You’ve decided to start a referral program. Why do you need referral rewards or incentives?
You may have some loyal customers who will refer you to others without any incentive. But a lot more customers will be motivated to share if they receive a reward for their efforts.
Referral rewards are incentives that you give to customers, as a thank you for sharing your business with their friends. And these rewards have long been proven to increase the likelihood of referrals.
Whether it’s a discount, store credits, a free product, a free month of service, or any other item of value, referral rewards or incentives give customers a real reason to share your brand with others. So, instead of hoping for passive word of mouth, your company can create a more reliable, more scalable customer referral program.
A good referral incentive should attract customers, but also make sense for your business and not take away from its bottom line. To help you decide on the best referral rewards and incentives, we go over all the possibilities and necessary steps to get your referral marketing strategy off the ground.
What are referral rewards and incentives?
A referral reward is any incentive given to customers who actively promote and refer others to a brand. These incentives can range from store credit and discounts to company swag.
Referral rewards and incentives are usually offered through a formal referral program, which serves to engage existing customers and encourage word-of-mouth marketing.
Oftentimes, a company will choose to reward both the existing customer and the referred customer. These types of rewards are often the most successful, as they show a company’s sincere appreciation for their efforts.
3 steps to choosing your rewards incentives
There are so many different types of businesses, and even more types of referral rewards and incentives. Would more customers join if you gave them a percentage discount or a flat cash payout? Should you offer a two-sided incentive for the referrer and their friend? The options are endless.
Still not sure how to decide on the best referral incentive to offer your customers? We cover all you need to know in three basic steps:
- Decide who gets the referral reward
- Choose the best type of referral reward
- Create your referral structure
Step 1: Decide who gets the referral reward
When planning your referral rewards program, one of the first things to ask is who do you want to motivate? Who will give the biggest benefit to your business and bottom line? The answer to those questions is the party (or parties) who should get the referral reward or incentive.
Deciding who will get the referral reward helps to lay the foundation for all other elements in your referral campaign
When you know who you’re targeting, it becomes much easier to plan what incentive to offer, what program structure to use, and how to write your headline and messaging.
Referral rewards are typically offered through one of three incentive campaign types:
- Two-sided or double-sided
- No incentive
1. One-sided referral incentives (rewards one customer)
One-sided or one-way incentives are offered to either the existing customer (the referrer) or the new customer (the referred friend) – but not both.
One-sided incentives for existing customers (the referrer)
||No matter how great a product or service really is, referrals may not seem as authentic when only existing customers receive compensation for bringing in new business.|
Best for: Companies that are new and need to grow their brand awareness, as well as those selling more affordable products. One-sided rewards encourage customers to bring more people to your company. And with the strong recommendation in mind – plus, a reasonably priced product offer – the referred friend is likely to make a purchase, even without a discount incentive.
Example: HR technology company Justworks offers an attractive one-sided referral rewards program.
With their clients being companies instead of individuals, Justworks rewards referrers $200 for every employee in a referred company that signs up. This means $400 for referring companies with two employees, and $20,000 for referring companies with 100 employees.
Plus, you don’t have to be an existing customer to join their referral program – Justworks invites everyone to participate.
One-sided incentives for the new customer (the referred friend)
Giving a discount or freebie is a highly effective way to move someone from a prospect to a customer.
By offering a referral incentive to the referred party, you increase the odds of them moving down your sales funnel.
Without the promise of any reward, your current customers don’t have any incentive to actively refer others to your business.
Even if they are loyal and truly love your brand, sharing their sentiment with others isn’t at the top of mind.
Best for: Businesses that operate using subscription models, frequent purchases, or are considered a luxury purchase. Offering an incentive will help those who are already interested move toward a purchase, and hopefully end up as long-term customers. While one-sided incentives for new customers may lead to a smaller amount of referrals, they may will lead to a greater customer base.
