Why Referral Programs Are a Smart Way to Grow a Business During the Holidays15 min read
The holidays are crucial for most businesses, with sales between November and December driving 19% of total sales for the year.
Due to an increase in volume, but not necessarily an increase in fixed costs, holiday sales can be more profitable than traditional sales.
So instead of pumping the brakes on growth initiatives during this busy time of year, it’s the perfect opportunity to double down.
But it’s no longer enough to throw money at ads to improve your bottom line.
So, how can you grow your business without a mass outreach effort on social media, retargeting your audience with banner ads, or spending an arm and a leg?
That’s where referral programs come into play.
In this post, you’ll learn everything you need to know about referral marketing, referral programs, and how to differentiate customer referral programs from affiliate marketing versions.
Plus, we’ll take a look at a few superstar examples to use as your guiding light this holiday season.
Let’s dive in.
What is referral marketing?
Referral marketing is when your customers tell their friends, family, and colleagues about you.
It’s the opposite of traditional marketing, where you (the company) tell people about your business and products.
The customer starts the conversation with referral marketing (commonly called word-of-mouth marketing). It happens organically and with or without a marketer getting involved.
This process sounds idyllic, right? Unfortunately, even if your customers have a stellar experience, they aren’t naturally shouting about it from the rooftops as much as you might hope.
Humans are social creatures. But we’re also extremely busy jumping from one task to the next. So although we naturally want to share our experiences with our friends and family, it often slips our minds.
Sometimes we need an extra push (or incentive) to remind us to share a positive experience with others. More on that in a bit.
Why are referrals so important?
There’s no better way to market your business than when one of your customers raves about you in front of their colleagues, family, or friends (also known as an inner circle). It’s a win-win-win situation:
- You score free word-of-mouth marketing for your business
- Your customer feels good when they recommend something great to their inner circle
- Their inner circle gets a recommendation from someone they know and trust
A Nielsen study shows that 92% of consumers trust recommendations from those they know.
And that’s why referrals are so powerful. It’s an instinctual thing that we do naturally, like breathing. Whether you like it or not, people will talk about your brand.
When someone refers you to someone else, they’re essentially putting their reputation on the line — so they’re more likely to be honest about what they think of your product or service.
The key to success is to ensure that these conversations are positive. You can expand your customer base, save money, and build relationships with new clients.
Still not convinced about what referrals can achieve for your business? Not to worry. There are plenty of additional statistics to back up this incredible form of marketing:
- Referrals at 18% more loyal than non-referrals
- Referrals generate a 16% higher lifetime value
- Referrals spend 13.2% more with your brand
Instead of spending thousands of dollars on advertising campaigns — where it feels like you are throwing pasta at the wall and hoping that something sticks — you can get that same exposure through multiple referrals from just a handful of customers.
Word-of-mouth is a powerful factor in influencing purchasing decisions, ranging from 20–50% depending on the product and situation.
If a consumer is buying a product for the first time or if additional factors are involved, such as choosing a safe way to purchase healthcare products online, they’ll want to know more and get more opinions (from trusted sources).
And referrals are there to help ease the stress of the decision-making process. Because if your friend is happy with a product, you should be too.
What is a referral program?
Word-of-mouth marketing is great, but how do you give your happy customers the push they need to shout from the rooftops about your brand this holiday season?
Enter: a customer referral program.
A referral program is a way to attract new customers by rewarding loyal customers who refer your business to their friends and family.
Referral programs are great because they can help you grow your customer base with little cost.
When you think about it, your customers essentially sell your products for you.
And the best part? These programs only require minimum effort on your part.
You may need to prepare a few assets to seed the initial wave of interest, but once it gets going, it’ll spread like wildfire.
Your customers will tell their friends about it, who’ll tell their friends about it, who’ll tell their friends about it, and so on.
