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How to Build a Customer Referral Rewards Program That Works

Image of Michelle Farnsworth
Michelle Farnsworth


Let’s say your tooth has really been bothering you lately, and after a few weeks of trying to ignore the intense pain, you can’t handle it any longer. Unfortunately, you just switched dental insurance and your current dentist does not take your new provider so you are now in the market for a new dentist. Do you take a shot in the dark and go with the first dentist you come across in your area, hoping for the best? Or, do you go to the dentist who comes highly recommended and praised by a neighbor that you trust?

I don’t know about you, but I would definitely go to the neighbor-approved dentist.

Referral marketing is a method of promoting products or services to new customers through referrals, usually via word of mouth. Such referrals often happen spontaneously, but businesses can also influence this through appropriate strategies. Your best referrals will come from those in your inner circle, those people who know the value that your business holds and are willing to share their enthusiasm about your business with others.

No matter the size, shape, or type of business you have, referrals are priceless. And no matter how satisfied your customers are because of the exceptional products or services that you undoubtedly offer, these happy customers may never share their excitement unless they are prompted to do so.

This is HUGE!

A referral is not just a half-hearted suggestion. It is a reliable recommendation from a confidant. It’s common to reach out and rely on another’s experiences and expertise when searching for products, services, or specialists for ourselves, and people will often act on such advice when it is given from a trusted source such as their family or friends. Basically, your future customers need a referral so they can find YOU!

Why not create a program that helps your customers increase their loyalty to you, while also helping you spread the word about your business?

Why are referrals important?

As we mentioned earlier, referrals are not automatic. While some “just happen,” most take place because something triggers it (whether that be an inquiry, incentive, etc.). Statistics show that 1 in 3 people come to a brand through a recommendation, and customers who were referred by already loyal customers have a 37% higher retention rate than those who weren’t. Additionally, a Nielsen study shows that word-of-mouth referrals are the most trusted form of advertising, and the second doesn’t even come close to the impact of a referral.

Some business owners assume that wonderful customer service or a terrific product alone will generate referrals on their own. This is just not so. Current customers are the ones who understand the value of your product and can best measure a good fit between it and a prospect. But, sometimes they need a little coaxing. By creating a referral program you create motivation to share, show appreciation for current and incoming customers, as well as build engagement from customers.

How do you build a referral rewards program?

A referral rewards program is an organized process in which someone is rewarded for spreading the word about our business or product. Referrals are not “one size fits all”; what works for one business may not work for the next. Let’s take a look at how to build one that can be molded to your specific needs:

  • What to reward? First, put yourself in the shoes of your customers. What type of reward will incentivize them to show off your product to their family and friends? What would benefit them the most? Here are just a few ideas:
      • Cash This is best for businesses who do not get a lot of repeat customers, or if customers are not making frequent purchases of a product (such as tires).
      • Coupons To be used toward next purchase, which works well if customers are making regular repeat purchases.
      • Credit This is best if your product gets used on a regular basis or if you are a pay-per-use company trying to build loyalty. This reward also keeps the money within your own system.
      • Discounts This is the most common and successful type of bonus. Discounts encourage loyal customers to continue to buy more with you. Discounts can be anywhere from one-time only to lifetime. You can also stack them, which motivates customers to routinely submit new contacts.
      • Gift Cards This is a great choice if you want to offer a variety of options for customers to choose from. Often used for smaller referral programs.
      • Product Based Perks This could include things like more storage for less or the gold level package for the price of silver, etc.
      • Swag People LOVE free stuff! Whether you choose t-shirts, water bottles, beanies, or pens, you can’t go wrong with a little company swag.
DO NOT BE AFRAID to test out different offers as you get started to really figure out what works best for you and what motivates your customers the most!
  • Who to reward? Are you going to reward your advocate, the new customer, or both? A frequent practice in referral programs is to only give out a reward to the sender of the referral. How will this incentive affect your goal? How will it motivate your referral to be a repeat customer? Double-sided referral programs give rewards to both the sender and recipient, while one-way incentives for the advocate help you create a stronger relationship with your client.
  • How much to reward? The key here is to provide your customers with value while still keeping it profitable for you. Again, trial and error will help you discover where exactly your sweet spot is.
  • When to reward? Deciding when to give, is just as crucial as figuring out what to give. Will they receive a reward when the referral actually makes a purchase? After the referrer has a set number of referrals or after each one? Will you set up a tiered system based on the number of referrals?

Make sure no matter what you’re rewarding, who you choose to reward, or how much you choose to reward, that you remember to thank your customers whenever they make a referral. A little appreciation can go a long way!

What tools do you use to create a referral program?


