer friends to your web site (who convert).

Offer a reward (such as cash or store credit) to either the sharer or their friend.

One-Sided Incentive

• You can offer a bounty to your customers if they successfully refer friends to your web site (who convert).

• Alternatively, you can offer no incentive to the sharer, but create an incentive for their friends, such as 10% off a first purchase.

Offer a reward (such as cash or store credit) to either the sharer or their friend.

Two-Sided Incentive

Offer rewards to sharers while simultaneously offering the referred visitor (their friend) a reward, such as a discount, for buying now.

&

Two-Sided Incentive

Two-sided incentives come in two variations:

&

Two-Sided Incentive

Two-sided incentives come in two variations:

& Symmetrical

and

$

Two-Sided Incentive

Two-sided incentives come in two variations:

& Symmetrical

and

Asymmetrical

Two-Sided Incentive

Symmetrical & Offering the same reward to each party, such as a $10 store credit to the referrer and $10 off to their friend, is known as a symmetrical two-sided incentive. The rewards match.

Two-Sided Incentive

Asymmetrical & Offering different rewards, say $5 in store credit to the referrer and 10% off to the friend is an asymmetrical two-sided incentive. The rewards are different for each party.

$

“Do I really need to offer an incentive?”

vs.

Yes, because offering a reward for sharers can boost your sharing rate 2x to 10x.

“Do I really need to offer an incentive?”

Yes, because offering a reward for sharers can boost your sharing rate 2x to 10x.

Furthermore, providing their friends with an incentive can lift your referral conversion rate from 2x to 10x.

vs.

2 Brainstorm Referral Incentive Ideas

Once you’ve selected your incentive structure, consider the types of referral incentives you can offer. The following list will help you brainstorm and strategize --

Referral Incentive Ideas

• Store credit

• Free month

(subscriptions)

• Coupons

• Loyalty points

• Gift cards

• Discounts

The following are a few different ‘carrots’ you can

use to encourage your customers to share:

• Access to special features (SAAS and

web-based apps)

• Access to special content (White papers,

‘How To’ guides, etc.)

• Donation to charitable cause

• Premiums (physical items like a tote bag)

3 Select the Referral Incentive That Best Fits Your Business

How do you decide which referral incentive will generate the highest share rate and referral conversion rate? Here are some referral program ideas and real-world examples to help you choose the best offer for your business --

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Store Credit

Store credit is a good referral incentive for encouraging repeat purchase behavior. Store credit is more compelling if your customer feels that they can redeem the credit in a reasonable timeframe. For example, NatureBox offers a $10 reward to referrers. If your business sells products frequently to the same person, store credit is a good fit.

Free Month

Companies that offer subscriptions such as Dollar Shave Club do well by offering a subscription version of ‘store credit,’ namely a free month of service.

Premiums/Merchandise

Remember those old TIME and Sports Illustrated TV commercials that offered a free watch or commemorative book with your subscription order? The idea of a premium or physical item is still alive and well. Nice Laundry delivers curated packs of premium quality socks straight to customers' doors. They offer referrers a free pair of socks for every new customer referred. For a company that wants to refresh everyone’s sock drawer, getting more socks on the feet of customers is an exceptional proposition.

Upgrades

Upgrades also work well with cloud-based subscription services. If you are a SaaS company, consider offering your referrers a higher account tier with access to special features or other enhancements. Upgrades can also work well for consumer subscription services like Hulu, Netflix or HBO GO.

Align your business model, customers’ sensibilities and referral program incentives to create an effective, high-yield referral program. Plus, you can always use A/B testing to tweak your offer and find even higher returns.

Launch Your Chosen Referral Offer

With friendbuy, you can A/B test incentives to make the most of your customer referral program.

Sign up for a 30-day, no risk free trial.

Click here to get started!

Thanks! For more tips and examples, visit us:

Tony Mariotti @tonymariotti

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