Example: Meal subscription box Blue Apron gives customers the opportunity to send a free meal box to friends who haven’t yet tried the service. Since there isn’t a reward on offer for the existing customer, this referral program is all about performing an altruistic act for a friend.
2. Two-sided referral incentives (rewards both customers)
Two-sided or double-sided referral programs reward both the existing customer and the new referred customer. The reward can be the same for both parties (i.e., $20 credit each), or different (i.e., 50 points for the advocate, 15% discount for the new customer).
Best for: All business types, but mostly for those with enough resources to give referral rewards or incentives to both parties. It’s also best for businesses to have a good referral software tool so they can track key metrics and make the most of this referral program.
Example: HelloFresh is another meal kit delivery service, but their refer-a-friend program differs from Blue Apron’s as it includes multiple reward schemes. Their HelloRewards referral code offers a double-sided incentive, giving a $20 credit to the referring customer and $40 to their referred friends.
(Like Blue Apron, HelloFresh also offers a one-sided incentive to send new customers: a Freebie box with a free week of meals.)
3. No referral incentives
There are referral programs without any referral reward or incentive at all. Aside from any concerns about perceived costs, some businesses may not feel the need to offer any extra incentive to customers. Instead, they choose to focus on making the overall experience so positive that word of mouth will happen naturally.
Best for: Companies with no budget to offer incentives, or are establishing a natural referral rate without added incentives. Aspirational or luxury brands may also prefer not offering tangible rewards, and find non-incentivized referral programs to be a better fit.
Step 2: Choose the type of referral reward to offer
Referral rewards are the main drivers of your referral program. But they aren’t one-size-fits-all.
The right reward depends on your type of business and customer base. What type of products or services are you offering? What reward would best motivate your customers?
The table below outlines the most commonly used referral rewards across different types of businesses. Find which rewards work best for you, and read more about them in detail:
|Infrequent or big-time purchase||Frequent or repeat purchase|
|Common referral rewards||Cash, swag, gift cards, donations, gift boxes||Discount, store credit, free products, free subscription service period, donations|
|Companies using these types of rewards||99Designs, Morning Brew, H&R Block, Square Cash, Chili Piper||Airbnb, Uber, Dropbox, Classpass, Evernote, Mailchimp|
Discount coupons are one of the most commonly used referral program rewards.
And for good reason – discounts are rated by 51% of global customers as the most-valued reward, and provide benefits for both customers and businesses, alike.
Usually, discounts are presented as a percentage off a purchase. But they can also be presented as a set dollar amount off of a purchase exceeding a certain value (say, $15 off a purchase of at least $50).
For repeat customers, discounts provide great value, especially if a brand offers a wide range of products or requires repeat purchases. For businesses, these repeat purchases boost sales and encourage customer loyalty.
However, for products with a relatively long lifespan, such as bikes or furniture, discounts may not seem very valuable. If customers aren’t planning to make another purchase in the near future, they likely won’t be interested in discount coupons.
One example of a referral discount comes from jewelry brand Lokai’s referral program.
- The 20% off reward is very enticing for customers who are planning on making a purchase soon.
- A discount makes sense for Lokai’s program because they offer many different bracelets.
And as shown below, The Children’s Place is another good fit for a discount reward structure.
- The Children’s Place also drives frequent purchases. After all, children grow quickly, and there are plenty of wardrobe options to choose from.
- The brand gives $10 off a purchase of $40 or more, to both the referrer and friend, as its referral reward (a set cash discount).
2. Cash / Cash back
Cash is another favorite referral program reward. While it doesn’t tie into the company as much as other referral incentives, cash is more enticing.
Recall Paypal’s $10 double-sided incentive: $10 for the referrer and $10 for their friend when the friend first opens an account.
Or, look at mattress brand Leesa’s offer to send $75 straight to the ambassador’s Paypal account for each referred friend who makes their first purchase.
In these cases, cash is a great incentive that aligns well with the business – Paypal offers free accounts for online payment, and Leesa’s products are infrequent purchases. If customers aren’t planning to make a purchase every month, discounts won’t be as alluring. They’d probably be more inclined to cash.
