When it comes to choosing the best incentives for your referral program, there are many factors to consider. Here's how you can make sure that yours will be successful and bring in more customers.
Referral programs are a great way to get your business more exposure, but they can also be an excellent tool for generating leads and increasing brand awareness.
But there's a trick!
There are just so many different types of referral rewards and incentives. Would you win more customers by giving cash rewards or a free monthly subscription? Should you go with a one-sided or two-sided incentive? It's a headache!
Luckily, in this post, we'll go over some tips on how you can choose the perfect referral program incentive to maximize your return on investment (ROI).
Let's dive in!
The Main Types of Incentives
One-sided referral programs involve offering a reward only to the referrer.
In short, you give customers something nice in return for referring your product or service to their friends or family. The reward can come in different forms, such as a monetary discount or service, free monthly membership, a gift card, etc.
One-sided incentives are best for businesses that want a quick boost in new customers without too much effort.
The good thing is that these incentives are often cheaper to execute than two-sided ones. Keep in mind that they're not as effective when it comes to generating a return on your investment (ROI).
On the other hand, a two-sided incentive rewards both the referrer and the referee for successful referrals.
For example, the referrer may get a $50 gift card while the referred may get 10% off their first purchase.
Milestone rewards involve giving multiple rewards as referrers hit different tiers. This type of reward is popular with newsletter publisher referral programs, where different rewards are given for subscribers who rack up their referrals.
For example, you might award free stickers at 3 referrals, a free coffee mug at 15 referrals, and a free T-shirt at 20 referrals.
Leaderboard rewards involve offering a reward for your top referrer for the time period. For example, you might award a $100 Amazon gift card to the customer who referred the most new clients in one month.
These rewards can be given out monthly or at any time period that works best for your company.
How Much Will Offering Referral Rewards Cost?
There's no one-size-fits-all answer to this question. Some businesses can create a referral program with minimal expense, and some will need more funds invested in it.
The type of reward you're offering can influence the cost of the referral program. For instance, giving monetary rewards can be more expensive than free access to an event.
The good news is that many companies are thinking outside the box and offer more creative rewards than good-old cash prizes. They offer free subscription, brand swag, product upgrade, etc., which in some cases, can be even more effective than cash rewards.
Plus, referral programs are not like other forms of marketing where you pay upfront to promote your brand. With referral programs, you're only rewarding customers for successful referrals.
In addition, referral programs have some of the highest ROI of all marketing channels. In other words, you shouldn't think of referral incentives as spending money but investing money in the long-term success of your company.
What Are the Best Incentives for a Referral Program?
Product or Service Upgrade: Get a Steady Stream of Referrals
Example: Todoist (B2C)
It's not uncommon for companies to offer a freemium version of their product or service. In fact, the freemium model can be especially beneficial for companies that are new to the market and need a quick way to drive trials.
If you have customers or users who are enjoying the free version of your product or service, a good strategy would be to give them access to your premium features – by referring you to their friends and family.
By giving your customers a taste of your premium features, they'll be more likely to stick to the paid version once their reward has expired. They'll be getting so much value out of your premium service that they can’t imagine being without it.
Even better, this won't cost your company anything. And you'll get plenty of new customers who are using your product or service.
A great example of this referral program incentive is Todoist. The to-do list app used this strategy to get a steady stream of referrals. When the referrer refers someone to Todoist, the referee gets two free months of Todoist Pro. If the referee purchases a yearly Pro subscription, the referrer will get a free trial of Pro for two months.
- It's a no-cost referral program incentive for B2C businesses that want to get new leads and new customers/users to use their product.
- A great strategy for getting a steady stream of referrals.
Brand Swag for Every Referred Friend: Grow Your Brand Ambassadors List
Example: Morning Brew Newsletter
Gifting company swag is another cool referral program incentive that can help your business win more customers.
The perk of gifting swag is that it creates a physical connection with your customers. They'll have a physical product that is a proof of your reward system that they can see every single day.
You can offer company swag that ranges from coffee mugs and hoodies to caps and coasters, depending on your budget.
Another great idea is to base the offer on tiers where the more people someone refers, the better reward they get.
Morning Brew is a fine example of this referral program incentive going well. Within two years, Morning Brew managed to gain 100,000 subscribers and grow to 1.5 million followers. The referral program was the main driver of this growth, accounting for 30% of the total subscribers.
The company introduced a tiered referral model where the referrer gets access to an exclusive Sunday newsletter for sharing Morning Brew with at least three people. Share Morning Brew with 50 people, and you'll get a "Rise and Grind" coffee mug – which happens to be a fan favorite.