There are a myriad of software solutions that will help make it easier for you as you begin setting up your referral program. Here are a few of Calldrip’s favorites:

    • AdvocateHub by Influitive: An engagement and advocacy tool that shows your team, via reporting and integrations, the influence that advocates have across your business, while also creating meaningful relationships with them.
    • Ambassador: One of the top all-in-one referral software programs online, Ambassador’s simple dashboard makes enrolling, tracking, and rewarding a cinch. It is the only platform that automates and scales all relationship marketing efforts such as customer referrals, affiliates, influencers, and partner programs.
    • Campaign Monitor: This easy to use, professional-grade, email marketing service helps you spread the word and effectively advertise a referral program.
    • Extole: An enterprise platform to drive brand advocacy and influence. Easy. Simple. Intuitive.
    • Friendbuy: A referral tracking and campaign optimization program that specializes in e-commerce businesses.
    • Google Analytics: Google Analytics can help you track which social media platforms, websites, apps, or offline channels drive referrals to your business. It can also track how successful your referral program is.
    • Marketo or Hubspot: Marketing automation systems, such as Marketo or HubSpot, are an excellent addition to any referral program.
    • ReferralCandy: Allows you to effortlessly make, run, and manage a referral marketing program
    • Referral Rock: Personalized online referral marketing software that works for any business. Customize to design, track, and expand your referral program and boost your word-of-mouth sales.
    • Wishpond: Wishpond’s all-in-one suite of marketing tools makes it easy to build amazing campaigns including landing pages, contests, promotions, email marketing, and automation for leading platforms such as Twitter or Facebook. Or have Wishpond’s team of experts do it for you.

How do you create customer awareness of your referral program?

Just like you have to promote the product or service that you offer, you also have to advertise your referral program before you can expect anyone to actively participate. How you create customer awareness of the program is an important factor in your future success. Here are a few ideas to get your program out there:

    • Make sure to feature your referral program prominently on your website – do not hide it in a sub-menu! The more it is seen the more it can be utilized.
    • Create time-based email campaigns. A few days after a customer makes a purchase, send out an email encouraging them to share a referral link for further discounts. At this point, they are still feeling good about their purchase and will want to spread the word.
    • Promote on social media, whether through contests (such as the most referrals gets some type of incentive) or simply posting an announcement that your referral program is in place.
    • Publish a blog article to announce current and prospective users about your referral rewards program.
    • Inform users when sending out invoice reminders, a great way to educate users on ways to save money with you.

What are some examples of referral rewards programs that work?


It is extremely helpful to see successful examples as you are working your way through developing your own referral rewards program.

Dropbox – Dropbox, an online storage/file transfer service, created a product-based reward system rather than a monetary one. They offer an extra 500 MB of free storage space to the customer who makes the referral and to the newly referred user. This program had a profound effect on enrollment, increasing membership nearly 60% in 2010.

Harry’s – Before even launching their product, Harry’s Shave Club offered a referral program that was the catalyst to making their brand a household name. They first gathered emails as an identifier for tracking referrals, and then gave each user a shareable link (whether through email, Facebook, or Twitter) that took any of their referrals to a splash page coded specifically to that user. Users then had the opportunity to earn free product. The more people who signed up with their unique code, the bigger the prize they earned. In just one week they were able to gather nearly 100,000 email addresses.

Uber – Uber, a private on-demand taxi, has taken transportation by storm and has a dual-sided reward built right into its product. Each customer is assigned a personalized referral code as soon as their account is activated and each time a new account is created using this unique referral code, both parties get their next Uber trip free.

Tesla – Proof that a referral rewards program is fluid, the electric car company, Tesla, has changed its referral program over the years as its customer base expanded. They initially offered $1000 to customers for their referral, but now give Tesla owners who refer multiple people the opportunity to capitalize on better prizes, such as an exclusive Powerwall 2 Battery, invitations to exclusive parties, or the opportunity to buy other special edition products not available to the public. In addition, the first person in their region to refer 20 people will receive a free Model S or Model X.

Evernote – This note-taking software system created a referral program that awards points to a customer each time a referral is made. Accumulated points can be turned in for free access to the software’s premium features. In addition, every time a customer’s referred lead upgrades to Evernote Premium, the customer who submitted the referral receives additional points. It’s the referral that keeps on giving!

Referrals can come from anywhere – a satisfied customer, neighbor, celebrity endorsement, or close family member or friend. The key is to utilize these referrals in a well-designed program so that you can inspire all of your customers to refer you. Are you harnessing this power?

Want more helpful tips to help grow your business and engage customers, or know someone who would also benefit? Then step right up and share this post! Also, If you’ve had a great experience with your own referral programs let us know in the comments below. Here at Calldrip, we’re always up for learning more!

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