If you are in a service industry, consulting, or even sell common goods. Creating a affiliate or referral network is key.

Affiliate marketing is a type of performance-based marketing in which a business rewards one or more affiliates for each visitor or customer brought by the affiliate’s own marketing efforts.

Excellent case study of an affiliate marketing campaign can be found at Etsy here.

You can either be a publisher or an advertiser. As a e-commerce owner you will most likely be an advertiser where you want influencers to send you traffic. Affiliate marketing can have excellent ROAS sometimes up to 12:1.

The Referrals Network is a collection of local networks, each network comprises of like-minded business people, all set on generating each other new business via word-of-mouth and referrals.

Why Should Your Company use a Referral Program?

Referrals are trustworthy!

Referrals are the most trustworthy form of advertising available to you, according to Nielsen’s trust in advertising report. This is a sigh of relief for ecommerce merchants, because many forms of online advertising are towards the bottom of the trustworthiness report. For example, your customer is almost 50% more likely to trust a referral than trust a mobile phone ad. The same holds true for many popular online marketing techniques. Your customer is over 30% more likely to trust a referral over banner ads, social network ads, and even search engine marketing.

Referrals are trustworthy because they come from someone you know, such as a friend, coworker or family member. You trust these people to not lead you astray. If they are recommending a product/service to you it is because they have had a good experience and like the product as well. We trust that they are not pushing products for a personal financial gain. It is important to remember why referrals are trustworthy when creating an effective program, but we will get to that later.

How do I Structure my Referral Program?

Now that we have discovered why referral programs are so effective, we must look at how to best utilize one. Below are tips and tricks to implement an online referral program.

 Customer, Affiliate, or Influencer Referral Program?

 There are many types of referral programs out there but I am going to focus on the ones that are most relevant to ecommerce merchants. Those are customer referral programs, ambassador referral programs, and affiliate referral programs. The one you choose will depend on what you are selling but some programs are replacing others in general.

Customer Referral

Customer referral programs are the most popular for online merchants. You should be using this type of referral program if you are looking to encourage existing shoppers/users to bring others to your site. These programs are the focus of many online tools and applications, and for good reason. Customer referrals are true trustworthy referrals. Customer referrals are seen as much more valuable than other types of referrals. Ambassador.com has a blog post that explains the difference between customer and affiliate referral programs, and an added bonus it is in pictures.

Affiliate Referral

In contrast affiliate referral programs are not personal. These referrals are done by middlemen who are compensated financially for sending you to a particular product. These referral programs are very effective for certain types of products and has been very successful for Amazon.com. However, recently Amazon changed the name from affiliate to associate program in response to the negative stigma the word affiliate holds.

Influencer Referral 

With the rise of social media a new type of referral has been born, which I call ambassador or influencer referrals. These are referrals from someone out there that you don’t know personally but you see them as an expert. This has become very popular on YouTube, especially in the beauty and personal hygiene industry. Customers search “how to do my makeup for a wedding” and find a video that explains how to do it. You go out and buy the makeup that was used in the video because you know it works. No one told you to buy it but you were effectively referred to it by an internet personality. You can take advantage of these types of referrals by finding influencers in your industry and sending them product. Be careful about paying these influencers to push your product though. If they are paid this type of referral becomes more like an affiliate program and the viewers will quickly see it for what it is.  

Should I track referrals using a code or url?

This is a topic that is debated pretty consistently. There are benefits and drawbacks to each, however what could be considered a drawback for one referral program is actually an advantage in another. Let me explain.

Referral Code:

Disadvantage

The main reason many people do not like a referral code is because it has to manually be entered into a field for the referral process to begin. People see this as an added step in an industry where streamlining your processes is vital to survival. The person who is being referred has to either remember the code or copy and paste it to the referral sheet. This adds an unneeded step to the process and is the main reason people prefer a unique url over a code.

 Advantage

Clients that use codes are generally selling some sort of luxury good, or their business model is centered around exclusivity or prestige. Codes just seem a bit more personal than sending a friend a url. When a code is sent the person receiving it tends to view the code as key to unlocking what the referrer has found.

Referral URL:

Disadvantage

As we stated before referrals are about trust. The problem with a referral url to share with your friends is that it sometimes can seem sketchy. “Get 10% off at website.com using the referral link website.com/ref=?fdaskFSD”. Sometimes this doesn’t seem as authentic as receiving a code.

 Advantage

What a referral code lacks above it makes up for in speed and tracking. A referral url is great at accelerating a customer through signing up for a referral program. The added step of a code is removed and the link will take them right to the sign-up page that can have info already filled in for them. Combined the streamlined approach with the added analytical benefits of tracking the urls and you have a match made in heaven for many retailers.

