Loyalty Program Referral Rewards: How To Choose The Right One And Jump Start Referrals

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A successful business is built on killer marketing. 

When I set out on my entrepreneurial journey, I knew this was the case. 

Only 33% of consumers still trust traditional marketing tactics, so doing things the way it’s always been done is NOT an option. 

However, as you shift to a more innovative approach like referrals, you’ll want to make sure you’re set up for success. 

This means having the best rewards, the best referral codes, and the best platform to monitor it all. 

Through years of research, trial and error, and luck, I’ve been able to perfect my referral reward strategy, and I want to pass that knowledge on to you. 

What is a Referral Reward? 

When you start a referral program, you’re basically recruiting brand ambassadors. 

You want your customers to be as passionate about growing your business as you are! 

But let’s face it; nothing comes for free. 

83% of people are willing to refer a business to a friend, but only 29% will follow through. 

That means your customer base could be 3x the size if people actually bought into your referral program! 

One of the best ways to get those feet on the ground is to offer a spectacular reward. 

People will be thrilled to share your business once you answer the age-old question - What’s in it for them?

Common Misconceptions about Referral Rewards

Everyone has ideas about the best way to reward referrals. 

This has led to quite a few myths popping up over the years. 

I’ll walk you through a few of the most common ones and give you the lowdown on why they’re not as well-thought-out as you might think. 

Myth One: It’s All About the Ambassador 

While rewarding the person who’s out there telling people about your business is important, it’s not the only thing to consider. 

Having an incentive in place for both the ambassador and the potential new customer is drastically more effective. 

This is because, while having a friend tell you about a business is enticing, knowing that you can get something for checking them out is even better! 

Myth Two: Cash is King 

While simply giving out money to anyone who brings in a referral might sound enticing, in the long run, it won’t be as effective.

Not only does this become cost prohibitive, but it doesn’t make a lasting impression. 

Chances are, your customers are going to use cash for everyday expenses. 

That means eventually they’ll forget about the reward altogether. 

Offering a non-cash reward like a discount or prize creates a lasting impression. 

Myth Three: Scaling is Simple

You might think that with a plan in place and a unique referral code for everyone, you’ll be able to stay on top of referrals no matter how many come up. 

This isn’t always true. 

There are tons of stories out there about businesses, big and small, losing track of who is meant to get rewards and when.

All it takes is one or two people slipping through the cracks for your brand trust and loyalty to plummet. 

That’s why having a system in place and a partner like ReferralHero is so important. 

ReferralHero can handle all the tracking for you so that you can focus on connecting with customers and making the biggest impression possible. 

Myth Four: Size Always Matters

While having a hugely generous incentive program will likely get people excited, it’s not always the most effective way. 

Having an air of exclusivity, or offering something memorable, will keep people invested longer than a huge discount. 

If you can get people talking about their exclusive merch or interactions with your brand, it’s an instant win-win. 

You don’t want to get caught paying more in rewards than you get in profits. 

Choosing the Right Referral Reward

So if simply throwing money at people who send referrals your way isn’t going to be effective, what will be? 

You know your business, employees, and customers better than anyone else. 

Knowing what will get them excited relies on understanding why they’re invested in your company in the first place.

What works for a bank isn’t the same as what will work for a hair care product. 

Whether you’re looking to reward customers for bringing in friends or employees for finding the perfect fit for a role, you need to know what’s interesting to them. 

Here are some things to consider. 

Where The Reward Goes

As I mentioned earlier, simply rewarding the person giving the referral isn’t always the best plan. Remember, whoever gets a reward is going to be more invested in making this new sale happen. There are three ways you can split up rewards: 

The existing customer gets rewarded

Pros:

• Referral rewards increase customer referrals to your business.
• Referral incentives generate new leads from happy customers.
• Rewarding customers with incentives strengthens relationships, increases retention, and fosters loyalty.

Cons:

• Reduce the perceived authenticity of the referral as a self-interested promotion rather than a genuine recommendation.
• Decrease the trustworthiness of the referral in the eyes of the new customer.

One-sided incentives work best for startups and companies aiming to increase brand awareness and sales. They are cost-effective and can acquire new customers. This strategy is most effective when combined with a strong recommendation and a reasonably priced product offer, which can convince the referred friend to make a purchase due to the recommendation from someone they trust and the attractive offer.

The new customer gets rewarded

Pros

• Discounts or freebies are a powerful tool to convert prospects into customers.
• Referral incentives offered to the referred friend can increase the likelihood of them moving further down the sales funnel.

Cons

• Without a clear incentive, the current customers may not have any motivation to refer others, which could result in missed opportunities for growth and new customer acquisition
• Loyalty and love for the brand may not be enough for customers to actively share their experience with others.

This strategy of one-sided incentives is ideal for businesses that use subscription models, frequent purchases, or offer luxury products/services. By offering incentives, interested prospects are encouraged to make a purchase and hopefully become long-term customers. Although this approach may result in a lower number of referrals, it can lead to a larger customer base.

