Referral Marketing Definitions You Should Know

Welcome to GrowSurf's Official Referral Program Dictionary!

Within it is all of the core terms that you will be using, making reference to and needing to understand if you are considering creating and running a referral program of your own. Each term comes with its own definition and many have links to deeper explanations. But first of all, the most important term to understand:

What is a referral program?

A referral program is a structured and recognized method used by companies and businesses to encourage and enable their users or customers to spread the word about their company or business. It is also regularly referred to as the refer-a-friend program or a customer referral program. The concept is to encourage, incentivize, and reward those customers who are most loyal to the company. Rewards often come in the form of discounts, merchandise and special offers.

According to research by the Wharton School, referred customers have a 16% higher lifetime value and are more loyal than other customers. Referred customers are 4 times more likely to refer others compared to non-referred customers. Additionally, one study found that referral leads convert 30% better than leads from other channels. This highlights the power of referral programs for acquiring high-quality customers.

Components of a Referral Program

Now that we’ve covered the widest of terms, let’s dig into the most frequently used terms related to the construction and makeup of a referral program by looking at the components that it is made of:

Referral Link (Share URL)

A referral link, also known as a Share URL, is a link that is created by the owner of the program, distributed to the referrer and is completely unique to each user. They are created in a way that makes them incredibly easy to track and monitor, as well as being simple to share. The link, when shared by the referrer, grants certain rewards or offers when used by a third party. These links can be shared manually, embedded in emails or social media, and placed on websites.

The links are able to be tracked individually, allowing detailed analytics to be collected on each referrer and, therefore, allows companies to better understand the most effective and successful referral campaigns that they are running.

According to ReferralRock, "Referral links are the backbone of any successful referral program. They allow you to track referrals, attribute new customers, and reward advocates appropriately." Having a robust referral link tracking system is crucial for measuring your program's performance and optimizing it over time.

Here's what a Share URL might look like: https://yoursitehere.com?grsf=58qso7

Referral Code

A referral code is a unique combination of letters, numbers or even words. These codes, as they are unique to each individual referrer, enables tracking of successful referrals. Not only are the referrers able to be tracked in the number of referrals made, but the company can trace customers back to their original referrer.

The code is sometimes used in itself and shared manually on emails, social media or websites but can sometimes also be found within referral links as a unique URL or slug.

Referral codes serve a similar purpose to referral links but offer a different user experience. As ReferralCandy explains, "Referral codes are often seen as more personal and shareable, while referral links are better for tracking and integration." The right choice depends on your program goals and audience preferences.

Referral Trigger

A referral trigger is an event that starts a referral reward being sent out to your participants. For example, if you wanted to send rewards only to users that spend $100+ via Stripe, your trigger would be all Stripe transactions valued at $100+.

According to ReferralRock, "Triggers are a key component of any referral program as they determine when rewards are issued." Properly setting up triggers ensures rewards are only given when desired actions are completed, like making a purchase or signing up for a subscription. This helps control costs while incentivizing the right customer behaviors.

The Emails of a Referral Program

Company-to-Customer Email

Sometimes known as the 'referral email', the company-to-customer email is the start of the referral program process. It is sent to potential referrers to let them know that a referral program exists. It encourages potential customers to take part and become referrers by sharing the incentives and rewards.

These emails need to have care taken in their craft as they can lead to a major uptake in a new or growing referral program. Writing the perfect referral email takes time and practice.

As Sprout Social notes, "The refer-a-friend email is a critical component of any referral marketing strategy. It's the first touchpoint to introduce your program and get customers excited about sharing your brand." An effective referral email clearly explains the program, incentives, and how to participate.

Note: The referral email is different from the referral message, which is the message content sent by a referrer to their network.

Customer-to-Customer Email

The customer-to-customer email is the email sent from a customer to their network to spread the word about your referral program. Participants of your referral program send these emails to friends, family and colleagues with their unique share URL for referral tracking.

These emails play a crucial role in driving referrals, as ReferralCandy explains: "Customer referral emails are the primary vehicle for your advocates to share your referral program... The better you can make these emails, the more referrals you'll generate." Providing customizable templates and guidance can help customers craft compelling referral messages.

Referral Message

The referral message is a message sent from the referrer to their network, which could include friends, family, colleagues or other business contacts. These messages often include either a referral code or referral link. Some referrers go to great lengths to craft the perfect referral message in order to maximize the opportunity for referral rewards. These messages can be emailed, instant messaged, texted or just shared in person.

As ReferralCandy advises, "The referral message is the most important part of the referral process... A good referral message will increase your chances of getting a successful referral." Providing templates and tips can help advocates craft compelling messages that sell the value proposition.

