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One of the most common questions we get from merchants is, “What kind of referral reward should I offer?” Cash? Discounts? Something custom? It can feel like a lot to figure out.
The truth is, there’s no one-size-fits-all answer. It depends on your brand, your products, and your customers. But I’ll walk you through how to make the right call, step by step.
In this guide, we’ll break down the four key things to consider when picking your incentive, then show you 20+ real examples from other ecommerce brands to inspire your own. Let’s dive in.
Agency owner Jonathan Snow recently did a great analysis on X and this comprehensive blog post regarding affiliate commission levels. His conclusion was: Ecommerce stores should pay the highest commission level possible based on their margins.
You may wonder, won't high commissions reduce my profit margins? Well, generally speaking, not at least in the long term.
The math is quite straightforward. For an 80% margin on a $100 product, after seller fees, your variable profit at different commission rates would be:
Higher commissions result in more affiliate promotions, impressions, organic sales, product reviews, and more. You can play with the numbers & see how each bump in commission affects affiliate orders, but would you prefer getting:
Obviously, 150 orders at a higher commission and more net profit is better. If you offered even higher commissions and got:
With 500 orders, you'd lose a bit of money, but you'd generate more free impressions, build a larger customer base, and establish stronger brand recognition. The key takeaway is that you should test out different commissions and track what they do to the number of orders you get and your profit margins. Losing money in the short term can mean that you gain more in the long term.
Referral incentives and rewards are strategies businesses use to encourage their existing customers to refer new customers. Referral incentives are usually two-sided, and they benefit both the advocate (the existing customer) and the referee (the new customer).
To set up your own referral incentives, you can use referral program software like ReferralCandy. You can take advantage of ReferralCandy's 14-day free trial if you're interested!
Incentives modify human behavior. Choosing the right referral incentives means that your customers are motivated to make a referral. Research shows that of every 10 satisfied customers, 8 want to tell a friend, but only 3 customers actually do.
An attractive referral reward might just nudge them to make an effort to be a spokesperson for your brand.
For instance, here is an example of a motivated customer sharing his CycleBoard link:
The above customer wouldn't feel motivated to share the link if there wasn't something for him. The referral rewards also serve as a nice conversation starter: Where did you get that free toy? Which charity did you donate your reward to? These help to boost your word-of-mouth.
The right referral incentive will also make it easy for new customers to buy. A tempting discount combined with a friend’s recommendation makes an offer you just can’t refuse.
Next, we will go through four recommended steps when choosing your referral incentives.
(NOTE: If you want to set up customer referral programs for your online store, here’s our quick setup guide for Shopify and WooCommerce.)
A two-sided referral program rewards both sides of the referral for a successful referral: the advocate receives the referral offer, and the new customer receives the friend offer.
While there are also one-sided and cumulative incentives, we recommend two-sided incentives for most merchants simply because they have been proven to work best. One-sided programs are more like affiliate marketing.
Most referral programs are two-sided and equally balanced. Most commonly, you’ll see something like “Give 10, Get 10” or “Give 25, Get 25”, whether it’s in dollars or percentage off.
Here are some examples of the two-sided formula:
Two-sided referral programs feel good because they are a win-win for both advocates and friends.
It taps into the principle of reciprocity; you give your friend a nice discount, and they help you earn a referral reward. As a bonus, it also serves as a conversation starter. How will you spend your discount? Which colour should we get?
When you use a two-sided referral structure, the first step is selecting your friend's offer.
The friend offer is an incentive a referred customer receives when they make their first purchase. In general, friend offers tend to be discounts on the first purchase.
This is something that would make their first purchase a no-brainer. It could be a discount for being a new customer, a ‘starter’ subscription box, or even free shipping. The goal is to incentivize them to make their first purchase from your brand. There's no perfect amount, but we've observed that retailers that offer at least 10% off for Friend offers enjoy a higher referral rate.