Here’s how it works:
- You give out a special promotional code or referral link to existing customers
- They share those codes or unique referral links with their friends and family
- When someone uses one of those codes or links, you reward that person (like free products or money off their next purchase)
In short, a referral program is a marketing strategy that rewards customers for recommending your business to their friends, family, and colleagues.
It’s a simple concept: you give the referrer different perks like a coupon, store credit, or cash rewards when they recommend your product or service to potential customers.
Three of the most popular referral reward types include:
- Dollar credit
- Gift cards
- Percent discount
Regardless of your industry, referral programs are an excellent way to gain new customers and reduce your acquisition cost.
For example, MOS, a new online student banking service, took a page out of PayPal’s playbook and started offering referral bonuses to customers who refer friends to open a new bank account.
This simple referral campaign improves customer loyalty with existing customers. It also gives the referred customers a small jumpstart to their online banking experience (in the form of a $20 credit to their account).
What is the difference between affiliate programs and referral programs?
When deciding on the best customer acquisition strategy for your eCommerce or SaaS brand this winter, it can be hard to know which program you should choose.
So let’s break it down.
With an affiliate marketing strategy, your goal is to connect with bloggers and other influencers with a strong online following.
You get access to their organic traffic, newsletter subscribers, and social media followers to promote your products or service in exchange for paying them a small fee.
The deal here is when someone purchases through their unique link, they’ll get paid a commission (typically a predetermined percentage of the total purchase value or a flat rate).
Take Tailor Brands, for example. As a member of their affiliate program, you can promote its logo maker or LLC services depending on what resonates best with your audience.
In return, your payout is $500 per conversion. The higher the conversion rate, the more money that goes in your pocket. Not too shabby.
Affiliate programs sit on an affiliate network or specialized marketing platform which manages all the tracking and payment side of things for you.
On the other hand, a referral program is a great way to get existing customers to send new referrals your way.
It encourages them to share their positive experiences with your business — to their inner circle — and boosts word-of-mouth marketing.
In return, you reward their loyalalty with discounts, cash, credit, or free products.
For instance, Jasper supplies referred friends with 10k credits toward AI-generated content — along with the existing customer who sent the referral link.
So which one should you choose?
Well, there’s no one right answer for everyone. It depends on your product or service, how much traffic you get through your website (or other channels), and what kind of audience you’re trying to reach.
|Affiliate programs||Referral programs|
|Participants||Bloggers and influencers||Current customers|
|Audience||Website traffic, followers, subscribers||Friends, family, co-workers|
|Acquisition channels||Product comparisons, reviews, videos||SMS, email, social media|
|Rewards||Commission based on the total purchase value||Free products, discount on first purchase, credit|
How to build your own referral program
Now that we are through with all of the basics, let’s dive into the nitty-gritty details of how you can create your own referral program this holiday season.
Are you ready to reduce customer acquisition costs and grow your company’s bottom line?
Determine your incentives
The key to a successful referral program is the incentive.
After all, a referral program is your way of thanking customers for spreading the word about your business. So it has to be good enough to push them to do a little work this holiday season.
For example, if you own a remote support software business, try doubling the rewards for your referrers so they’ll be more enthusiastic about telling more people about your brand.
You can even extend the campaign to new customers by giving them discounts if they can provide an adequate referral for their service.
A good campaign can help you stand out during the holiday season if you play your cards right with a lucrative incentive program.
Follow these two if-then statements to help you make your decision:
- Provide cash incentives if you sell a product or service that consumers rarely buy (e.g. sofas)
- Provide a coupon or discount code if you sell a product or service that consumers usually buy (e.g. coffee)
Leverage referral program software
To set up a referral program, you can either create a custom platform or outsource to a referral program software provider.
We recommend the latter for the quickest time to market.
According to GMP, here’s a list of five popular referral program software to help get you up and running:
- Referral Factory – best for customizable templates
- Ambassador – best for running multiple campaigns
- Referral Candy – best for beginners
- Friendbuy – best for integrations with Facebook
- VYPER – best for the budget conscious
Promote your referral program
Promote your referral marketing program so that your existing customers know about itand how to join.