Cash rewards also tend to generate a lot of buzz, which are great for referral programs in a new or competitive space. Plus, as compared to other referral rewards, the amount of cash doesn’t usually have to be as much as credit or discounts for it to motivate customers.
3. Store credit
Store credit is the perfect middle ground between discount coupons and cash. Like discounts, store credit can only be used to buy the same brand, keeping the value within the business. Like cash, it’s a referral program reward offered at a monetary value.
Many top referral programs use store credits as their referral rewards.
- For example, Airbnb gives $20 for every invited friend who books a stay, as well as $40 for the friend to use on their first trip.
- And Postable gives a $5 credit toward your next order for every referral that ends up placing an order – “The more friends you refer, the more money you make.”
Store credits are especially useful if your product is pay-per-use or purchased on a regular basis. And by making it easier for customers to keep buying from your business, store credits are a great way to build customer loyalty.
The difference between a store credit and an amount-off discount is that a store credit can be used on any purchase. Also, store credits are often cumulative (i.e. they can be stacked and applied all at once to a single purchase).
4. Free products
People love getting something for free. When that free item is one of your products in exchange for referring a friend, this can help accelerate sharing and build more excitement around your brand (especially for new customers making their first purchase).
This referral reward worked especially well for Harry’s. The razor brand used free products to build buzz before their official launch, and collected a staggering 100,000 emails from referrals in only a week!
The product you choose must be cost-effective to offer for free, relative to your average customer acquisition cost. And of course, the product must be worth a referral, from your customers’ perspective.
5. Branded swag
Swag is one of the most fun referral rewards or incentives. It can be a tote bag, a mug, a sweatshirt, a water bottle, or any number of free products outside of the standard sales cycle.
Swag can also be very cost-effective when ordered in bulk. This makes it a perfect reward for newsletter referral programs (like Morning Brew’s referral program), as they offer their newsletter for free and rely on ad revenue.
Deciding on what swag to offer can be a bit tricky, though. The item has to be something people want and even worth talking about, in itself. For example, would your customers really be excited about a coffee mug with your logo? How about if it came in a cool design or pattern?
To see all the different swag you can offer, Swag.com has a lot of fun options for every type of customer. They can even handle all logistics and shipping for your company, in branded packaging, of course!
The right swag can do wonders for your business. In addition to being an attractive referral offer, branded swag also serves as advertisement for your business.
6. Gift cards
When speaking of referral program rewards, gift cards don’t mean prepaid vouchers for your products – they refer to third-party gift cards for other companies, such as Amazon, iTunes, Starbucks, Tango, or even Visa and Mastercard.
Customers love a gift card reward. Gift cards are usually spent on more memorable items (as opposed to cash), but also offer customers a lot of flexibility and control.
Plus, gift cards can be used by anyone, even if they aren’t the direct customer. So, let’s say you’re a company in a B2B referral incentive program – you can easily give the gift card reward to one of your employees.
Gift card rewards are also highly customizable, and you can select a gift card that’s relevant to both you and your customers. For example, a sports company can give Adidas gift cards, while a travel agency can offer Airbnb gift cards. Most companies will also offer a range of gift card quantities and denominations to fit your budget.
Unlike cash, however, gift cards have expiration dates. This can be a big benefit, as it allows businesses to track any key metrics, and incentivizes customers to use their reward within a given time.
Weed Man Lexington enjoys these benefits thanks to their gift card referral program. Customers get to select their reward from a gift card menu, so the freedom of choice brings extra motivation.
7. Free subscription period
Many businesses these days operate on a subscription model. For example, meal delivery services, like Freshly, are usually paid per week, while streaming services, such as Netflix or Spotify, operate on a monthly basis. Many SaaS businesses also run on a subscription model.
If your business offers subscriptions, as well you might want to consider offering a free subscription period in your referral rewards program.