Here are some other examples of friend offers that sweeten the deal and make it easier for new customers to make their first buy:
An advocate reward (sometimes called a referral reward) is what your existing customer receives when they refer a friend to your brand. To follow the example from above:
Advocate rewards come in different types and values. One way to think about it is that your customers already love your brand, which is why they are inclined to refer a friend. So, how can you offer them more of what they love?
We cover the types of advocate rewards more extensively in the next section, but some ideas are:
By offering both a friend offer and an advocate reward, you’ve created a two-sided referral program.
After speaking to many merchants over the years, we realize that analysis paralysis is a common problem. There are so many types of referral incentives we can offer, and which is the right one?
We’ve narrowed it down to three categories to make it easier for you to decide: cash rewards, store discounts, and custom rewards
Cash is the most versatile of all reward types. Everyone likes (free) cash, and even $5 will motivate a customer.
Cash rewards are repeatable and can be earned many times. Whether you refer three friends or 30,000 friends, the cash reward will be equally valuable. Also, cash reward payouts are easy to automate with referral marketing software like ReferralCandy.
Store discounts are most valuable when your customer can make repeat purchases - for example, fashion or pet food, or if your store has a wide variety of products, like a DIY store.
Offering a store discount can help customer retention by prompting a repeat purchase, for example:
Store discounts can come in several different forms:
In general, store discounts are awarded as coupon codes. But should you offer a flat discount or a percentage? You might want to consult the Rule of 100, which we discuss in more detail below.
Store discounts as an advocate reward help to prompt existing customers to make another purchase. Most friend offers are store discounts, to motivate new customers into making their first purchase.
With custom rewards, you need to be careful about fulfilment. If 2% of all your customers completed a referral tomorrow (industry average), would you be able to fulfil all the custom rewards? Tesla offered a Roadster as a custom referral reward and had massive trouble fulfilling their rewards.
Once you’ve selected your reward type, you want to be sure to present your incentives in the best light.
Good copy makes your incentives look more alluring. Here are four quick copywriting ideas to showcase your referral incentives in the best light.
When you’re writing discounts, should you write in terms of the dollar value or the percentage discount?
The Rule of 100 says that if your product costs less than $100, you should write discounts in percentage terms; otherwise, you should write in absolute terms. Here’s an example:
In both cases, the value of the discount is the same, but we pick the number that looks bigger. For the $25 product, “40% off” looks more impressive than “$10 off”, and for the $2500 product, “$1000 off” looks like a bigger discount than “40% off”. When offering discounts, use the bigger-looking number.
Tesla’s friend offer is a great example of the Rule of 100: you get $1000 off the price of a new car! A thousand dollars seems like a lot, but not when you consider it’s only a 1.4% discount for their $70,000 car.
The most common referral program follows this formula of Give X, Get X.
Thinx offers a give $10, get $10 in-store credits towards your next purchase
If you try Googling ‘Give 10, Get 10’, you’re likely to find plenty of refer-a-friend programs. It works because it’s easy to understand.
Threadbeast's referral copy is all about the sharing experience - “make your friends love you”.
There’s even a guide to sharing on Instagram
Using the same angle on your own copy, you can make referrals a social experience.
I love this clean execution from Cycleboard, highlighting the value of the reward:
Spelling out the $100 value with words that sell
This is also another example of the Rule of 100: $100 looks like a more attractive offer than 5% off a $1,899 Cycleboard.
These first three steps will cover 90% of referral programs. You may have a specific idea in mind, or a particular use case, so here are some successful variations we’ve seen.
If you offer cash as a referral reward, you may want to set a minimum purchase amount to avoid giving away more than you receive.
NextEvo Naturals has a minimum spend of $20
You may also want to set up terms and conditions for your referral program to avoid abuse. D'Artagnan mentions that there is only one promotional code available per order to prevent any fraudulent referrals.
You may also notice that Ledger only awards the $25 discount after four successful referrals. This is another way to adjust the ROI of the program.