Start by creating a dedicated landing page for your new referral program with a simple URL.
And don’t forget to add the link to the footer of your website. You can even add a pop-up on your landing page to increase the number of referrals coming through the door.
Once you’re ready to rock and roll, use the power of social media to boost your social sharing.
68% of Americans use Facebook as their primary social media channel, so you can start there. But if you are a B2B business, LinkedIn could be your best bet.
Use a photo editing tool to give your social media posts a festive feel by adding holiday icons, fonts, and colors.
You’ll have worked hard on building your referral marketing campaigns. So it’s crucial to stand out from the competition and get your program out there.
Use the power of email marketing to share your seasonal referral program with your email list too. This strategy can open the door for new types of referrals. For instance, sending out promotional emails to your entire database is an excellent way to capture the attention of a shopper who has previously abandoned their cart. If they are looking for a last-minute way to score a discount on their holiday purchase, your referral incentive for $20 off looks extra appealing.
If you’re short on time, adding tools like an AI writer and email marketing software to your tech stack can help you deliver better content to your loyal customers faster.
Referral program examples
Are you looking for some referral program ideas to spark your creativity leading into the holidays?
Let’s look at some of the best rewards programs out there.
From small businesses to large retailers, there are plenty of referral incentives to choose from to build brand awareness and boost customer retention.
Reward: 500 MB of extra storage per friend who downloads the desktop app
Dropbox has one of the best referral programs in internet history. In fact, there are still hundreds of case studies about it today.
Why? Because within 15 months, Dropbox quickly and efficiently added new users and grew its customer base by 3900% (without spending a fortune).
What is their referral process, you might ask? For every friend you refer, Dropbox will give 500 MB of extra storage space to you and your friend.
That means you can score up to 16 GB of free extra storage space for your documents, templates, and photos.
Reward: $500 digital gift card for every new customer
Another example of a successful referral program is Samsara.
Here’s how it works:
- Invite your friend to try Samsara’s products (like their video safety software)
- Your friend converts into a Samsara customer
- You both earn rewards (a digital gift card up to $500)
It’s simple, straightforward, and effective.
Reward: $20 off the first purchase of a suitcase or bag
Away is a leading brand in the luggage industry, where they’ve designed travel products to transform modern travel.
To help boost sales during the busy holiday travel season, Away offers a referral program to current customers where they can receive $20 off their next purchase. All they have to do is share a link and convince their friend to pull the trigger on a new suitcase for Santa to leave under the tree.
4. American Express
Reward: 30,000 Membership Rewards points for each eligible referral
Refer-a-friend programs are quite popular for travel credit card rewards, such as American Express and Chase.
In this referral program, the holder of the Platinum American Express card can earn 30,000 Membership Rewards points (redeemable for travel), and their friend can earn 80,000 bonus points after they make $6,000 in purchases.
Who doesn’t love free travel?
Reward: $20 off your first order of shoes
Rothy’s is an American direct-to-consumer fashion company that used its customer referral program to grow from a small business in San Francisco to over 1,000 employees in a few short years.
Rothy’s customers can send an email or Facebook message to a friend that lets them both score $20 off their next shoe purchase.
Some other honorable mentions for best referral programs on the internet include Tesla’s referral program, along with T-Mobile, Uber, and Amazon. Go check them out if you have time.
The holiday season is the perfect opportunity to dive head-first into a new growth initiative.
While your competitors are treading water lightly to attract customers with spammy ads, you are reaping the benefits of a newly implemented referral marketing program that’ll drive loyal customers and repeat sales long after the holidays are over.
Plus, you are keeping up with ever-changing consumer demands by focusing on providing a positive customer experience, building trust, and rewarding customers for spreading love.
Isn’t that what the holidays are all about?
What referral program ideas do you have in store for this holiday season? Have you seen any new incentives pop up on the market in time for the big holiday sales?We’d love to hear all about it in the comments below.