Not only does this encourage existing customers to stay with your business, it also gives interested individuals a free taste of what you have to offer – and this may be just the nudge that turns them into a long-term customer.
For example, social scheduling SaaS Postcron offers a free month of their premium subscription – for both the referring customer and new customer – in their referral program. This encourages loyalty and referrals from existing customers, and whets new customers’ appetites.
Donations are an unconventional, but very meaningful, referral reward. Offering customers the opportunity to turn their referral reward into a donation turns the standard program into a win-win-win situation. As so well-described in a Forbes article, “the business gets referrals, the charity gets donations, and the client gets to feel good.”
- The donation could be made to a non-profit organization or a foundation.
- It could go toward a community project sponsored by your company (a popular example of this is TOMS, the original One for One giving model).
- You could donate to any approved charity that the customer selects, as Vena Solutions offers as a reward.
Donations can even run alongside other rewards.
For example, customers can have the choice between getting $45 in cash back or donating the same amount to charity. You may find your customers actually prefer to give back when it’s something they’re interested in and easy to do.
Or, you could offer a reward for the customer in addition to a donation, as Lauber & Will Insurance does.
9. Referral gifts
Sometimes, companies will choose to offer a referral gift box or gift basket for successful referrals, containing several tangible rewards at once. This opens up the opportunity to personalize the gift for each referral, which can be a great incentive for the most faithful advocates. If your brand doesn’t want to offer a reward that ties back to your business (say, if you’re a luxury brand or one where purchases are infrequent), a referral gift is a smart choice.
No matter what referral reward or incentive you end up choosing, always provide a good customer experience. If customers are happy, then word of mouth is bound to happen, with incentives being more like an added referral bonus (much like a finder’s fee).
Step 3: Create your reward structure
Now that you’ve decided who will receive your referral rewards, as well as what rewards to give, it’s time to take a look at the finer details.
Your referral program’s reward structure answers two important questions: When and how often will you give the reward?
When will you give the referral reward?
Determine what event will actually trigger rewards to be sent to the customers. Is it as soon as the referred friend clicks on the referral link and signs up, or will they actually have to make a purchase for the reward to be issued? Keep in mind, if you’re offering different referral rewards in one program, this needs to be decided for each type of reward.
Will you use a tiered reward structure?
Some programs include various levels of referral rewards and incentives, usually based on the number of actual referrals. While this is more complicated, a tiered program structure does create an opportunity for customers to become dedicated members of your referral marketing program.
For example, instead of consistent referral rewards throughout the program, you can jumpstart your campaign by giving higher rewards for the very first referral.
So rather than $15 for every referral, a business can offer $50 for the first referral and then a smaller amount, like $10, for every following referral. Or, you can also do the opposite, starting off with a smaller reward and then graduating to a larger reward for a higher number of referrals (like The Hustle does with its tiers of swag).
Not all referral program software can handle tiered programs. Referral Rock can help you set up a tiered program with ease.
Will you use a multi-step rewards structure?
A multi-step rewards structure means giving rewards at multiple different stages of the sales process. For example, you might give a referring customer a smaller reward when a lead is qualified, and then a larger reward when that lead makes their first purchase. This structure is great for B2Bs and other businesses with longer sales processes.
Only select referral program software options can help you set up multi-step reward structures. Referral Rock handles multi-step reward structures, so it’s great for businesses that want to use complex rewards.
Will you give a reward for every single referral?
Determine if your referral program will reward customers for every single referral, or only once a certain number is reached. When making your decision, consider the customer’s motivation – they may not feel it’s worth their time to do a lot of work for little reward. If the referral program reward is small, it’s usually better to reward every successful referral.
But maybe you want to do something different. Why not? Taking a different route with your referral incentives can end up even more rewarding for you and your customers.
Here are a three alternative referral ideas to try:
Run a limited-time contest or drawing
A contest or drawing can help drum up excitement and even viral growth for your referral program.