Similarly, to earn the free toy from Riff Raff & Co, you need to make five successful referrals.
Love Yourself experimented with increasing the referral incentives for a month to boost the referral rate as part of a summer campaign. It worked, generating 20,000 and 14% more customers in the referral program.
Awarding points as a referral reward is closer to a customer loyalty/customer retention strategy. It’s extremely popular in the beauty and grooming industry and might be modelled on Sephora’s successful Beauty Insider program.
For beauty brand Frank Body, points are integrated into your customer account. You earn points for making a purchase, sharing reviews on social media, or referring a friend. The more points you accumulate, the higher tier of rewards you achieve.
Frank Body styles its loyalty program as ‘Hotel Pink’
A points system has worked well for many brands - if your goal is to drive brand retention and customer loyalty.
But if the goal of your referral program is to acquire new customers, we have found that simple and clear rewards work best. Our customers have told us that a points system can be too complicated for their customers, which in turn deters them from referring their friends.
While Give X, Get X is a successful referral program idea, sometimes you may want to offer a lopsided or one-sided referral program.
If you have a newer brand or one that’s less well-known in the market, you may want to offer existing customers a bigger reward - this can reinforce their connection to the brand and motivate them to make a referral.
This is similar to how Gymshark kickstarted its Gymshark athletes' program, and in fact, one-sided referral incentives closely resemble affiliate marketing programs. Using a referral link from Gymshark gives you no benefit, but earns the referrer a small commission.
Referral incentive structure: Stanley rewards both the referrer and the friend with a two-sided discount.
Type of referral incentive used: A referral will receive a $10 discount for every five friends referred and the friend will receive a 10% discount.
Referral incentive structure: The Skinny Food Co has a two-sided referral program reward structure, rewarding both referrers and referred customers.
Type of referral incentive used: The referrer receives 20% off, and the referred friend receives the same.
Referral incentive structure: Branch Basics uses a two-sided incentive structure to encourage customers to join the referral program.
Type of referral incentive used: Branch Basics will give $10 off to anyone who refers a successful referral. The referral will also receive $10 off.
Referral incentive structure: VitalSleep has a two-sided incentive that rewards both the referral and the friend.
Type of referral incentive used: VitalSleep uses cash rewards. For every referred friend, the referrer will receive $10. The referred friend gets 20% off.
Referral incentive structure: Momomi uses two-sided referral incentives where both sides are rewarded when there is a successful referral.
Type of referral incentive used: Momomi uses cash rewards and store discounts as their referral incentive. They pay referral payments through PayPal monthly to the referrals.
Referral incentive structure: Eva has a two-sided referral program structure where the friend and the referrer are both rewarded.
Type of referral incentive used: Eva has a unique referral incentive, where they promise a $50 Visa gift card for the referral. The referred friend gets a $50 discount into their next purchase.
Referral incentive structure: Christy Dawn rewards both sides, so their referral program is two-sided.
Type of referral incentive used: Christy Dawn has a popular give $50, get $50 referral incentive. One of their top referrers is Kait Bos, a fashion blogger and YouTube creator, who’s driven hundreds of new customers to Christy Dawn with her vlogs and blogs.
Referral incentive structure: UNTUCKit uses a two-sided referral program incentive where the friend and advocate are both rewarded.
Type of referral incentive used: UNTUCKit gives referred customers a generous offer of 25% off! UNTUCKit also gives a 25% discount to the customer who refers a friend - that reward is what we call the advocate reward
Referral incentive structure: Endy Sleep has a two-sided referral reward system, where the advocate and friend are rewarded.
Type of referral incentive used: Endy Sleep offers a free weighted blanket for a successful referral. If your product has a long buying cycle or a one-off purchase, cash or a free product is a good choice, which Endy Sleep shows a good example for.
Referral incentive structure: CriticalPass offers cash as a referral rewards and incentives. The advocate gets a cash reward, and the friend gets a discount on the purchase.