In summary, there are advantages and disadvantages to each method and there is still not a clear winner in our minds. The correct choice comes down to the nature of your business as well as what you are trying to achieve. Try using both to start and see which one performs better, agh A/B testing.

Should I encourage my customer to refer over email or social media?

The short answer is you should allow them to do both. However, this is once again dependent on the nature of your business and your knowledge of your customer.

Your referral program should allow customers to send an email or social update directly from your web page. Allowing the customer to choose how they want to send out referrals provides flexibility. If the customer is shy they may want to send this out to a select few friends over email. If the customer is a very social person they may want to tweet out their find to everyone they know.

Obviously there are benefits to both email and social media. Social media will get your brand maximum exposure. Your customer is sharing with everyone in their network which is likely quite large. The increased exposure is great but the power of referral trustworthiness is damaged. If someone is referring everyone it loses its intimacy and is viewed more like an advertisement than a referral. Email on the other hand is much more personal. A customer will choose who they want to share with, giving you less brand exposure but keeps the effectiveness of the referral in tact.

Quite the opposite actually, word of mouth referrals are the best type of referral you can get. In fact, 2 out of 3 marketers say that word of mouth is more powerful than any paid marketing they do. Word of Mouth is incredibly effective and comes from your site/brands ability to convey value to your customer. Customers will spread the word when you are providing an amazing experience to them. This could be  customer service, speedy delivery, product selection, or just about anything else.

The problem, it is pretty well impossible to track and measure. Word of mouth referrals happen naturally but can be supplemented with other offline tactics. KissMetrics has a post about converting offline marketing into online data. If you are considering adding an offline component to your referral program I would recommend giving it a read.

What do I give my customers for a referral?

The old way of thinking was to award what you can afford. This is not the case anymore, a University of Chicago study found that non-cash incentives are 24% more effective at boosting performance than cash incentives. Cash rewards would also include discounts or percentages off. So if cash rewards are not as effective what do I offer my customers for a referral?

The answer to what to award is …. be creative! Drop Box had major success rewarding referrals with additional storage space, many online games such as World of Warcraft gain successful referrals by awarding in game perks. Mobile games implement a similar strategy, if your friend joins you get points faster, level up sooner or gain access to exclusive levels.

Pulling from Referral Candy we can disquinish four types of refferrals!

1. Cash rewards

Cash rewards can be very enticing to potential referrers. They were famously successful for PayPal, which has a bit of a special use-case because it’s a payments gateway. (Bitcoin may perhaps enjoy similar conditions?)

If you choose to give out cash rewards, advocates will be rewarded each time they make a successful referral that results in a qualifying purchase.

Cash rewards can be of the following types:

• A fixed cash amount  (e.g. $10 for each referral made)
• A percentage of the referred friend’s purchase (e.g. 5% of referred friend’s purchase for each referral made)

2. Single-use Coupons

If you choose give out single-use coupon codes, advocates will be rewarded each time they make a successful referral that results in a qualifying purchase.

Any single-use coupon codes that your store accepts during checkout can be used as a referral reward.

3. Multi-use Coupons

If you choose to give out multiple-use coupon codes, advocates will be sent the multi-use coupon code for each successful referral that they make. Any multiple-use coupon code that your store accepts during checkout can be used as a referral reward.

4. Custom Rewards

Sometimes you might not want to have a fixed cash or coupon reward for your customers. Perhaps you may want to run a giveaway, or reward people at random, or reward every customer with some personalized artwork.

Setting up a referral program for your business can seem daunting.

Referral programs have many different moving parts, and it’s very common for busy merchants to get stuck when setting up.

One of the biggest hurdles for retailers is deciding on the referral incentives. Why?

1. Overwhelmed by too much choice: There are many, many different ways you can choose to set up your referral program’s incentives, and retailers can get stuck in ‘analysis paralysis’.

1. Desire to get it ‘perfect’: Referral incentives will impact your sharing rate (how many referral links get shared) and your referral conversion rate (% of referral link clicks that result in purchases). So some merchants spend a long, long time trying to pick the ‘perfect’ incentives.

1. Resistant to ‘incurring costs’: Incentives have a financial cost– either in terms of cash paid out, or in profits forgone. The good thing, though, is that you only pay these out when successful referrals are made. So technically, it’s more costly not to act, because then you’re forgoing the new referrals you’d be getting.

There are two sets of referral incentives for you to calibrate: the referral reward and the friend offer.

1: The referral reward is the reward you give to your advocates for successfully referring their friends to the store.

2: The friend offer is the incentive you give to referred friends to make them more eager to make a purchase at your store.

For friend offers, you can use coupons, discount links, custom rewards or nothing at all.

1: Referral Rewards – Will your advocates make repeat purchases?