Contests work best in a shorter time frame, such as during a seasonal or holiday promotion. And of course, the grand prize has to be something that really motivates your customers.
Since contests don’t guarantee everyone a reward, the odds of winning may keep people from participating. But if there’s a worthy reward at stake – something they can’t get otherwise – this may be enough motivation to join.
Even better, you could run a referral contest alongside your regular referral program.
Independent retailer Huckberry uses seasonal contests to boost their regular ongoing referral rewards program. Instead of their usual referral program reward ($20 for referring customers, $10 for referred friends), they offered $1,000 in Huckberry credit, as well as second and third place rewards.
Create a customer of the month program
People like to be appreciated (which is a main reason referral programs work so well). But they also like a bit of competition. Taking from the traditional employee-of-the-month program, you could reward your best customers of the month.
The rules of this incentive program are up to you. Are you ranking by number of customer referrals, as the Stockton Heat hockey team did in the example below? Or, will you select purely at random, from all customers who make at least one referral during the month?
Consider applying elements of gamification to your referral rewards program. In addition to the referral reward or incentive, you can put up a referral leaderboard that features the winning customer of the month, and give them a shout out on your website and social media channels.
Break the referral process into stages
Sometimes, a business has a drawn-out purchasing process. It may require an initial consultation, demo, or trial period before an actual sale is made. But if a customer has to wait too long before they can see their rewards, they may no longer be motivated to make any referrals.
In this case, it makes sense to break down the entire referral process into steps, and give rewards for each step a customer accomplishes. Here are some examples:
- A customer might earn $5 when a referral contacts the business for an initial consultation, $10 if that referral results in a trial period, and then a final $20 when the referral signs up for an account.
- If your business is installation-based like Trinity Solar, your referral program might offer $25 after a referred friend completes a consultation and $500 when the installation is complete.
Examples of referral rewards and incentives
When putting together your referral program, it’s always good to have a little inspiration. Of course, most of us are already familiar with programs that offer cash as a referral reward.
We’ve pooled together some examples of more unique referral programs to give you an idea of how creative you can get with your referral rewards and incentives.
“Share the Brew” is the catchy referral phrase used by Morning Brew, a free newsletter geared toward young professionals.
Who gets the referral reward? The current subscriber, using a one-sided referral incentive
What type of referral reward? Mostly swag, but the highest-level reward is a work-from-home makeover, complete with tech
How is the reward structured? Tier-based reward structure, with customers getting greater rewards for more referrals
Athletic Greens puts “75 vitamins, minerals, and whole-food sourced nutrients in one convenient daily serving.” The brand has developed an easy way to get your daily greens, and invites customers to share the product with their friends through an easy referral program.
Who gets the referral reward? Both the current and new customers are rewarded, using double-sided incentives
What type of referral reward? The current customer gets $15 off their next order for every friend they refer, and the referred friend gets five free travel packs of Athletic Greens with their first purchase
How is the reward structured? Customers get the same reward for every successful referral, and the referred friend gets their free packs only on their first order
As a Kickstarter alumni, Misen offers high-quality kitchen tools at honest prices. As one of the pioneer DTC (direct-to-consumer) brands, Misen operates an ecommerce store and invites customers to share its products with others through an attractive DTC referral program.
Who gets the referral reward? Both the current and new customers are rewarded, using double-sided incentives
What type of referral reward? The current customer gets $20 off their next purchase, and the referred friend gets 20% off their first purchase (if the referred friend spends $50 or more)
How is the reward structured? Existing customers get the same reward for every successful referral, and the referred friend gets a discount only on their first purchase
Shutterfly specializes in print-to-order photos, calendars, and other paper products. With so much in store, they use many of their own products as referral rewards.