Referral Page (Friend Landing Page)

The referral page, or friend landing page, is the page that a person will land on when they have clicked on the referral link sent to them by a referrer. These pages typically include information on the offer, multiple clear calls-to-action, incentives to purchase and links to the product or service page. The aim of this page is to maximize the number of people who will go on to make a purchase, and therefore become a conversion.

As ReferralCandy explains, "The friend landing page is a critical part of your referral program... It's the first interaction that referred friends have with your brand, so it needs to make an excellent first impression." An optimized landing page with a clear value proposition can significantly boost referral conversions.

Referral FAQ

The referral FAQ is the page where all referrers can access information to solve the most frequently asked questions regarding the referral program. When creating a referral FAQ, companies should look to clearly share the referral process, what referrers should expect whilst taking part in the program, information about the referral program's terms and conditions, and general tips that should make the program as successful as possible.

A comprehensive FAQ is essential, as ReferralCandy notes: "Your referral program FAQ is a crucial resource for your advocates and referred friends... It should address all the key questions that participants may have." An informative FAQ builds trust and ensures a smooth experience.

When you run a referral campaign through GrowSurf, you'll have a referral FAQ with some of the most commonly asked questions attached by default.

Call-To-Action (CTA)

Call-to-action or CTA is a phrase often used within the digital marketing realm, essentially it's a short piece of text that compels a reader to complete an action such as visiting a product page, downloading a piece of information, watching a video, or purchasing a product. In referral programs, the owner of the program will use CTAs to encourage users to sign up for their referral program. Then referrers will use CTAs to encourage their network to complete the referral offer.

The best CTAs are clear, concise and easy to complete. Try not to overly complicate the action you'd like the reader to take, or ask them to complete multiple tasks (actions) at the same time.

As ReferralCandy advises, "Your call-to-action is one of the most important elements of your referral marketing campaign... A good CTA motivates people to take the next step." Testing different CTAs can significantly impact referral rates.

For a referrer, your CTA might be "Join our referral program".

For a referred person, the CTA of a referral message might be, "Refer a friend and get $25."

The People of a Referral Program

Referral programs work because of the people within them. They are the creators, the sharers and the potential customers, each of whom are integral to the success of the referral program. There are a fair number of people involved in the referral process, but these 3 are, arguably, the most important:

As ReferralCandy explains, "The participants in your referral program are the key to its success... Understanding who these participants are and what motivates them is crucial for designing an effective program." Tailoring your program to the needs and motivations of referrers, referrals, and referred customers can significantly boost participation and results.

Referrer (Referred Person, Member, Advocate)

The referred person is someone who was referred to your business or company by a referrer and have, subsequently, become a user or customer. As they became a user or customer through a referral rather than organically they are known as a referred user or a referred customer.

According to ReferralRock, "Referred customers are more valuable than other types of customers... They have a higher lifetime value, lower acquisition costs, and are more likely to remain loyal to your brand." Optimizing your program to attract high-quality referred customers can pay major dividends.

Referral

The referral is the referrer’s friend, acquaintance or connection who has taken up the referral offer. It is important to note that they remain a referral even if they do not go on to make a purchase (and therefore become a customer).

Referred Person (Referred User or Customer)

The referred person is someone who was referred to your business or company by a referrer and have, subsequently, become a user or customer. As they became a user or customer through a referral rather than organically they are known as a referred user or a referred customer.

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Referral Incentives (Rewards)

Referral programs work because people are incentivized to take part. These incentives encourage people to share your offer, tell more potential customers about it and, therefore, drive up your conversions. Choosing the right referral incentives is absolutely essential to getting your program to be a success. In fact, they are so important that they could be the difference between a successful campaign and one doomed to failure.

As ReferralCandy notes, "Incentives are the fuel that powers your referral program... The right incentives motivate your customers to participate and share, while the wrong incentives lead to low engagement." Testing different incentives and monitoring performance is key.

The rewards you choose to offer can fit into more than one of the following categories.

One-Sided Incentives (Single-Sided Incentives)

The one-sided incentive offers a reward to either the referrer or the friend that they are referring (the referral). In this instance only one party receives a reward for taking part in the referral program. An example would be, a referred person receiving one month free by signing up through a referral link, the referrer receives nothing in return.

Two-Sided Incentives (Double-Sided Incentives)

The next step on from one-sided incentives, the two-sided incentive, rewards both the referrer and the referral (friend, colleague etc). This adds to the motivating factors for the referrer to share the referral offer as not only is the new customer getting rewarded, they are also being rewarded for their efforts. At its launch, Uber used two-incentives in their referral program whereby the referrer received credit and the referral customer received a free ride (up to a certain value).