Both customers get rewarded

Pros

• Increase the likelihood of successful referrals by giving both parties a compelling reason to participate.
• Make the process more effective by allowing advocates to share without appearing self-serving.

Cons

• Offering incentives to both parties can be costly for some companies that may not have the resources to provide them.
• Keeping track of rewards for both the referrer and the referred friend requires more effort and resources, which could become burdensome for some businesses

This strategy of two-sided referral incentives is suitable for all types of businesses, particularly those with sufficient resources to offer rewards to both parties. Using a referral software tool can help companies track important metrics and optimize their referral program.

Types of Rewards

There are so many different options for rewards - don’t get stuck using the first thing that comes to mind. 

• Discounts - This is a great option for anything that your customers are likely to buy more than once. However, if you’re offering a large purchase like a car or furniture, they aren’t going to want a discount code for referrals.
• Cash/Cashback - While it doesn’t stand out, cash is a great incentive if your company centers money like Paypal or a product that people likely won’t want two of. 
• Store Credit - Store credit is a great way to give customers something they can use more than once. It also encourages them to keep coming back to your store!  
• Free Products - This will not only get people excited to share your business, but it will act as another way to get your products in front of people. 
• Branded Merch - If you can choose an item or a logo that people will use and will spark conversation, this reward can help create even more buzz
• Gift Cards - Offering a gift card sidesteps the chance that people will buy something they won’t remember. It also offers the opportunity for people to choose what they’re more likely to use. 
• Subscriptions - a free subscription period is a great incentive for both the new and returning customer. It encourages long-time, repeat engagement. 
• Donations - If your company is focused on pushing values over profit, making donations in an ambassador’s honor can have a lasting effect both on the world and on your brand loyalty.  
• Exclusive Sales Access - Giving customers early access to sales or exclusive discounts can make them feel like they're part of an exclusive community and encourage them to keep coming back.
• Free Shipping - Shipping costs can be a major deterrent for customers, so offering free shipping as a reward can be a powerful incentive.
• Partnership Perks - Partnering with other brands to offer joint promotions or exclusive discounts can expand your customer base and provide added value for your existing customers.
• Limited Products - Creating limited edition or exclusive products that are only available to loyal customers can create a sense of exclusivity and encourage repeat purchases.
• VIP Experiences - Offering VIP experiences like backstage tours, exclusive events, or meet-and-greets can make customers feel like they're part of a special group and deepen their loyalty to your brand.
• First Access to Products - Giving loyal customers early access to new products before they're available to the general public can generate excitement and create a sense of exclusivity

When choosing rewards for your loyalty referral program, there are several factors to consider that can help ensure the success of the program and the satisfaction of your customers. Here are some tips to keep in mind:

• Ensure rewards have value for your customers: Rewards should be meaningful and valuable to your customers. Consider what your customers would find most appealing, whether that's discounts, exclusive access, free products, or other perks.
• Link rewards back to your company: Rewards should be tied to your company and your brand. They should reflect your values, products, and services, and help reinforce the relationship between your brand and your customers.
• Balance quick and instant rewards with exclusive, high-end ones: While quick and instant rewards can be effective for encouraging initial engagement, it's important to also offer more exclusive and premium rewards that incentivize long-term loyalty.
• Make sure rewards are both attractive for customers and sustainable for business: Rewards should be attractive to customers, but also sustainable for your business. Make sure you have a clear understanding of the cost and ROI of your loyalty program, and adjust rewards as needed to ensure they are both enticing and cost-effective.
• Create a sense of urgency: Rewards that are available for a limited time or in limited quantities can create a sense of urgency and encourage customers to act quickly to take advantage of the reward.‍
• Leverage customer data: Use customer data and insights to personalize rewards and make them more relevant to individual customers. This can help increase the perceived value of the reward and create a more personalized experience for customers.

Reward Triggers

It’s SUPER important that you’re smart about when and how often you offer rewards. 

You want to make sure that the company is getting value out of the referral and that there is enough incentive for people to continue inviting friends to come along. 

Is simply clicking a link enough to get a reward, or does the new customer have to make a purchase? 

Does the size of the purchase have any effect on the rewards? 

Are the rewards the same every time? 

All these questions will help you shape your reward structure. Some options to consider are: 

• Tiered Reward Structure - This is a great way to keep customers invested in getting more and more referrals for you. It can get complicated, so make sure you have a foolproof way to keep track of how many referrals are coming in. 
• Multi-step Rewards Structure - If you’re worried about handing out too big of a reward for bringing in customers that don’t make big purchases, this is perfect. You can give out a smaller reward when the referral comes in and a larger one when they spend a certain amount of money. 
• Contests or Drawings - to drum up lots of excitement and momentum around your referral program, consider entering customers into a draw or competition that rewards bringing in more people than anyone else
• Customer of the Month - continuing with a bit of competition, naming a customer of the month helps people feel noticed and appreciated. It also turns referrals into more of a game. 