- This is a low-cost method for getting more referrals.
- Customers grow closer to your company as they have a physical product they see every day.
- It's also one of the easiest methods for making your customers feel as if they're your brand ambassadors.
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Free Access to an Event You Organize: Add a Touch of Exclusivity
Example: Tesla (B2C)
Sometimes, the best rewards are those that money can't buy – like free access to an event, for example.
The magic of these incentives is they make your customers feel truly valued. You're giving them the VIP treatment in hopes they will refer even more customers in the future. They're your major brand ambassadors and deserve to be spoiled.
One example of this referral program incentive is Tesla.
If you're wondering how Tesla drove growth and generated more than 40x ROI with a $0 advertising budget, the answer is a powerful customer-centric referral program.
Refer two friends to Tesla, and you'll get a Tesla duffel bag that's not available for general purchase. Refer ten people to Tesla, and you'll get an invitation to Tesla's next unveiling event. This incentive is highly valuable to the customer and motivates them to refer.
On the plus side, it's cost-effective for the company. According to Elon Musk, the referral program saves the company $2,000 per transaction than regular in-store sales.
- It's a great referral program incentive if you want to add a touch of exclusivity to your product and make it go viral.
- For this strategy to work, your product or service must be exceptional.
- Know your customers. This strategy only works if you know that non-monetary and experiential rewards mobilize your customers.
Cash or Credit Rewards to Early Adopters: Gain Traction
Example: Paypal (B2C) for one-sided programs and Coinbase (B2C) for two-sided programs
Cash is another favorite referral program reward. Although it's not a reward that your customer will see every day, it's one of the most enticing incentives. The beauty of cash is that it can be used for whatever your referrer would like.
This can be a smart strategy for customers who are not planning to make a purchase every month. Giving them discounts won't be as enticing as cash rewards. On the plus side, people tend to get very excited about cash incentives, and they will spread the good word around – something which is great if you're in a new or competitive space.
One of the best examples of this referral program incentive is PayPal. The company owes its success to its referral program, where early adopters were rewarded with $20 in their PayPal account for signing up and with a bounty of another $20 for every new user they referred. As the company gained more and more users, the bonus was reduced to $10 per referral and then to $5 until it was entirely phased out.
Coinbase is another company that gives out cash rewards – but to both the referrer and the referee. In essence, the referrer and the referee receive $10 once the referee completes a buy or sell of $100 or more.
You can create a similar referral system with GrowSurf. See a live example here.
- Cash rewards are a short-term strategy to gain traction.
- Make sure you build a product that users would gladly recommend to friends even without incentives.
- Cash rewards are a great strategy if you have a large base of customers who are not making regular purchases.
Early Access to Your Product/Service for Early Adopters: Gain a Large User Base
Example: Robinhood (B2C)
Here's another great referral program incentive that has helped companies gain new users: offering early access to your product or service to early adopters.
It's a simple incentive that won't cost you much. You give free access to every person who brings in a friend or a fixed number of referrals.
Robinhood is a fine example of how this incentive can be used to gain a large user base even before you launch. If you want to expand your pre-launch reach—and your waiting list—you can imitate Robinhood’s techniques.
In the year prior to launch, Robinhood built a waiting list of one million users. That's one million users before the company even existed.
Robinhood invited potential app lovers to gain invitation-only, early access to its private beta. They added an element of gamification to the referral program by giving users an option to get priority access by referring their friends and family. The more users you refer, the higher you climbed on the waiting list. And that’s what led to the company's exponential growth.
- People love playing games. By adding gamification to your referral program, you're increasing your chances of attracting more users.
- FOMO is a powerful force. Use it to your advantage. Make people feel like they might be missing out on something – it will compel them to take action.
Subscription Credit or Points: Reward Your Regulars
Example: Bench (B2B) / Duolingo (B2C) / Drop (B2C) / Evernote (B2C)
Rewarding your referrers with subscription credit or points is a great technique for a few reasons.
First of all, it's a cost-effective strategy that won't cost you much, or maybe nothing at all, while the customer feels like they're saving a lot of money.
Second of all, credit drives repeat purchasing behavior. The credit you give to customers can only be used to buy from your brand, keeping the value within the business.
Let's look at how Bench has used this referral system to increase its user base. Everyone who refers the company to a business owner earns a $150 Visa gift card and a free month of bookkeeping once the referee becomes a Bench client. The referee will get $10 once they earn $10 in cashback.
Duolingo offers a one-sided reward where the referrer gets one week of Duolingo Plus for every person who joins via the referrer's invite link.
