Word-of-Mouth and Referral Marketing Blog

When to Have a Referral Program: You Might Not Be Ready

4 Key Criteria for a Successful Referral Program

Are you in the right spot to have a referral program?

Being in the right spot can mean different things, and they can affect the potential success of your referral program.

Referral programs should never be approached as a quick “growth hack” that you can implement on your online store the same way you might implement an exit-intent popup. Referral marketing is a long-term strategy, and it has to be part of an overall and company-wide customer-centric strategy.

Building customer loyalty should be a priority for any company from day one. It all comes down to earning your customers’ trust before asking for their recommendations. However, building a solid sales channel through referrals takes time.

In this article, we’ll go over some of the reasons why you might not be ready to launch your referral program—yet—and how you can get your online store ‘referrals-ready’.

4 key ingredients of a successful referral program

1. Do you have a sizable customer base?

Referrals are a numbers game. Studies have shown that only a third of customers who said they would talk to a friend about your product actually do.

A referral program can help encourage more customers to share. But first, you need a good number of customers and orders.

Now here’s the million-dollar question:

How many orders per month do you need to start a referral program?

A good rule of thumb is 100 to 200 orders every month.

If you are above this threshold, you will likely get sufficient referrals to get a positive return on your referral program.

If you have even more orders, say 500 to 1,000 orders every month, it is very likely that you are already getting referrals that you don’t know about. Setting up a referral program will allow you to shine some light on how your customers are talking about your brand, as well as incentivize them to continue doing so.

What if you are below that threshold?

In general, you might not get enough referrals to see tangible results and you might want to focus on other marketing channels first. That said, if you have a ‘referable’ product, a related brand story, and a sharable customer experience, a referral program could still work well for you.

2. Do you have a ‘referable’ product?

Having a product that makes your customers excited to talk about is a great way to turn your referral program into a well-oiled customer acquisition machine.

If your product is either excellent, innovative, interesting, useful, or a combination of these traits, your customers will organically talk about it.

Think about the shoe brand TOMS: Despite operating in a highly competitive fashion and apparel industry, they were able to stand out from their competition thanks to their innovative “one for one” initiative, which promised to deliver a pair of free shoes to a child in need for every sale.

Similarly, Rothy’s, another shoe brand, was able to create buzz around their brand by explaining their manufacturing secret: they were creating high-quality shoes using recycled plastic bottles.

Wohven is my favorite example of a product with a ‘referable’ component that has turned their customers into fans who love spreading the word on social media. Wohven sells high-quality t-shirts with a twist. Customers subscribe to receive a new t-shirt every month. These t-shirts have been designed by an artist chosen by the company and will never be produced ever again. This means that customers receive a surprise, limited edition t-shirt every month.

For Wohven customers (myself included) it feels like Christmas every time you receive it in the mail. You don’t know what you’re going to get but you know you’ll like it. Customers are usually so excited that they rush to social media to post pictures of themselves wearing their new swag:

Wohven customer sharing on Instagram

No doubt their referral program has been a success.

Before you set up your referral program, think about the following questions:

  • What makes you different from your competitors?
  • What do your customers love the most about your product?

If your customers can recognize what makes you different (and most importantly, better) than other options in the market, you have an important angle to explain why they should refer you to their friends and family.

3. What is your brand story?

If there’s something I always love listening to, it is entrepreneurs sharing their lightbulb moment. Their eyes light up and always get this smile on their face. It was an epiphany that changed the course of their lives forever because it gave them a new purpose.

What was your lightbulb moment?

How did you come up with the idea for your brand and thought “the world needs this”?

Is your product offering a better alternative to what was available for consumers? Is it fixing a broken or outdated industry? Is it making the world a better place?

The answers to these questions are pieces of information that your customers would love to hear about.

Your customers will likely relate to the reasons that led you to start your brand and the values it projects. This will allow you to create a better connection with your customer base and will reinforce their decision of buying from you—and recommending their friends to do so.