If your advocates are likely to make repeat purchases, give discounts.

If you’re in fashion or a similar industry, where you have regular customers who keep coming back to buy more, you’ll almost definitely want to go with discounts.

The reasoning is simple: Not only will you have a new customer in your system (the referred friend), your existing customer is now primed to make another purchase!

You’ll then have to choose between fixed discounts (Amuze gives advocates and friends $25 off), or percentage discounts (Clashist gives them both 10% off).

How do you choose?

Well, consider the Rule Of 100:

If your product costs more than $100, cash discounts sound more impressive. If your product costs less than $100, then a percentage discount sounds more impressive.

If your advocates are unlikely to make repeat purchases, give cash.

If your product is something that your customers are only going to buy once in a long while (a mattress, an annual calendar, budgeting software), then giving them discounts on future purchases will simply annoy them.

Now they’ve got coupon for something that they’re not going to use! So it makes more sense to give them cash instead, like Leesa and Videoblocks do.

If you’re doing preorders, you can give a “cash discount”.

If you’re doing a crowdfunded/preorder type product, you might want to give your advocates a cash discount on their preorder.

Kitchen hardware startup Mellow gave advocates a $20 discount on their purchase for each new successful referral they made.

If you referred enough people, you’d get your own kitchen robot for free!

2: Friend Offers – What do your customers care most about?

Every merchant needs to figure this one out for themselves. Think about the motivation of your advocates and their friends. What do they care about, what do they want to do?

Greats, for example, choose to give $10 credit to both advocate and friend.

Here’s what their CEO has to say about referrals:

“It’s all about deeply understanding your core customer and why they share. Young, milennial, digital native. Loves style. Love to hook up his crew. They’re all about sharing. We give them social validation. Referrals just accelerate that, so they’re constantly referring people to the brand.” 

– Greats CEO Ryan Babenzien

In contrast, DapperTime gives $10 cash to advocates, because they felt it would be more novel and interesting to their customers.

“We’re actually trying to give you money here!”

Here are some examples to give you some context for thinking about your own referral program incentives.

Examples of businesses that use cash as a referral reward in their campaigns:

(The links below explore the specific referral programs in greater detail.)

• Mattress company Leesa knows that people aren’t likely to buy a second mattress right after they’ve bought their first one, so they give cash rewards instead– $50 cash Paypal’d to you, and $50 off for the friend you refer. The mattress typically costs $890, so that’s about a 6% discount.
• Watch company DapperTime gives $10 cash to advocates and 10% off their friend’s order (as long as the order exceeds $30). When chatting with DapperTime’s marketing team, we learned that they chose cash over discounts because it would be more novel and interesting to their customers. “We’re actually trying to give you money here.”
• Supplements company Powder City gives a 6% cash reward to the advocate upon successful referral, while offering the referred friend 10% off their purchase.
• Payment gateway Paypal literally gave away cash as a referral incentive in the early days. Similarly, e-wallet company MatchMove gives its customers $3.88 of credit for each referral, up to $500.
• Stock Video brand Videoblocks gives advocates $20 per successful referral, and 90% off (!) their annual subscription (down to $99.)
• Budgeting software app YouNeedABudget gives both advocate and referred friend $6 cash upon successful referral. The software costs $60, so that’s 10% value.

Examples of businesses that use discounts or credit as referral rewards:

• Airbnb and Uber give credit towards their services– $10 off your next Uber ride, $25 off your next Airbnb stay, $75 cash if you rent your place out on Airbnb.
• Footwear brand Greats gives $10 credit to both advocate and friend– which works out well for them, because happy sneakerheads often purchase multiple pairs of shoes.
• Designer fashion portal Amuze gives both advocate and referred friend $25 off their next purchase.
• Dropbox gives 500MB free storage to both advocate and referred friends, up to a limit of 16GB. So you can get rewarded for referring up to 32 people to the service. (Pro accounts get double that– 1GB per referral up to 32GB.)

In general, businesses use discounts or credits as referral rewards when they expect their advocates to be repeat customers.

To summarize:

• If your advocates are likely to make repeat purchases, give discounts to encourage them.

• If your product costs more than $100, a flat discount is usually more enticing ($500 off a $2,000 laptop)
• If your product costs less than $100, a percentage discount is usually better ($10 off a $50 t-shirt is better phrased as 20% off)

• If your advocates are unlikely to make repeat purchases, give cash.
• If you’re doing preorders, consider giving cash discounts on the advocates’ existing preorder.

• Remember to focus on your customers’ interests and motivations.

Remember, incentives only go so far in modifying people’s behaviors.

The extrinsic aspect (cash, discounts) should sweeten the deal, but the most important thing is that your advocates must personally want to make the referrals in the first place.

Best,

#YBK

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