What is a referral program?
A referral program or a “refer-a-friend” program is a marketing strategy used by many top e-commerce brands to incentivize existing customers to recommend the brand and its products to their family and friends.
Existing customers would get a reward for referring their friends—often a discount code to shop at the brand again. Their friends would also get an offer—usually a discount—for the products. The brand gets both new and repeat customers!
If you are wondering why you should have a referral program and how to run one, let’s take a look at how the top e-commerce brands are running their referral programs and the results they have achieved.
Here are the popular brands we are going to talk about:
- Outdoor Voices
- Rent the Runway
- Riff Raff & Co
- Rae Wellness
Before we begin, let’s quickly go through the basics of referral programs. (Or you could skip to the examples below.)
Referral program 101
Why do I need a referral program?
One of the biggest stresses of any business is finding a solid customer acquisition channel, or basically, bringing in new customers. When you have a solid referral marketing program, however, you let your existing customers bring new buyers to your brand. This not only significantly reduces spending on bringing new customers to your shop, but it also increases customer retention, which is a very good thing.
Because loyal customers have a higher conversion rate than new customers and spend more per transaction, making customer referral programs the most cost-effective and lucrative marketing strategy that your business can possibly employ.
How does a referral program work?
People don’t make as many referrals as they intend to for a variety of reasons. A referral program helps make their mind up with a tangible reward for referrals.
Modern referral programs, or refer-a-friend programs, use software to track referrals made by happy customers through either a referral code, a rewards card, or a referral link. Depending on the referral campaign, customers will usually receive some kind of referral bonus or benefit when they refer a friend. Referral marketing software automates the payout of these referral rewards.
This referral process creates a natural word-of-mouth marketing experience for your brand, which ultimately increases both your customer retention rate and your revenue.
To find out more, check out how ReferralCandy works.
How do I create a referral program?
The best way to bring in potential customers is to first focus on your existing satisfied customers. Rather than just offering cash rewards or free gifts in hopes that your customers will refer a friend to your shop, it takes a little bit of planning to set up a referral program that works.
1. Get clear about your goals
Before creating a complex ambassador program or launching tons of marketing campaigns (of any kind), it’s important to be clear about what your goals are for the program. This will help guide you as you brainstorm referral marketing ideas. Some questions to consider are:
- What are you hoping to get out of your rewards program?
- Do you want more customers? Or just bigger purchases by your existing customers?
- Are you trying to get a higher conversion rate and increase sales?
You can certainly achieve each of these goals, but it might require a different referral campaign for each goal. So it’s important to be clear about your goals before beginning.
2. Make a life of your existing customer referral sources
Your referral sources are your happy customers, friends, and family. They are your biggest advocates and will be the lifeblood of your referral marketing program. Make a list of all of these groups and how you can easily contact them.
3. Make an outreach plan
Now that you have a list of referral sources, carefully make an outreach plan. It’s not quite as simple as sending a blast email with a generic referral incentive. Instead, research the best practices for reaching out to each type of referral.
Newer customers, for example, shouldn’t receive emails about your reward program right after their first purchase. And close friends and family may not need an incentive at all! The types of referral programs that you use will largely depend on your list, so plan accordingly.
4. Determine the referral incentives you’ll offer
While cash incentives likely seem like they’ll get the biggest draw out of your existing customer base, that’s not necessarily the case. One study found that non-cash incentives were 24% more effective with referral marketing than cash incentives. It’s best to offer something of tremendous value to your customers that will keep them coming back to your shop in the future.
5. Tell your customers about it
Once you’ve settled on your referral lists and your incentives, it’s time to get people to spread the word both about your brand and your rewards! There are many different ways to do this, each of which brings in a different segment of potential customers.
You could add details about your referral program in your newsletters, have opt-ins on your website, or capture customers through a pop-up right on your homepage. Do a little research about the most effective way to grow your lists and then test it out for yourself.
