Last Updated on22 minutes to read
It’s easy to see the benefits of starting a referral program. It’s a little harder to decide on what referral reward or incentive to offer.
A good referral incentive should draw in customers and motivate them to refer others, but also fit the business and not take away from its bottom line.
The thing is, 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.
To help you decide on the best referral rewards and incentives, we go over all the possibilities and necessary steps to get your program off the ground.
Why do you need a referral reward or incentive?
Sure, there are loyal customers who will refer you to others without any incentive. But wouldn’t they be much happier – and much more motivated – if they were rewarded for their efforts?
Rewards have long been proven to increase the likelihood of referrals. Whether it’s a discount, 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 referral program.
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 referrals. 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.
Want to know which referral reward delivers the most results?
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 to lay the foundation for all other elements in your program. 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: one-sided, two-sided or double-sided, and no incentive programs.
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) – but not both.
One-sided incentives for existing customers (the referrer)
Pros: Customers will be more inclined to refer others to your business if they’re getting something for their efforts. And since customers are the first movers in the process (everything starts with their referral), a referral reward or incentive often results in many new leads. Plus, rewarding existing customers is proven to foster relationships, improve customer retention, and increase brand loyalty.
Cons: No matter how great a product or service really is, referrals may not seem as authentic when 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.
An example of a one-sided referral program is the G Suite Referral Program. Google offers customers a cash reward for everyone they refer who signs up – $15 for their Basic plan, $30 for Business and Enterprise plans, and up to $3,000 per domain.
One-sided incentives for the new customer (the referred)
Pros: Giving a discount or freebie is a highly effective way to move someone from a prospect to a customer. By offering a referral reward or incentive to the referred party instead, you are increasing the odds of them moving down your sales funnel.
Cons: 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.
Rewarding first-time customers is common among SaaS or service-based companies. For 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 the referred company if they decide to sign up. This means $400 for companies with two employees, and $20,000 for companies with 100 employees. Plus, you don’t have to be an existing customer to join their referral program – Justworks invites everyone to participate.
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).
Pros: Giving both parties a reason to join in your program can lead to the highest number of successful referrals. In addition, showing advocates a way to share without making them look self-serving (they are offering rewards to new customers, too) makes the entire process more effective.
Cons: Some companies aren’t willing or able to give out too many incentives. They will also have to track more incentives for both sides of the equation, which makes this potentially more work.
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.
For example, HelloFresh is a meal kit delivery service with several referral rewards programs. Their HelloRewards referral code offers a double-sided incentive, giving a $20 credit to the referring customer and $40 to their referred friends. (HelloFresh also offers a one-sided incentive for new customers, which is their 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.
Pros: Even without any incentive, some customers like sharing cool things with their friends. Starting a referral program without incentives is a great way to benchmark your initial sharing rate and conversion rate. Non-incentivized referrals are the most genuine form of recommendation.
Cons: Even if a customer says they will refer others to a brand, it might not happen. The majority of customers lack motivation to refer without an incentive. This is especially true if the customer has to go out of their way – the chances of them referring becomes very slim. Plus, not rewarding customers for their referrals makes it harder to track if this is a viable marketing strategy for your company.
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 from the most popular types of referral rewards
Referral rewards are the main drivers of your referral program. However, 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||Discount, store credit, free subscription service, 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.
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.
Discounts can be either a fixed amount (i.e., $35 off the next purchase) or a certain percentage off (i.e., 20% off the next order). 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.
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 original $20 incentive for every new user who opened an account, and every referral. Or 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 businesses swear by store credits. For example, Uber Eats gives a $5 credit toward your next order for every referral that ends up placing an order. Airbnb gives up to $30 for every invited friend ($20 if they book a stay, $10 if they book an experience), as well as $55 for the friend to use on their first trip.
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.
Swag is one of the most fun referral rewards or incentives. It can be a tote bag, a mug, a pair of socks, or any number of free products outside of the standard sales cycle.
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, itself. For example, would your customers really be excited about a coffee mug with your logo? How about if it came in cool design or pattern? (The rewards on Kickstarter are a great source of inspiration.)
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.
5. 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. (Here’s a comprehensive list of top gift cards.)
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 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.
6. 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.
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.
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, a foundation, or even a community project sponsored by your company (a popular example of this is TOMS, the original One for One giving model).
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.
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 bonus (much like a finder’s fee).
Step 3: Plan your reward structure: How much to give and when?
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.
The following questions will help you build a referral program that leads to more referrals, conversions, and value for your company:
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 a link, 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, it does create an opportunity for customers to become dedicated members of your referral 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.
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. So 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 seasonal contest or drawing
Instead of doling out several referral rewards, why not give away one grand prize? 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.
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 the customer incentive program would be up to you. Are you ranking by number of customer referrals? Will you select purely at random?
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. For example, 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.
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. So 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 reward: The current subscriber, using a one-sided referral incentive
- What type of referral reward: A variety, including swag, a premium uprade, and free trip to Morning Brew’s HQ
- How is the reward structured: Tier-based reward structure, with customers getting greater rewards for more referrals
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 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 a 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 reward: Both the current and new customers are rewarded (each customer gets different rewards), using double-sided incentives
- What type of referral reward: $100 Courtesy Chevrolet Visa prepaid card
- How is the reward structured: Customers 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 reward: Anyone (customer or not) whose referral results in a car purchase at the dealership
- What type of referral reward: The current customer gets $25 added back to their credit card, 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 they refer
Launch your referral rewards and incentives
The right referral rewards and incentives can make a big difference in the success of your referral program. 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 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.