A referral program really comes down to what it offers and how it is structured. In this post, we're going to go over how it is structured.
The referral incentive structure outlines how your referral rewards and incentives are distributed.
If you want to explore different types of rewards and incentives, then head over to our referral rewards guide. If you're here to learn how to set up your referral incentive structure, then you're in the right place.
Let's begin.
Consumers trust recommendations from people they know compared to traditional advertising. More likely than not, existing customers who love your brand are talking about your product with their friends and family.
Source: Nielsen Global Trust in Advertising Survey, Q1 2015
And if you add a referral reward behind those otherwise organic customer referrals?
Then a juicy referral incentive may be the right push for them to join your referral program and keep on referring.
In general, referral incentives refer to a discount, gift card, or free products that customers receive for taking part in a referral program.
After the referred Friend (and new customer) converts and buys a product, they receive an incentive, while the Advocate (existing customer) receives a reward.
Friend → gets an incentive to buy
Advocate → gets a referral reward, when Friend buys
Setting up your referral incentive structure will help you bring in new customers, drive repeat purchases from your existing customer, and increase customer lifetime value (LTV).
There are numerous referral incentives and rewards that can be given to Advocates and their Friends. The two main types of referral incentives are one-sided and two-sided.
One-sided referral incentives benefit only one customer, either the Advocate or the Friend. This referral incentive structure works for companies that want to grow satisfaction among existing customers and build brand awareness.
We generally don't recommend this referral structure because most people need some kind of incentive to take action, but there are some businesses this works well for.
For example, a one-sided reward program where the Advocate gives their Friend a gift or reward can be a fun way to keep your existing customers engaged without having to make a purchase.
One of our customers, Wine Insiders, has a referral program where Friends receive a box of wine from Advocates. This is in addition to their regular “Give $100, Get $100” referral program.
One-sided incentives can be a great driver of new customers when the right referral incentives are in place... even if the Advocate doesn't receive anything at all!
Let's explore a few different ways one-sided referral incentives can play out.
Below are examples of different referral rewards for Advocates:
Account credit reward. Advocates earn credit that will be applied to their accounts. Metromile gives Advocates $100 for successful referrals.
Below are Friend incentive rewards:
The two-sided referral reward is one of the most popular referral incentive structures since both the Advocate and Friend receive something. After all, everyone likes getting free products or a discount on their order. :)
For symmetrical two-sided referral offers, the Advocate and Friend receive the same reward for example, “Give 20%, Get 20%”.
Rewards can also be asymmetrical, meaning the Advocate and Friend do not receive the same reward, like “Give 20%, Get $20.” Usually in these cases, it is better to give the Advocate a better reward so that they will take part in the referral program.
When it comes to choosing percentage-based rewards versus dollar-based rewards, we have a "Rule of 100" that we apply here:
Let's see what that looks like in real life.
Many referral programs work great using just the basic Friendbuy features, especially when you follow our best practices. However, when you take advantage of all of the powerful features available in the platform, you can take your referral program to the next level.
We do this with advanced referral rewards and incentives.
Friendbuy’s tiered reward feature allows you to build dynamic tiers for rewarding Advocates based on referred Friend purchase behavior or the number of referral conversions accrued.
By deploying these advanced features, you can generate more program engagement, encourage super-Advocates to make more high-value referrals, and build loyalty to drive even further growth. Think: gamified referral incentives.
Advanced referral rewards are a great way to encourage repeat customers and keep a steady flow of incoming new customers. They work by providing fresh referral incentives to existing customers long after joining your referral marketing program.
Like all of our features, setting up advanced referral rewards in the Friendbuy platform is easy. Start by configuring the Referral & Sharing widget to select your reward model and build reward tiers based on the criteria (or triggers) you define.
Criteria can be the number of conversions (either lifetime or for a specific campaign/widget), products purchased by friends, or purchase amounts.
These are the most common triggers used in advanced referral rewards:
Want to supercharge your advanced rewards? Then pair this with a customer loyalty program.
One of the key benefits of working with Friendbuy is that you can learn from other brands. Our team of referral marketing experts is also available to help you develop an advanced referral rewards program and strategy that will work for your audience.
Check out how some of these Friendbuy customers have boosted their referral programs with advanced rewards.
Subscription clothing rental brand Nuuly drives additional shares for its subscription business model, by using tiered rewards that give advocates greater incentives based on the number of friends referred. Nuuly’s compelling “Give $10, Get up to $60” CTA captures attention with the potential for a 6x reward. Advocates get $10 off one month of their subscription when the first friend subscribes, $20 off with the next friend, and an additional $30 with the third friend.
Home fitness brand Tonal uses the Friendbuy advanced rewards feature with an evergreen campaign that drives friends to make a high-consideration purchase while rewarding advocates with store credit that can be used in the company’s Gear Shop. This asymmetrical double-sided offer gives friends $100 off a Tonal system and advocates $50 to spend on apparel and accessories. To support this campaign, Tonal uses tiered rewards based on specific products (SKU configuration).
