6 Steps to a Successful Referral Marketing Strategy

“Nothing influences people more than a recommendation from a trusted friend.” – Mark Zuckerberg

Not only is having a referral strategy less expensive than other digital marketing efforts like Facebook and Google ads, but it’s also more effective. 93% of people will trust recommendations from friends over an ad. And while investing in your word of mouth program is a powerful way to grow your customer base, you might not know where to start.

In this article, we’re going to cover the 7 steps that your e-commerce store can take right now to build a successful referral marketing strategy.

Let’s dive right in, and turn your current customers into brand awareness and revenue-generating machines.

Why do you need a referral marketing strategy?

There are two simple, yet convincing reasons you should consider building a referral marketing strategy.

1. It’s cheaper than your other traditional marketing efforts.
2. It’s more effective than other traditional marketing efforts.

With the rising costs of customer acquisition via other digital marketing methods like Facebook ads, brands need to find ways to predict and regulate these costs. With a referral program, you’re able to completely dictate the costs associated with each purchase. You (the brand) set the discount that the referred friend gets, and they also set the commission that you send out to your customer affiliates.

And while it’s human tendency to trust the recommendations from those we know, encouraging your happy customers to share their positive experiences can naturally expand your reach and build trust with new customers.

So, whether you’re a small business or an established brand, referral marketing, is a great way to see predictable customer acquisition costs.

6 steps to creating a referral marketing strategy that works

Most e-commerce businesses think that the conversion is the end of a buyer’s journey. When it comes to referral marketing, the conversion is actually the beginning of your relationship with them. This is where your investment in your great products and your customer support comes into play.

At the end of the day, no one is going to refer to a product they hate, or recommend a customer service that wasn’t responsive.

So while the next seven steps that we’re going to outline will be beneficial to building your successful referral program, if there are fundamental issues with your product or your customer journey, you might want to fix those problems first.

Let’s dive into the 7-step process to building an effective referral program:

Step 1. Set KPIs 

First things first, you need to set your Key Performance Indicators (KPIs). This is how you’re going to measure the success of your referral marketing program. Here are some KPIs that your brand might prioritize:

Let’s take a look at each metric separately to understand what they mean and why you might want to track them:

Number of Participants

Your number of participants can be based on your total number of affiliates (this would be your customers or your influencers) who are a part of your referral program.

Conversion Rate

The referral conversion rate is the ratio of referred customers who purchase on your site. 

How to calculate it: 

For example, if your customers got 100 clicks on their UTM links, and 3 of those resulted in purchases, the referral conversion rate is 3%. 

With any referral software, you can only measure how many times the UTM link has been clicked. So this KPI wouldn’t be as black and white for customer affiliates using discount codes.

Referral Rate

The referral rate measures the percentage of total sales that come from referrals, usually calculated on a monthly or annual basis.

How to calculate it:

For example, if your store records 1000 purchases in a given period, and 50 of those are from referrals, your referral rate is 5%.

As per industry benchmarks, anything above 2-3% is considered a good referral rate. With Social Snowball, however, many brands generate over 5% of orders from referrals.

Lift on Revenue

Lift on Revenue shows the additional revenue you’ve generated since launching your referral marketing campaign.  

Cost per Acquisition (CPA)

CPA measures the average amount you’re spending to acquire a new customer through the referral program. This includes the commissions that your referrer is getting for each successful referral, as well as the discount that the new customer gets.

Although it’s completely under your control, you need to regularly monitor it to make sure your profits aren’t getting hurt much.

Return on Investment (ROI)

Is your program making you money? With the help of ROI, you can measure the profitability of your referral program.

How to calculate it:

For example, if your referral program generated $70,000 in revenue and the total cost was $40,000, the ROI is 75%.

By keeping track of your KPIs, you’ll gauge the effectiveness of your referral marketing program, and how effective it is at attracting new, potential customers.

You’ll also see a high-level overview of how your referral programs are performing in the Social Snowball dashboard.

Step 2: Offer generous rewards

Now, let’s talk about incentives. These are essential to drive participation in referral programs, and can significantly enhance their effectiveness. So, what are the options? 

• Discounts or store credit: These can benefit both the referrer and the new customer. The referrer gets rewarded for sharing, and the new customer gets a discount on their first purchase, making them more likely to try your product or service.

Here’s an example of how Allbirds, a footwear company, rewards their referrers as well as the person who’s referred to, with a discount:

This, however, is an example of a referral program with loyalty incentives. We don’t recommend going this route for your referral program, since the rewards often aren’t as motivating for the affiliate. Since not every customer is planning their next purchase, a coupon or other loyalty incentives might not motivate them to make a referral. A better-performing commission reward is cash. If the affiliate can get cash rewards, that would incentivize them to refer as many people as possible to your brand. With discounts or coupon codes, the affiliate might stop being motivated after the first coupon or two.

⛄️ Loyalty program incentives are aimed at creating a higher lifetime value. Referral program incentives are aimed at acquiring new customers.

Here are other rewards that you can give your affiliates:

• Cash rewards: This is our favorite reward. Monetary incentives are a strong motivator. They offer flexibility for the referrer to spend the reward however they like.
• Gift cards: Gift cards, like Amazon or Visa gift cards, are a popular option because they offer flexibility to the new customer. They can use the gift card towards your product or service, or save it for something else.
• Free gifts: Giving away free products to some of your most loyal customers after they successfully refer you to a particular number of friends, is an excellent way to get more results faster. 