One of my favorite examples is Branch Basics.

Branch Basics is a company that’s trying to fix one of the oldest and biggest industries in the world: the cleaning supplies industry.

Most of the products that we use are owned by a handful of massive corporations and these products are partly responsible for the water contamination issue the world faces. On top of that, the two main ingredients we consumers pay for when we buy cleaning supplies are water and single-use plastics. The industry is broken.

Branch Basics offers a solution to this. Their product is an eco-friendly cleaning concentrate that can be diluted in water. Branch Basic customers get their initial starter kit with reusable spray and mix bottles, as well as concentrate refills on a subscription basis.

With such a strong brand message, Branch Basics has dedicated a lot of effort to educating their customer base on the benefits of choosing a more environmentally-friendly option for their cleaning supplies.

Branch Basics campaign

Branch Basic’s #TossTheToxins initiative encourages people to remove toxic cleaning products from their homes in an effort to improve their health.

As their CEO Tim Murphy mentioned, “We think of ourselves as a mission company, and we’re focused on getting the message out. The more we educate on health and wellness, the more we sell.”

Branch Basics guides

Branch Basic’s Guides educates their customers on how to maintain a healthy home by cleaning the most natural way possible.

This strategy has worked extremely well for them. The more they’ve been able to educate their customers, the more friends they’ve referred to. Branch Basics’ referral program has generated over $1.5M and over 10% of their monthly sales come from new customers that have been referred by friends and family.

Over the past few years, brands have realized how important it is for them to create a deeper connection with their customers. Their relationship with their customers is beyond a pure retail transaction and, with more options available, consumers are pickier about the brands—and messages—they support through their purchases.

Some brands have even taken strong political stances even though they faced the risk of alienating (and losing) an important part of their customer base. One good example of this is Patagonia and their Buy Less and Vote stance and their viral Vote the a**holes out clothing tags during the 2020 US Presidential election.

These examples have worked for these brands because they’re genuine. Customers can spot a forced marketing message when it’s not real and can end up damaging the brand image.

You might be thinking: My brand doesn’t take political stands and I am also not fighting against giant corporations, does that mean I don’t have a brand message or story to share? Absolutely not! Every brand is unique, and there’s also a unique reason that moved you to start your own business which will connect you with your customers.

4. Can you create a shareable customer experience?

Let’s pause for a moment and think about why people share. What makes you recommend something to a friend? In a lot of these cases, it’s because we want to help someone by providing them with something useful. And this goes beyond ecommerce. Think about the last time someone recommended a restaurant, a book, a new Netflix show, or a new weekend getaway spot.

What all of these recommendations have in common is the fact that someone had a good experience and decided to encourage someone else to repeat this same experience themselves.

Nobody would recommend a friend to try something out that they hadn’t enjoyed— or even worse, had a bad experience with.

This comes to say that a referral program isn’t going to fix a bad product, service, or shopping experience. If your customers aren’t happy, they’re not going to refer, period. It doesn’t really matter how big of an incentive you’re offering them in exchange.

It’s no surprise that companies that have mastered their customer experience end up turning customers into loyal fans and advocates. Here are a few great customer experience examples:

Customer experience example 1

Customer experience example 2

Customer experience example 3

Their customers are so happy with their experience that they’ll be naturally inclined to refer their friends and family.

Are you ready?

If you’ve made it this far in the article, it probably means that you are serious about giving this referral marketing thing a try and—hopefully!—are in a good position to launch a referral program for your online store.

The criteria I laid out above give you an idea of what to expect from your referral program, but the reality is that you won’t know exactly how your referral program will work until you actually launch it.

If your products are collecting good reviews, your customer support team is helping your customers in a timely manner, and you’re collecting good feedback about your brand and products, it’s a good time to start thinking about referrals.

Raúl Galera

Raúl is ReferralCandy's partner manager.

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