Custom furniture brand Interior Define uses the dual rewards configuration to create tiers that determine rewards for both friends and advocates based on the purchase amount. When friends spend more than $2,000, they get a $300 discount and advocates get $150. When the purchase is less than $2,000, the friend gets a $100 discount and the advocate gets $100. This approach drives a higher order value by incentivizing friends to spend more and giving advocates a reason to encourage larger purchases.
Home bar brand Drinkworks increases referral activity by rewarding advocates based on the number of customer referrals they generate. Advocates get a $30 Visa gift card for every friend they refer, and friends get a $30 discount on their purchase.
Through powerful advanced reward features with multiple configurations, Friendbuy can do all the heavy lifting for you to incorporate tiered rewards into your offer strategy. Whether you want to drive sales of a specific product or encourage customers toward higher-value purchases, advanced rewards can help you encourage the desired behaviors.
Every brand is different, which is why we work with every customer to come up with a unique approach. For more strategies and tips, read The 2021 Referral Marketing Blueprint for E-Commerce.
In a perfect world, the design and copy of a referral campaign would be one and done! Fortunately for you, Friendbuy makes it super easy to A/B test to help you figure out the best incentive structure for your brand.
A/B testing allows you to test the entire referral process. Not only can you test your referral incentives and rewards, but you can also test your copy, design, and delivery.
All it takes is four steps to do A/B testing in Friendbuy:
Whenever testing a campaign, it is better to change one element at a time. You can change the CTA button location, font, offers, etc. then see how the new test, or variant, performs over a period of time. Sometimes changing the copy in a way that shows that Friends will benefit from a referral, like “Invite a friend and they’ll get $20 off their first bill”, is an incentive for Advocates to join a referral program.
All of the elements of the copy and images in a campaign can be tested, including font size, color, and position.
Nice Laundry, a menswear brand, tested two designs and found that changing the “Get a free pair of socks” copy to red and italics increased sharing rates by 42%.
After a certain amount of time, if the change drives referrals up, then you know you are on the right track. You can then decide to use the variant as the image or copy moving forward.
The Disney Movie Club decided to test its campaign by increasing the number of movies that customers can buy for a dollar. They saw the purchases increase by 50% because of the change in the number of movies customers can receive.
These are our pro tips for A/B testing:
For the step-by-step process, check out Friendbuys’ guide to A/B testing.
The point of a referral program is to boost customer acquisition and generate ROI. So, how do you calculate your referral program budget?
The first question to ask yourself is, what is your desired cost per acquisition (CPA)? This will fluctuate on a channel-by-channel basis.
If you have a referral program with Friendbuy, you can expect your average CPA to be between $1-$10, which is significantly cheaper than most paid channels.
The next question to ask yourself is, what is your repeat purchase rate? If you have a high repeat purchase rate, then an incentive that encourages customers to come back continuously and repurchase, such as 10% off their next order or store credit, will work well for you. If you have a lower repeat purchase rate, for example, if you sell higher ticket items that most people buy once every few years (such as a fridge or mattress), then consider a reward that doesn’t involve your customers purchasing again, such as a gift card.
The last question to ask yourself is, what offers do you typically have running on your site? Are you frequently promoting 10% off sales? If so, then offering 10% off for a referral isn’t very enticing to a customer. Try upping your percentage to 15% or 20%, as your CPA will likely remain low. Remember that advocates are only rewarded after a successful friend conversion, which is one of the great benefits of a referral program—it essentially pays for itself.
Remember, the referral program should be easy to understand so that Advocates and Friends know what the referral program is, what they have to do, and what they will get in return. There isn’t a one-size-fits-all approach to an incentive structure, but you can refer to this framework for guidance:
Keep in mind what other promotions you are running. The referral program should have the most appealing reward for it to work.
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Frequent purchases |
One-time or infrequent purchase |
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Type of reward or incentive |
Coupon, discount, store credit, swag, free product, free subscription |
Third-party gift card, cash reward, donations, swag |
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Friendbuy customers who use these types of rewards or incentives |
Spanx, Figs, Thinx, Axios, Nestle, Wine Insiders, Coursera, Tonal |
Once the referral program launches, gauge performance by monitoring the share rate and referral conversions. The share rate will show if the Advocate incentive is working, and the referral conversion rate indicates if the Friend incentive is effective. Then you can try A/B testing to see what can be done to improve the referral program’s performance.
There are three referral program metrics to keep track of—share rate, clicks per share, and conversion rate. They are a general guideline to see if your program is working or if you need to adjust things to make the program perform better.
Generally speaking, here is the ideal range for each metric:
If you’re not within these ranges, then here are a few tips:
When you are ready to dive into the analytics and reports of your referral program, check out Friendbuy’s guide and log into your account to see it in the campaign dashboard.
Hopefully, you have a better understanding of the different opportunities for referral programs and what kinds of referral incentives and rewards can be used to motivate customers. You are on the right track just by reading this post! Now that you have an idea of what successful campaigns look like, you can adapt it to your brand and choose the best reward and incentive structure for your customers to keep them happy and encourage customer loyalty.
There are many possibilities, and Friendbuy can guide you through the process to help you figure out the best referral program for your business. If you have any questions or want to learn more about our referral program software, then contact our referral marketing team to start growing your business.