Cumulative Incentives (Milestone Rewards)

Cumulative incentives are repeat incentives that encourage long term participation in a referral program. They tend to work on the basis that the referrer will receive x for each time that a new referral signs up, such as “$5 credit voucher for every person you refer to our platform”. Options include credit, gift cards, discounts, free months (subscriptions) and more. In order to be successful, cumulative incentives should be able to be used in stacks, allowing customers greater opportunity to purchase.

Leaderboard Rewards

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 person 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.

As ReferralCandy advises, "Leaderboards add an extra layer of motivation by introducing competition and recognition... This type of reward works well for driving short bursts of referral activity." Leaderboard rewards can be an effective way to gamify your program and motivate your top advocates.

Tiered Incentives

Tiered incentives, in much the same way as cumulative incentives, encourage long term participation through an increasing level of reward depending on the number or value or referrals sent to the business. The more successful referrals that a referrer sends, the greater their rewards become.

This could be in the form of a growing % discount, an increasing monetary value ($5 for the first 5 referrals, $10 per referral after that up to 10, $20 per referral after that and so on). The tiers available can be open ended and, depending on your model, can encourage some friendly competition between your referrers.

Tiered rewards motivate your participants to keep referring and sharing by dangling incrementally better rewards in front of them. This gamification element is a driver in referral motivation. Tiered programs can be powerful for sustained engagement.

Referral Reward (Referral Offer)

The referral reward is why your referrers are willing to participate in the program. It is the reward that they receive when a referral successfully completes a purchase or signs up to a service. The referral reward can also refer to the outline of the rewards within the referral program notes. It should be made absolutely clear what the rewards are and how participants will receive them.

Referral Program Tracking

In order to make the most out of a referral program and for it to be a success at all, you’re going to need referral program tracking. The tracking will enable you to track who is participating, who is successfully making referrals, what those referrals are worth to you as a business and more in depth information (such as demographics, psychographics and more).

As ReferralCandy emphasizes, "Tracking and analytics are essential for measuring the performance of your referral marketing program... Without data, you'll be operating blind and unable to optimize your program." Robust tracking allows you to measure ROI, identify top advocates, and continually improve.

There are myriad of metrics that you can track within a referral program but main KPIs would be those which directly impact your sales and marketing efforts.

Participation Rate

The participation rate is simply the percentage of all of your users who are actively referring their network through participation in your referral program. This is actively tracked by cross referencing the total number of users vs the total number of referral program participants.

Share Rate

The share rate is the level that the referrer is sharing the referral program to their network. This could be as simple as how many times the code is shared on a daily/weekly/monthly basis. This is tracked by seeing how many times the referral link or code has been sent out.

Conversion

Conversions are what you are hoping for in business. They are triggered when a customer or referral completes an action that you have requested they do. This could be signing up to a mailing list but is usually used to refer to completed purchases or sign ups. In the referral program, a conversion is completed when a friend signs up or purchases when using a referrer's code or link.

Conversion Rate (CR)

The conversion rate is calculated by dividing the total number of successful referrals by the total number or potential customers the referral link or code was sent to. This rate is important to see how effective the referrer is at getting their network to participate in the referral program.

According to ReferralCandy, "Tracking your referral conversion rate is crucial for understanding the performance of your program... A low conversion rate could indicate issues with your incentives, messaging, or referral experience." Monitoring conversion rates allows you to identify and fix bottlenecks.

Customer Lifetime Value (CLV or LTV)

The customer lifetime value, also known as the CLV or LTV refers to the value that a customer goes on to be worth or their projected value for the future. The metric is important within referral systems as it is possible that, even though the company may not make a high margin on the initial referral (seeing as they are giving out rewards) the CLV or LTV may outweigh this and make the scheme worthwhile over longer periods of time.

As ReferralCandy explains, "Referred customers tend to have a higher lifetime value than other types of customers... This makes them extremely valuable, even if you have to offer generous referral rewards." Factoring in CLV is key when evaluating referral program ROI.

It is also worth noting that those who are referred by their close acquaintances or friends are more likely to become loyal customers than those who come through paid advertising or organic channels.

Return on Investment (ROI)

Return on investment, more commonly known as ROI, shows how much profit you are making based on the activities of the referral program. We calculate this rate by taking the sales value as a result of the referral program, minus the associated costs attributable to the referral program. This is important when considering setting up a referral program in the first place. Whilst the initial cost might be high, the ROI will usually heavily outweigh the startup costs thanks to CLV.

Referral Program Growth Terms

When discussing referral programs the conversation inevitably turns to growth. Successful programs need growth to scale and within the referral world there are particular terms associated with the growth of referral programs.