Who gets the referral reward? Both the current and new customers are rewarded, using double-sided incentives
What type of referral reward? A variety of the company’s products (while customers are offered a free photo book, they can choose to send their friends free products or discounts)
How is the reward structured? Customers get the same reward for every successful referral, with a limit of 10 rewards per year
Car dealerships operate in a competitive industry. To separate itself from the pack, Courtesy Chevrolet offers a very generous gift card for every successful referral.
Who gets the referral reward? Anyone (customer or not) whose referral results in a car purchase at the dealership
What type of referral reward? $100 Courtesy Chevrolet Visa prepaid card
How is the reward structured? One-sided, only the referrer gets the reward – they get the same reward for every successful referral, with no limit to how many they refer
Booking.com offer cash as its referral reward. But instead of the amount being added to your Booking.com account, it goes straight toward your credit card.
Who gets the referral reward? Both the existing customer and their friend, in a double-sided structure
What type of referral reward? The current customer gets $25 in cash back, while the referred customer gets $25 in Booking.com credit
How is the reward structured? Customers get the same reward for every successful referral, with no limit to how many friends they can refer
Even more referral reward tips
Looking for even more advice on choosing the best referral rewards? We’re here to help with these insider tips:
- Ask your customers what rewards they’d like to receive. This way, you’ll pick incentives that truly motivate your clients.
- It may also help to look at competitors’ referral rewards programs. This will give you an idea of the referral rewards patterns in your niche and industry, and assist you in finding out ways to make your own program unique.
- Make the referral reward truly valuable. If you offer the same type of discounts elsewhere, or offer store credits when purchases are infrequent, the reward likely won’t be worth it. Choose a reward that customers will want to earn and use.
- If you’re giving a reward to the new customer (referred friend), it’s best to give a reward that’s directly connected to your business, to motivate that first purchase.
- Don’t be afraid to change up your incentives to boost engagement with your program. For instance, you might increase the amount of store credits you offer, or add a free gift to the cash referral reward, during slower business periods.
Common concerns when choosing referral rewards
Even with all the reasons to offer a referral reward or incentive, a few concerns may come to mind. Here are the most common ones we’ve come across over the years:
How much will offering referral rewards cost?
One of the main benefits of referral programs is that you only give rewards for successful sales. Unlike other forms of marketing that require initial payments, referral programs are pay-for-performance. So while you’re offering something of value, you’re getting much more in return.
Plus, your rewards don’t have to cost much or even be monetary at all. Many companies get more creative with their rewards – offering swag, free upgrades, donations, etc. – which can even be more effective than offering cash.
What if someone tries to game the system?
To be honest, yes, there are people out there who will want to get rewards without doing the work. This includes spamming a referral code or using multiple accounts (also called self-referral).
However, referral fraud can usually be detected with the proper tracking (i.e., high activity coming from one IP address). It can also be prevented in the first place with a referral software tool, which collects and tracks all your data.
Referral software and referral rewards
For the most successful referral rewards scheme, you need referral program software. Once you’ve decided on your referral rewards, software automates the sending of referral rewards once they’re earned, to keep your existing and new customers happy.
But you’ll need the right referral software for the most flexibility in issuing and managing rewards, because many types of referral software only handle simple “give and get” rewards.
Referral Rock software is flexible enough to manage complex referral reward structures, including tiered rewards, multi-step rewards, and referral contests. Learn more about how Referral Rock can help you scale your business and reward your best advocates.
Launch your referral rewards and incentives
The right referral rewards and incentives can make a big difference in the success of your referral marketing campaign. Start by deciding who should receive the referral reward, and then choosing the reward that best motivates customer referrals.
- If your customers are making infrequent or big-time purchases, it’s best to reward them with cash, swag, gift cards, or donations.
- If your customers are making frequent or repeat purchases, consider offering discounts, store credit, a free product or service upgrade, a free subscription service, or donations.
Follow the steps in this article, and you’ll be able to find the best referral rewards and incentives for your business, and build a program that keeps customers interested and motivated in the long run.
Searching for the best referral program ideas for all parts of your program (beyond just rewards)? We’ve got you covered.