6. Track the referrals and rewards
In order to run a successful rewards program, you need to keep track of all of the referrals being made. You need to be able to keep track of who referred whom, the date they were referred, whether or not a conversion was made, and the best way to follow up with both the referrer and the referee.
One of the easiest ways to do this is with referral program software, like ReferralCandy. A system that not only facilitates the reward within your shop but also provides accurate data on the referrals is going to help you know exactly how successful (or unsuccessful) your program is.
Now that you have a clearer idea of referral programs, let’s take a look at the referral programs of top e-commerce brands and what we can learn from them.
How top brands are running their referral programs
1. Rothy’s: Give $20, get $20
Rothy’s makes stylish products from 100% recycled plastic water bottles and post-consumer recycled materials. It started out with shoes and has branched out to handbags. In 2018, two years after launching, it brought in more than $140 million in revenue and was valued at $700 million.
Some Rothy’s customers really love the brand. There is a Facebook group, Rothy’s Addicts, with more than 22,000 members at the time of writing. “Word-of-mouth continues to blow away all other channels with regards to how people find out about the brand,” said Elie Donahue, Rothy’s vice president of marketing.
Rothy’s referral program reward structure:
- Advocate reward: $20 off next purchase over $50
- Friend offer: $20 off the first purchase (purchase has to be more than $50)
My favorite takeaway from Rothy’s referral program:
I had thought brands with an enthusiastic customer base and strong word of mouth would not need a referral program. Yet many popular brands use referrals to grow (as you will see below). Rothy’s included. That might be because only 29% of satisfied customers actually recommend products and services to their friends. A referral program can help brands encourage more word-of-mouth recommendations.
2. Tesla: Give $1,000, win a free car
With a $0 marketing budget, Tesla grew through viral word of mouth thanks to its great products and generous referral program. At one point, they were giving a 100% discount on their Next Generation Founders Series Roadster—basically giving a free car!
I love this story by the “World’s #1 Tesla referrer” who referred more than 1,200 people to buy a Tesla car and earned himself two cars worth $500,000. His videos have generated millions of views for Tesla.
Given the popularity of its referral program, Tesla has changed its rewards to something perhaps more sustainable.
Tesla’s referral program reward structure:
- Advocate reward: 1,000 Supercharging miles
- Friend offer: 1000 Supercharging miles with the purchase of a new Tesla car
My favorite takeaway from Tesla’s referral program:
The Tesla team is not afraid to change their referral program and experiment with different rewards. They have changed their referral program at least nine times over the years. The first version of the referral program gave advocates $1,000 credits in their Tesla account and gave their friends $1,000 off the purchase price. It also included “things money can’t buy”, such as invitations to tour their factory and to attend the grand opening party.
3. Casper: Give 20%, get $75
Casper revolutionized the mattress industry by selling their mattresses online and delivering them in a box. Despite starting with only a single mattress (in different sizes), they sold $1.8 million worth of mattresses in 60 days.
Casper’s referral program is “by far one of the most efficient customer acquisition channels in Casper’s arsenal”, according to Friendbuy.
Casper’s referral program reward structure:
- Advocate reward: $75 Amazon Gift Card
- Friend offer: 20% off the first mattress order
My favorite takeaway from Casper’s referral program:
Casper seems to be experimenting with multiple referral programs at the same time. Besides the “Give 20% off a mattress, Get $75” referral program, it also has a “Give 10% off a pillow, get $10” referral program (which is more hidden on its website). Since Casper has multiple product lines, this feels like a smart way to get its customers to recommend different products to their friends and to reward them accordingly.
4. Outdoor Voices: Give $20, get $20
Tyler Haney launched Outdoor Voices, an active lifestyle brand, in 2013. Even though the space is filled with giants like Lululemon and Nike, Outdoor Voices managed to grow a cult-like following among its customers. By 2018, its annual sales were up to $38 million.
