If you have an online store with a decent-sized customer base, a steady number of orders, and recurring revenue, it’s very possible that people are talking about you, and you are already acquiring new customers via word-of-mouth, even if you haven’t yet set up an eCommerce referral program.

Think about the last time you recommended your favorite restaurant, city, or online store to your friends. It just happens naturally, right? We recommend things we enjoy to family and friends just because it feels good to do something helpful for people we care about.

Your customers are doing the same thing. If they like your products and enjoy interacting with your website or your team, they’re going to recommend you to their friends and family, and even their followers on social media.

Now, what if you could do something to increase these recommendations? As humans, we tend to take action when we’re incentivized to do so. Therefore, if you offer your customers a discount for their friends, or a referral commission for every friend they refer, you’ll see your word-of-mouth sales increase. This is why an eCommerce referral program can have a big impact on your sales and growth.

If you’re working on a LemonStand store, you can now run a referral program using ReferralCandy, a refer-a-friend app that allows you to quickly setup and run your customer referral program. ReferralCandy takes care of automating your reward system, including tracking referrals, managing discounts and sending out rewards so you don’t have to worry about anything. If you want to learn more about how to setup ReferralCandy account on LemonStand, click here.

In this article, we’re going to cover some of the basics about eCommerce referral programs and why they can make a difference in your customer acquisition, retention and, obviously, revenue. We’ll also share some tips on how to setup rewards and promote your program.

Is referral marketing really that effective?

Referral Marketing is one of the most cost-effective marketing strategies out there. According to a study by McKinsey Institute:

  • Word-of-mouth is the primary factor behind 20 to 50 percent of all purchasing decisions
  • A high-impact recommendation—from a trusted friend conveying a relevant message, for example—is up to 50 times more likely to trigger a purchase than a low-impact recommendation

The Boston Consulting Group came up with similar results:

  • Consumers rely on word-of-mouth 2x to 10x more than paid media
  • Robust advocacy-marketing programs are achieving significant revenue gains—10 to 20 percent for established products and up to 100 percent for new products

One of the many perks of referral marketing is that you only pay for the new customers/purchases you get. That means you only have to grant discounts or pay commissions when your customers’ friends actually make a referred purchase. This drives your customer acquisition costs down significantly and creates a new (and very profitable) customer acquisition channel. Plus, you can structure the rewards so that the referrer is incentivised to make another, repeat purchase – extending your customer retention.

We have all been part of a referral program at some point in our lives. Do you remember setting up your Uber, Dropbox, or PayPal accounts? You probably did it through a friend referral because you both were getting something out of it.

Dropbox and Paypal were actually able to run some of the most successful eCommerce referral programs in history. Dropbox’s referral program allowed them to get more than 4 million users in just about 15 months, without spending a dime on advertising! PayPal, on the other hand, ran a referral program that allowed them to achieve a 10% daily growth, growing their customer base to 100 million users.

Still not convinced? Here are 20+ stats and studies about the power of word of mouth.

How to setup your rewards

Now that we have talked about the importance of running an eCommerce referral program on your LemonStand store, let’s go through what is probably one of the most important aspects of your referral program: your rewards.

If you are just getting started and you don’t know what referral reward structure you need to setup, here are some tips for you to keep in mind:

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

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

3) Make your customers look good in front of their friends

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

This helps you adapt your rewards to your customers’ purchasing behavior. Think about it: if your customers are making recurring purchases, they will be even more likely to repeat their purchases if they have an additional incentive to do so. Most purchases fall into this category, like fashion or electronics. Discounts are especially great for recurring purchases or subscriptions like subscription boxes, consumables or even software licenses.

If you reward your customers with a discount on their next purchase, a free gift, or an exclusive deal, you will make sure they don’t get tempted to leave you for a competitor. This simple trick will keep your clients engaged and will increase their overall lifetime value.

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

Some businesses just don’t have recurring customers. Think about a company selling mattresses. This is a very important product that we use in our daily lives, yet we only buy mattresses once every several years. Therefore, getting a discount on a future purchase would be pointless. Other examples include big-ticket items (like cars or houses) or infrequent purchases like refrigerators or renovation services.

In this case, you can reward your advocates with items such as an Amazon gift card, or just cash, so they can spend it on whatever they prefer. This will help you stay top-of-mind even if they’re not going to buy from you in the foreseeable future. Plus, they will be able to give their friends a discount on their first purchase, which as we are about to see, is sometimes enough of a reward to encourage people to refer.