Whatever you end up doing, make sure it fits with your customer base and how likely they are to engage with your program. 

10 Examples of Referral Rewards

1. Cash Commission
Sybill's referral program initially rewarded users with a $10 cash reward for each successful sign-up from their referral link, valid until April 30th, 2022. However, they later switched to a commission-based model and now offer a commission of 20% of the ACV (Annual Contract Value) of accounts referred to the app. This incentivizes existing users to refer as many people as possible, with no limit on the number of referrals they can make. 

2. Tiered Rewards
The referral program of Outlier comprises multiple tiers of referral rewards and incentives, which are determined by the number of successful referrals. Despite its complexity, this approach presents a chance for customers to become committed members of Outlier's referral marketing program. 

For the first referral, customers can access a sportsbook bonus code. If they reach three successful referrals, they receive a free month of Outlier Premium. When they get eight referrals, they will receive $25 in cash, while 15 referrals will earn them an Outlier shirt. For 20 referrals, customers can claim another $25 in cash, and at 25 referrals, they will receive a drink tumbler and stickers. Upon reaching 30 referrals, they will earn an Outlier baseball cap, while 40 referrals will grant them a premium Champion crewneck sweatshirt. If they reach 50 referrals, they will receive $100 in cash, while 75 referrals will earn them a Fanatic jersey. Finally, customers who reach 500 referrals will be rewarded with a trip to Las Vegas or March Madness

3. First Access to Products
Parcl understood their customers' needs and desires. They were able to create a prize that’s unique and has a high perceived value to their users. The top 50 contest winners will gain early access to the Parcl v2 to test before anyone else has access. Access will be granted with a Homeowners Association NFT.

4. Free Product 
Cheese Therapy contest campaign incentivizes the top referrer with a 1-Year supply of their best-selling Therapy Box, valued at $1,139.00, delivered every month for 12 months! This encourages participants to go out of their way to try and earn the top prize and in turn be a  spokesperson for the brand.

Besides the grand prize, Cheese Therapy also rewards a randomly selected winner with a prize worth $50.00 every day!

5. Discount
Rothy's is a sustainable shoe company that offers a referral program where customers can earn $20 off their next purchase for each referred friend who makes a purchase. The referred friend also gets $20 off their first purchase.

6. Store Credit
This coffee subscription service offers a referral program that rewards both parties with a $15 credit.

7. Gift Cards
Oregon Shines offers double-sided rewards to incentivize both the referrers and the referrals with a $25 e-gift card when the referred friend(s) sign up for the Community Solar program. Oregon Shines sends a reward email with the e-gift card link to both the referrer and the referral after each successful referral conversion.

8. Subscriptions
Proton Mail has introduced a referral program to encourage users to invite their friends and family to join and experience a safer internet. The security and privacy features of Proton Mail work best when communicating with people who are also using the service. When a user refers a friend, the friend receives a free month of Proton Mail Plus. If the friend subscribes after their free trial, the user who referred them receives up to $90 of credits towards their subscription. Currently, the referral program is available for Mail Plus, Proton Unlimited, or Visionary plans. By participating in the referral program, users not only help spread the word about Proton Mail but also get rewarded for it.

9. Charitable Donations
Ricci Insurance Group attributes its success in building its agency to referrals from existing clients, industry partners, friends, and family. To show gratitude and give back to the community, they launched the Charity Referral Program in April 2020. For each new client they earn through referrals, they donate a set amount of money to a different charity every quarter. They also commit to supporting the charity throughout the quarter through non-financial means, such as volunteering and social media promotion. For the second quarter of 2023, they are supporting JWB Cares, Inc., the charitable arm of the JWB Real Estate Companies. The foundation was established to facilitate their efforts to give back to the local community in meaningful ways. Ricci Insurance Group is excited to support JWB Cares, Inc., through their Charity Referral Program.

10. Partnership Perks
Shutterfly's referral program stands out not just for its customizable rewards, but also for the partnership perks it offers. As a company that specializes in personalized photo products and services, Shutterfly partners with its sister brand, Tinypics, which caters to cards, invitations, and announcements. By participating in the referral program, users not only get to enjoy rewards such as a free photo book, a 40% off coupon for Tinypics, or 10 free cards, but also benefit from the strong partnership between the two brands. Shutterfly makes the program easy to find and does not pressure users to refer, allowing customers to participate on their own terms and enjoy the partnership perks

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The Bottom Line

Everyone gets excited about a prize! Your customers are no different. 

As you start fleshing out your referral program, don’t underestimate the value of the perfect rewards system. 

With the right reward, trigger, and tracking system in place, you’ll have referrals rolling in in no time - and maybe even give your customers something they’ll talk about for a long time.