While brands like Nike focus on competitive athletes, Outdoor Voices built an active community of people who have been ignored—people who simply want to be active. Outdoor Voices’ social runs and yoga events are made for them. See how engaged its fans are on its Instagram!
Outdoor Voices’ referral program reward structure:
- Advocate reward: $20 off next purchase of $100 or more
- Friend offer: $20 off the first purchase (purchase has to be more than $100)
My favorite takeaway from Outdoor Voices’ referral program:
A referral program fits nicely with Outdoor Voices’ brand, which emphasizes staying active with friends. Here’s its mission:
We’re on a mission to Get the World Moving, because we believe Doing Things — moving your body and having fun with friends — is the surest way to a happy and healthy life.
When you let go of the expectation to perform, that’s when the real magic happens. You learn that the joy of the game will always outlast a win. You learn that friends who sweat together, stick together. And you learn that moving creates endorphins, and Endorphins Make You Happy.
Even the copy for its referral program talks about its mission: #DoingThings is more fun with friends.
In ReferralCandy, you can customize the text and style of your signup form to match your branding:
5. Rent the Runway: Give $30, get $30
Rent the Runway, founded by Jennifer Hyman and Jennifer Fleiss, was named one of the most disruptive companies in 2019. By making it possible to rent and wear designer items at a more affordable price, Rent the Runway grew to more than 11 million members.
Clothes, being so visible, naturally helps encourage conversations and word-of-mouth recommendations. People either share their outfits with their friends or their friends would ask them about it.
Rent the Runway’s referral program reward structure:
- Advocate reward: $30 credit
- Friend offer: $30 credit for the first order
My favorite takeaway from Rent the Runway’s referral program:
Rent the Runway uses a simple GIF on its referral page to suggest who its customers can refer. “Perfect for friends who… consider you their personal stylists, have a little one on the way, are juggling 10 wedding invites.” This helps its customers think of friends whom they can refer, making it more likely that they do.
6. Riff Raff & Co: Give free shipping, get a free sleep toy
Mums trust other mums the most. So when Emma Kruger was lunching Riff Raff & Co, she wanted a referral program to be a big part of their marketing. Within a few years, Kruger and her team grew Riff Raff & Co into a million-dollar company with more than 50,000 happy parents.
Riff Raff & Co’s referral program reward structure:
- Advocate reward: A Riff Raff sleep toy (5 referrals)
- Friend offer: Free worldwide shipping
My favorite takeaway from Riff Raff & Co’s referral program:
You do not have to give a reward for every referral. Most referral programs would give advocates a reward for every friend they refer. On the other hand, Riff Raff & Co requires its advocates to refer five friends before they get the reward. It offers its advocates a reward valuable enough ($65 sleep toy) that parents are willing to recommend the brand to fellow parents.
In ReferralCandy, you can easily set the number of referrals required for advocates to earn their reward:
7. MeUndies: Get $20, give 20%
After an uncomfortable and inconvenient experience buying underwear, Jonathan Shokrian set out to disrupt the underwear market in 2011. By 2017, the brand was selling five million pieces of underwear a year. (I have a pair, and it is great!)
MeUndies customers love its underwear. They are actively engaging with its Instagram posts and regularly waiting on Instagram for the next print. With such an active customer base, it is clear why “referrals play a huge part in growing our MeUndies fam”.
MeUndies’s referral program reward structure:
- Advocate reward: $20 store credit
- Friend offer: 20% off the first purchase (purchase has to be at least $12)
My favorite takeaway from MeUndies’s referral program:
MeUndies invites its customers to refer their friends through multiple emails. When a customer’s order is sent out, the notification email has a section about its referral program.
(View full email)
After the order has been received, MeUndies sends out another email specifically about its referral program, with the subject line, “Spread the Love (And Get PAID💰)”.
(View full email)
8. Rae Wellness: Give $5, get $5
Rae Wellness, a supplements brand founded by Angie Tebbe, grew to one million customers in just the first year of business.