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Make your customers look good in front of their friends

Why do we share? When we share something with friends and family, we do it because we want to provide them with useful information, to add value to their life. No one would recommend something useless or harmful to their friends and family in exchange for a small referral commission.

So, if making a recommendation is providing someone with useful information that is going to impact their decision-making process (for the better), providing them with a recommendation and a discount will make their life a lot easier.

We have even seen customers offering up to 90% discounts to referred friends! On the other hand, existing customers were getting a small referral cash reward, and their referral programs worked amazingly well. Why? Because for their customers, just being able to offer their friends such a huge discount was already enough of a reward.

LemonStand retailer Quantum Squares knows this well. Quantum Squares is a new energy bar containing as much protein as a whole egg and as much caffeine as a cup of coffee. Quantum Energy Squares are gluten free, vegan, soy free, dairy free, non-gmo, and contain no artificial flavors or colors.

Quantum Squares’ eCommerce referral program gives customers $5 in cash for every referred friend, but gives friends 20% off their first purchase:

Quantum Squares eCommerce referral program

How to promote your referral program

Now that you have setup your referral rewards and launched your eCommerce referral program, there’s only one thing left for you to do: promote it.

Promoting your referral program is probably the most important part of all. You want to have as many people joining your eCommerce referral program as possible, to amplify the reach of word-of-mouth. We’ve written an in-depth article on how promote your referral program effectively so you can attract advocates, but summarized below are the three main tips:

1) Invite past customers to your referral program

2) Show your referral program to website visitors

3) Remind your audience through email and social media

Let’s go over these points:

Invite past customers to your eCommerce referral program

Past and existing customers are your best salespeople. They believe in your product so much that they were willing to pay for it — and they will likely talk about it to their friends and family.

One of the many perks of running an eCommerce referral program is that your customers will be “selling” your product to their family and friends, which is an audience that finds them relevant and trustworthy. They know that they would not be recommending something that is not valuable for them just to get a reward.

If you are launching a referral program, ping your past customers. Remind them about you and tell them how they can benefit from it. It could also bring some former customers back to your store!

Show your referral program to website visitors

When we talk about an eCommerce referral program, we tend to think about a system that is only designed for people who are already customers or have some sort of relationship with your store. But the truth is that you can bring new customers to your store by advertising your referral program on your website.

Not everyone who visits your online store will fit your ideal customer criteria. However, many of the visitors who don’t fit this profile probably know someone who does. If you let them know about your referral program, you are giving them an incentive to share your store with their friends and family, and get rewarded for it.

When this happens, the store makes a sale, your advocate gets rewarded and their friend buys a product they like — with a discount. It’s a win-win-win situation.

Remind your audience through email and social media

Whether you are talking about your referral program on social media or via email reminders, make sure you focus on delivering value and emphasize the benefit they can receive from joining your referral program.

Make sure you are reaching out to your customers through their preferred channel. For example, if your audience is young, email might not be the best channel, so focus on social media. However, if email works well for your online store, make sure you’ve figured out what the best time to send emails is.

How are other LemonStand stores setting up their referral program rewards?

Fuud is a meal kit delivery service that provides weekly recipes that feature organic and artisan ingredients from chefs in Vancouver, Canada. Fuud’s referral program gives their advocates $25 when their friends buy from their invitation link. Referred friends also get $25 off their first purchase.

Fuud eCommerce referral program

Canopy Air is a subscription-based service designed to make homes healthier. They deliver high-quality air filters for home heating and air conditioning systems directly to your house. Canopy Air’s referral program offers referred friends a coupon code with an exclusive offer, while advocates get a coupon code for a free filter.

Canopy Air eCommerce referral program

DollarScent is a subscription service for drivers offering air-fresheners delivered monthly. DollarScent’s referral program offers referred friends a free month on any subscription plan, and advocates get $5 worth of DollarScent credit (which they can apply on their next purchase).

Dollar Scent eCommerce referral program

Get your eCommerce referral program started today

So what are you waiting for? Setting up an eCommerce referral program for your online store is easy to do and can be a scalable and highly cost effective way to increase your customer base and grow sales. And if you’re running a successful referral program, please share your tips and tricks on what has worked best for you in the comments below.