As ReferralCandy highlights, "Growth is the name of the game when it comes to referral marketing... The goal is to create a self-perpetuating cycle where new referred customers become advocates who refer others." Understanding growth concepts like virality and viral loops is key.

Virality (Viral Growth)

Virality refers to when a product, service or even a piece of information goes viral, meaning that it attracts a large audience or customer base very quickly in a short period of time. Virality relies entirely on peer to peer sharing, but in a slightly different way to standard word-of-mouth which happens organically. Virality, instead, happens through a series of planned processes and steps which encourage a product or service to go viral. Some products may even have virality built into them by design.

As ReferralCandy notes, "Viral marketing leverages existing social networks to rapidly spread awareness about a product or service... It's the holy grail of growth for many companies." Achieving virality requires optimizing viral loops and referral incentives.

Virality is achieved by:

Viral Loop

The viral loop is achieved when users or customers share the product or service with their network, this network in turn becomes new users, these new users go on to share the product or service with their network, and the loop continues (hopefully) ad infinitum. The viral loop is often created through the use of a successful referral program that uses the two-sided incentive system, thereby creating a network where both the referrer and new referral benefit (and the new customer will likely go on to be a referrer thus growing the network further).

Social Proof

Social proof is based on the concept that people are more likely to purchase a product or service if they see others in their network using it first. The more advocates, brand evangelists, and those enamored with the brand, the greater the power of the social proof.

The greatest amount of social proof comes from those closest to us, as we implicitly trust their opinion and actions more. Therefore, if a close friend is part of a referral program, and refers you to a service or product, based on their own personal experience, that referral is far more likely to be successful.

Social Currency

Social currency held by an individual is the power they have over their network and how that network perceives them. It is, for want of a better word, how cool they look. Through social media, people will naturally share services, products and information in order to make themselves look good to their friends and network.

Brands are also able to hold social currency based on how they are perceived by those they are marketing to. If a brand holds high levels of social currency then the public are far more likely to share information about the company and, vitally, share their products and services. It is unlikely that someone will complete these shares (or spend their social currency) if they believe that it will damage their social standpoint. It has to better or enhance their social standing.

Therefore, a referral program requires people to buy into it, to spend some of their social currency, because if they fear that sharing it with friends and those they want to be held in high regard by will damage their reputation, they simply won’t.

Referral Marketing Terms

Within referral marketing there are certain terms that will crop up time and again. Each of these terms has specific meaning within the referral program field.

Advocacy Marketing

Advocates are those who stand by your brand and, to an extent, everything you do. They believe so strongly in your product or service that they will share the message far and wide. They will, naturally, spread brands and products through word of mouth but, at least initially, they will be incentivized to do so through a properly set up referral program. These people are often the ones that one sees wearing branded gear or using branded items, even if they are potentially indirectly related to the actual product.

Relationship Marketing

Relationship marketing focuses on the long term goals with a person rather than short term actions. Instead of focusing on the likes of individual sales, relationship marketing looks to develop deeper connections with the user base over a longer period of time. It works by developing and promoting loyalty through various methods. A referral program, especially one that offers tiered rewards that grow in significance over time, can develop deeper relationships with customers.

Partner Program

Partner programs offer incentives and rewards to other companies in exchange for promotion of your products, services and brand. They may be rewarded using shared brand awareness, cash incentives or collaborative marketing efforts.

Affiliate Marketing

Affiliate marketing aims at the digital sphere, where those with an online platform place product or service links within their blogs, social media channels and websites which then pay them a commission if sales are generated through them. The key difference between affiliate and referral marketing is that affiliates aren’t marketing to those within their immediate social circle, they are marketing to their traffic.

Influencer Marketing

Brands make use of influencer marketing by leveraging the authority that those held in high regard have over an audience. Influencers are typically celebrities or those who have found a large follower base through social media but there are those who are influencers without necessarily being famous. Some influencers will promote anything and everything, therefore it is important for brands to align themselves with influencers who they feel have the best connection to their own audience.

Brand Ambassador

Brand ambassadors are your best friends when it comes to marketing. They are those who are so into your brand that they genuinely care about your mission, they live your core values, they use all of your products and, generally, can’t stop talking about your brand.

These relationships can be formalised through the use of an ambassador program, whereby members can become official ambassadors of your brand. They are sent your products, information to share and often get rewards for doing so.

Key Takeaways

There is a whole lot of information and technical terms to absorb when it comes to referral programs, but by taking the time to understand each of them and, importantly, how they can affect your business and your marketing efforts, the rewards can be reaped.

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