It started selling online, directly to consumers, in 2019. By 2020, it quickly expanded to Target, Amazon, and more. After raising $9.5 million in funding, it is on track for triple-digit growth in 2021.
Rae Wellness’s referral program reward structure:
- Advocate reward: $5 off the next order
- Friend offer: $5 off the first order
My favorite takeaway from Rae Wellness’s referral program:
Having a referral program matches the product it is selling. Consumers are generally more cautious about buying supplements, compared to fashion and gadgets, because it is something we put inside our body. My guess is that a referral program works better than advertising for Rae Wellness because we would trust our friends about a supplement more than an ad we see online (even if they are incentivized to share).
9. Italics: Give $30, receive $30
Italic is a members-only shopping site that sells luxury goods from the same manufacturers as top brands. Without the brands’ logo, the products are much more affordable.
Before it launched, it already had a long waitlist of more than 100,000 signups. Even then, Italic was already using referral marketing. Referrals were the only way to bypass the waitlist, and about one in four referrals became a member. After the launch, they now have a different referral program.
Italic’s referral program reward structure:
- Advocate reward: $30 credit
- Friend offer: $30 credit for the first order or the membership
My favorite takeaway from Italic’s referral program:
Italic uses referrals to find its most engaged fans to build the company. When talking about the launch referral campaign, Italic product manager Derek Tu told Morning Brew, “that was by design, since we only wanted […] highly engaged members that are compelled to help build our early community.” Having an engaged community is such a great way to get feedback and product ideas to expand the brand.
10. Parade: Give 20%, earn up to $200
Within a year of launching, Parade sold over 700,000 underwears and brought in $10 million in revenue. For a period, the brand took over Instagram as they messaged more than 6,000 Instagrammers to offer free gifts in exchange for social posts.
According to Morning Brew, nearly 10% of Parade customers refer a friend within a month of their purchase.
Parade’s referral program reward structure:
- Advocate reward: $10 (friend 1), $20 (friend 2), $45 (friend 3), $10 (every friend thereafter)
- Friend offer: 20% off the first purchase (purchase has to be more than $40)
My favorite takeaway from Parade’s referral program:
Parade incentives its advocates to refer more friends by offering bigger rewards for each of the first three friends referred. Referring a friend to buy might be easy. But the second and third friends will be harder. By offering a bigger reward, Parade makes it more likely that its advocates would refer two more friends.
Interestingly, after the third referred friend, the advocate reward falls back to $10. My guess is Parade wants to avoid people abusing its referral program. Furthermore, if one customer brings in three new customers, that is such a great deal already.
12 more referral programs to check out
As you might know, we love referral programs and have written about a number of them. If you are looking for more inspiration, check out the following articles or our case studies collection:
- Amuze (discounted luxury fashion)
- The Clymb (outdoor apparel and gears)
- WoolOvers (knitwear)
- True&Co (lingerie)
- DapperTime (men’s watches)
- Greats (sneakers)
- Okabashi (footwear)
- Erin Condren (stationery)
- Mellow (sous-vide machine)
- YouFoodz (meal delivery subscription)
- FantasyDraft (fantasy sports)
- eJuices (vape products)
Over to you
What are your favorite e-commerce referral programs? If this list is missing your favorites, let us know!
P.S. If you enjoyed reading this article and want to grow your e-commerce store, subscribe to our newsletter to get our latest articles and roundups.
- Why Referral Marketing Is Awesome
- How to Set Up a Referral Program for Your E-Commerce Store
- How to Design Your Referral Emails
- How to Get More E-Commerce Referrals
- How to Promote Your Referral Program
- How to Measure the ROI of Your Referral Program
The previous versions of this article were written by Visakan Veerasamy, Si Quan Ong, Darren Foong, and Marquis Matson, marketers at ReferralCandy. We update this article regularly to keep it relevant and useful to e-commerce merchants.