Type of referral incentive used: CriticalPass sells study aids to help customers pass law school exams. Customers never have to make a second purchase, so CriticalPass offers $10 in cash as a referral reward. The cash reward works well because seniors and managers can still recommend CriticalPass to their juniors taking the exams - and $10 is still $10 they can spend anywhere.
Referral incentive structure: Dappertime offers customers a percentage of the friend's order value as a cash reward.
Type of referral incentive used: Dappertime rewards customers with 20% of their referred friends’ order value, almost like a commission for a successful sale.
Referral incentive structure: A Box of Stories has a two-sided referral program system, where the advocate and friend receive a referral bonus.
Type of referral incentive used: A Box of Stories has a popular give 20% off, get 20% off on your next order.
Referral incentive structure: CycleBoard's referral incentive structure rewards customers based on the size of the friend order. The friend also gets rewarded with a 10% discount, so it's a two-sided customer referral system.
Type of referral incentive used: The advocate reward is 10% cash off the friend's total order value. The referred friend gets 10% off of their purchase.
Referral incentive structure: J.Crew Factory has a two-sided referral program, rewarding both the advocate and the friend.
Type of referral incentive used: The advocate gets $20 through PayPal, and the referred friend gets $20 off their next order.
Referral incentive structure: Dose uses a two-sided referral reward system.
Type of referral incentive used: Dose has a typical store discount referral reward, giving 15% off for the referred friend and also the advocate.
Referral incentive structure: Mila uses a two-sided referral reward structure where both sides are rewarded.
Type of referral incentive used: Mila offers $50 off for the referred friend's first purchase, as well as a free filter for the advocate.
Referral incentive structure: NextEvo Naturals has a referral reward system where the advocate and the friend are both rewarded.
Type of referral incentive used: Using cash rewards, NextEvo Naturals promises $20 off for the referred friend and the same $20 for the advocate.
Referral incentive structure: D’Artagnan rewards both the friend and advocate using a two-sided referral incentive.
Type of referral incentive used: D'Artagnan gives a $30 OFF coupon code for the referred customer and the advocate.
Referral incentive structure: Timeless Skin Care uses a two-sided referral structure.
Type of referral incentive used: Timeless Skin Care has a popular give $5, get $5 referral incentive, where the advocate and the friend get the same reward.
Referral incentive structure: The RealReal rewards both the advocate and the friend using a two-sided referral incentive structure.
Type of referral incentive used: The RealReal has one of the biggest referral rewards, offering $100 off for the friend and the advocate. This high reward is only possible because their products are high-ticket and the average order value is high.
Referral incentive structure: Plufl uses a two-sided referral incentive structure, rewarding both sides.
Type of referral incentive used: Plufl gives 15% for the customer who refers new people. The referred friend gets 10% off their next order.
If you want to build up your own successful referral program, you need a referral program software. Referral program software helps streamline and automate the process of managing referrals, tracking rewards, and measuring the success of your program.
One of the solutions merchants have trusted for a long time is our software, ReferralCandy. If you want to try ReferralCandy out today, I'd suggest taking advantage of the available 14-day free trial.
Once you’ve set up your referral incentives, you’re ready to start promoting your referral marketing program. Here are some suggestions for what to do next:
And of course, be sure to sign up for our email newsletter to get the latest articles and round-ups to grow your ecommerce store.
Raúl Galera is the Growth Lead at ReferralCandy, where they’ve helped 30,000+ eCommerce brands drive sales through referrals and word-of-mouth marketing. Over the past 8+ years, Raúl has worked hands-on with DTC merchants of all sizes (from scrappy Shopify startups to household names) helping them turn happy customers into revenue-driving advocates. Raúl’s been featured on dozens of top eCommerce podcasts, contributed to leading industry publications, and regularly speaks about customer acquisition, retention, and brand growth at industry events.
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