Here’s an example of how Riff Raff & Co. does it with their cute sleep toys:

Step 3: Design your sign-up page 

There are three ways you can enroll affiliates into your programs: Through the sign-up page, right on the thank-you page, and by manually adding them to the programs. We’re going to focus on the sign-up page for this section.

Through Social Snowball, you can create a dedicated sign-up page or landing page on your website for your referral program. This can help you provide centralized information, clarity, and transparency on program details, benefiting both existing customers and potential referrers. 

Keep the page simple, highlighting how the program works, and the rewards offered. And although you have control over who’s accepted into your affiliate program, we recommend automatically accepting everyone who signs up.

Here’s an example of the sign-up form by Obvi, categorized into two types of programs they offer, and all the necessary details one might need to sign up:

You could also add easy-to-follow instructions on sharing unique referral links through blog posts, video tutorials, or FAQs.

With Social Snowball, you can create a fully customizable signup page with just a few clicks.

Step 4: Promote your program with emails 

Once an affiliate is enrolled in your program, you need to promote it. Start with email marketing. 

Although our referral software already gives you pre-designed and written emails to send out to your email list, Social Snowball also integrates with Klaviyo and Sendlane to make it easy for you to spread the word with eye-catching email campaigns.

Here’s an example from Duradry, a clean deodorant brand. They design their own welcome emails, reminding their customers of the referral program they’re a part of.

Other emails you can send include ways that your affiliates can promote your brand through social media marketing, product reviews, and through other social sharing methods (as well as sharing personal recommendations with their friends and family members).

⛄️ Don’t forget to use social proof in your emails and on your sign-up forms!

Step 5: Launch an affiliate program for your customers 

This is a referral marketing strategy that focuses on leveraging satisfied customers as brand advocates. Think of every satisfied customer becoming a walking advertisement for your business. For example, Fanjoy, an e-commerce platform specializing in influencer merchandise, used Social Snowball’s referral program to generate $100K in new incremental revenue within just 4 months.

But that was not the case initially. Before partnering with Social Snowball, they were facing resource constraints. The company has a youthful and socially active customer demographic, and they wanted to launch an affiliate program to attract and engage with them. However, that required a huge investment.

So while looking for a solution, the company turned to Social Snowball, which provided an accessible platform to turn their customers into affiliates automatically. They started sharing Fanjoy’s products with friends and earned juicy commissions for every purchase. This collaboration proved to be a win-win for both parties, effectively leveraging word-of-mouth marketing to drive sales without an upfront investment.

Additionally, when launching a customer affiliate program, make sure you are using Social Snowball’s thank you page feature which encourages your user base to refer your brand to their friends immediately after they place an order on your store. This is hands down the most effective way of turning your customers into affiliates.

⛄️ Take advantage of your customers’ dopamine rush right after they make a purchase.

Step 6: Send regular payouts and notifications

Once your customers become your referrers, you need to keep them happy and motivated. How to do that? Pay them on time for their effort and regularly notify them about it.

We all love to be rewarded right? And if you want somebody to support you, you need to support them as well. So never delay payouts and always send them notifications with a sweet thank you message. 

This is how Gains in Bulk increased affiliate revenue by 566% with Social Snowball. Previously, the team encountered obstacles of time-consuming payouts. But with Social Snowball, their payment process took a complete 360°. Here’s how: 

• Gains in Bulk was able to pay their affiliates in bulk just by clicking on Pay All and automatically sending notifications to them.

• Their affiliates could choose how they wanted to withdraw the money from the 700+ redemption options available through our rewards APIs.

This inspired affiliates to promote the brand more actively, expanding its reach and driving sales significantly.

Why use Social Snowball to manage your referral program?

No matter how strong your referral marketing strategy is, having the right tools is crucial for efficiently running a campaign. It will enable you to track and analyze your program’s performance, providing insights into metrics like conversion rates and ROI. 

Therefore, you need a robust tool like Social Snowball which not only helps you create a seamless process but also increases the effectiveness of your referral campaigns significantly. 

For instance, Tailored Athlete went from not being able to incentivize their customers well, to implementing a robust post-purchase referral marketing strategy with Social Snowball and seamlessly processing referral payouts to keep the relationship going. With the new setup, Tailored Athlete saw their referral activation skyrocket, leading to a whopping 440% boost in referral revenue.

Here are a few reasons why you should partner with Social Snowball to launch an effective referral marketing program: 

• Turn customers into affiliates automatically: Automatically create an affiliate account plus a code/link for every customer after they make a purchase.
• Generate unique Safelinks and codes: The platform lets you track and attribute referrals accurately. Additionally, Safelinks also protects you from potential code leaks leading to a coupon site.
• Send payouts in bulk: Social Snowball lets you bulk pay your affiliates with cash or store credit in two clicks, and lets affiliates redeem payouts from a variety of payout methods like Venmo, Paypal, Visa cards, Amazon gift cards, charity donations, and more.
• Access detailed analytics: You can see how your program is performing and make necessary tweaks.

Conclusion 

No matter the size of your business, a solid referral marketing strategy can work wonders for you. With the steps we’ve outlined in the blog, you can adapt them to your goals and audience, unlocking the power of referral marketing for sustainable growth.

Excited to dive in? Start your referral marketing journey today! If you’re unsure where to begin or need a hand setting up your program, our team is ready to assist. Request a demo today!