Content
- What is a referral program?
- Participants of the referral program
- Why is a referral program needed?
- How are new customers tracked?
- Types of referral programs
What is a referral program?
A referral program is a strategy for promoting products and services through recommendations from existing customers. The main idea is that the company offers its customers a reward for attracting new buyers, which can take the form of discounts, cash bonuses, or points on a bonus account. This model is becoming increasingly popular as it allows for effective expansion of the customer base without significant advertising costs.
Participants of the referral program
There are usually three key players in a referral program:
- Company: Seeks new customers and offers favorable conditions for their attraction.
- Existing customer: Uses the company's products and is willing to recommend them to others. This participant is called a referrer or ambassador.
- New customer: A person who starts using the product based on the recommendation of an existing customer.
The principle of the referral program can be explained as follows: the company approaches its customers with an offer to recommend the product to friends, promising bonuses for each successful sale. For example, an existing customer tells their friend about the product and offers to try it with a discount if they mention their name at the time of purchase.
Why is a referral program needed?
Referral programs have several significant advantages:
- Attracting new customers: According to research, nearly 50% of internet users trust recommendations from their friends and acquaintances, making this strategy very effective.
- Reducing acquisition costs: Bonuses for referrers cost companies less than traditional advertising, allowing for significant reductions in marketing expenses.
- Increasing profits: Customers acquired through referrals have a 16% higher LTV compared to other channels.
- Growing the customer base: On average, about 2% of new customers come through referral programs, and in the digital sphere, this figure can reach 4.75%.
For example, the Airbnb service increased the number of bookings by 300% per day due to its referral program.
How are new customers tracked?
Tracking the source of new customers can be done manually or automatically. In the manual version, the company looks for the new customer in its database, which is suitable for small businesses or at the initial stage of the program. However, most often, individual referral links are used, which customers can send to friends or post on social media. When a new customer clicks on such a link and makes a purchase, bonuses are automatically credited to the referrer.
The second method is the use of promo codes that the new customer enters during their first purchase. Some companies offer both links and promo codes, providing more options for customers.
Types of referral programs
Referral programs can be tailored to the specific needs of the business. There are several types:
By objectives
- Attracting new customers: The most common option. For example, Dropbox increased its user base 40 times thanks to its referral program.
- Attracting employees: Companies can offer bonuses to their employees for recommending potential candidates, saving on recruitment services.
By types of rewards
- Discounts: The customer gets the opportunity to purchase products or services at a reduced price.
- Bonuses: The most common option, where the referrer receives bonuses to use within the company.
- Gifts: The referrer may receive either a predetermined or unexpected gift.
- Cash: Some companies pay referrers money for each successful recommendation.
- Sales commission: Referrers receive a percentage of sales, creating long-term partnerships.