Drop gives referrers 5000 Drop points when the referred person signs up using the referral link.
Evernote lets customers collect points for referrals. Every referral is 10 points, while 30 points will earn the referrer three months of Premium.
- Subscription points or credits are useful if your product/service is “pay-per-use” or purchased on a regular basis.
- It makes it easier for customers to purchase from your brand, driving repeat purchases.
- Use this referral program incentive if you want to increase customer loyalty.
Gift Cards: An Alternative to Cash Rewards
Example: Gusto (B2B)
Gift cards are a very common referral program incentive in B2B SaaS companies. They offer customers a lot of flexibility and control by letting them purchase their favorite reward. Even better, anyone can use the gift cards, even if they aren’t the direct customer.
Offering a gift card doesn't mean you're giving away prepaid vouchers for your product or service. Instead, you're offering third-party gift cards for brands like Amazon, Starbucks, Visa, Mastercard, etc.
Let's take Gusto as an example, a B2B company that offers cloud-based payroll, benefits, and human resource management solutions for businesses. The company offers a double-sided reward where the referrer gets a $300 gift card when they sign up and run their first paid payroll. The referee gets a $100 gift card.
- Gift cards are a great alternative to giving out cash rewards, especially when you don't expect customers to purchase again soon.
- It's a great way to give users the flexibility to choose their favorite reward.
Discounted Services: Boost Sales
Example: Fiverr (B2B)
Discounts are another commonly used referral program reward. They provide real value for repeat customers, especially if your brand offers a plethora of different products. In short, they're a fantastic way of boosting sales and encouraging customer loyalty.
You can give out discounts that have a fixed amount, for example $20 off, or discounts with a certain percentage off, for example 20% off.
Let's take Fiverr as an example. When the referee accepts the referral and orders, the referrer will get 20% off the referee's first order amount, up to $100. The referee receives 20% off their first purchase.
- Great referral program reward for repeat customers.
- A sure way to boost sales and encourage customer loyalty.
Free Information / Educational Content: Get More Creative
Example: GetResponse (B2B)
Here's an amazing idea for a referral program reward that's more creative than cash incentives or gift cards: free information or educational content.
This incentive can come in the form of educational courses, workshops, guides, or ebooks that you give out to the referrer as a thank you for referring your brand to someone.
The trick is this: the free information/educational content has to be helpful and relevant to your brand. For instance, if your product is a to-do list app, you can offer customers a free ebook for time management tips.
GetResponse's referral program is an example of how to give out educational content the right way. If the referrer invites three friends who join on a paid account, they get a free Digital Marketing Certification course of their choice.
- Make sure the information/educational content is worth the action.
- The content/information has to be relevant to your customers.
- Make the referral process short and easy.
Making a Donation in the Customer's Name: Associate Your Company With a Good Cause
Example: Vena (B2B)
Did you know that people are more likelyto buy from a company that’s perceived as morally good?
You can use this tactic to attract more users and persuade them to refer more friends to your brand. It's an excellent technique for associating your brand with a good cause.
Instead of rewarding the referrer, you donate to local businesses, nonprofits, and schools in the referrer's name – while still gaining new customers in the process. You'll be surprised at how many people want to refer your brand if that means they're doing something good.
Vena, a business management software company, is a strong example of a referral program that involves a charitable element. If a client refers a business lead that converts into a successful sale, Vena will donate $2000 to a charity of the referrer’s choice.
- It's a great way to associate your company with a good cause.
- People prefer to buy from companies that are perceived as morally good.
Key Takeaways: How to Choose the Best Incentives for Your Business
Yes, the list of referral program incentives is extensive.
But choosing the best referral program system for your company doesn't have to be a tough task.
Here are the key points to keep in mind:
- Product/service upgrade is a great strategy for getting a steady stream of referrals.
- Early access to your product or service is a great technique to gain a large user base even before you launch.
- Subscription credit or points are useful if your product/service is "pay-per-use" or purchased on a regular basis.
- Free information or educational content is a top pick if you want a more creative incentive than cash rewards or gift cards.
- Making a donation in the customer's name is a great way to associate your company with a good cause.
- Cash rewards are a great strategy if you have a large base of customers who are not making regular purchases.
- Gift cards are a great alternative to giving out cash rewards, especially when you don't expect customers to purchase again in the future.
- Discounted services rewards are a sure way to boost sales and encourage customer loyalty.
- Free access to an event you organize is a great referral program incentive if you want to add a touch of exclusivity to your product and make it go viral.
- Brand swag is one of the easiest methods for making your customers feel as if they're your brand ambassadors.
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