Ask any entrepreneur and you’ll hear that word of mouth is the most coveted form of promotion. It’s been this way for as long as anyone can remember. But the digital era has fundamentally changed how word of mouth happens and how dramatically it can accelerate growth.

In fact, the importance of word of mouth for e-commerce businesses is so dramatic that it’s taken on an entirely new form called referral marketing. Referral marketing, at its essence, is the art and science of digitizing word of mouth through technology.

No matter what metric you ascribe to a successful marketing channel, referral marketing outshines the others: CPAs in the low single digits, ROI above 30x, time to conversion faster than 5x, and LTVs greater than 2-3x relative to other paid channels. When executed properly, a referral program can become your most cost-efficient acquisition channel; furthermore, for a fast-growing business, referrals can comprise as much as 30 percent of total acquisitions. Because each customer you acquire through referral is one less you have to acquire through a paid channel, it’s no wonder that marketers are prioritizing referral programs to scale in the digital economy. Below are the key steps to achieving these results for yourself. 

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Give your customers a compelling reason to refer.

If you have a great product or service, your customers will want to refer their friends to you. But for them to take action in a way that’s accelerated and not left to happenstance, they need a nudge. A little incentive goes a very long way toward motivating your consumers to spread the word about your brand.

We recommend providing a credit or discount toward future purchases. If store credit or discounts don’t fit with your category, consider a third-party gift card. Other options include free shipping on the next order or free accessories for every referral.

We also recommend incentivizing referred friends to become first-time customers with a credit or discount. Doing so gives each referred friend a great first experience with your brand, and it allows your existing customers to feel good about promoting a win-win when spreading the word.

Implement robust sharing and tracking technologies.

Make it super easy for your customers to share through email, SMS, and personalized referral links. When enabling referrals in social channels such as Facebook, Messenger, and WhatsApp, leverage the APIs of these networks to optimize the images and content that gets displayed. To truly scale your referral program, add automation for reward fulfillment, triggered lifecycle emails, and fraud prevention. 

Follow best practices.

The winning formula for a high-performance referral program is the following: awareness + accessibility + ease of use = impulse referrals. Ensure your customers are aware you have a referral program by promoting it at key touchpoints on your site as well as through emails and social media. Then ensure that when your customers have the impulse to refer, your program is highly accessible.  

If you’re an e-commerce site, a primary CTA on your homepage is essential because referring should always be a one-click step. But also consider other high-traffic parts of your customer journey. Do you have an account page that customers frequently visit?  How about a mobile app? Is your product a software application where customers spend most of their time within a dashboard? Conduct an audit of the most frequented areas of your product, website, and mobile app, and strategically place referral CTAs so they are highly accessible but not intrusive.

Analyze the referral funnel.

Every marketer is familiar with the standard conversion funnel. But a referral program is actually two funnels: one to get customers to share and another to get their friends to convert. Your referral platform’s analytics will allow you to measure each aspect of both funnels to get more shares and convert more referred friends.  

For example, upon launch, you may be thrilled with your sharing rates but realize that not enough friends are clicking through to your site. At this point, you may want to try improving the friend offer or focusing on a specific channel such as email sharing and experimenting with new subject lines. Comprehensive analytics for the referral funnel will give you the insights you need to continually improve performance over time. 

Optimize performance through A/B testing and targeting.

Once you have 60 days of referral performance data, A/B test to get the most out of each part of the referral funnel. Offer testing is typically the first element marketers look to for immediate impact. But don’t lose sight of optimizing each sharing channel. Specifically, email and SMS are very high-impact channels where A/B testing the creative and copy can significantly boost referral clicks and conversions.

Once you achieve success at scale, consider targeting different referral offers to your best customer cohorts. For example, VIPs could be given a higher offer for referring friends than the average customer offer. Segmenting your referral program in this manner is one more way to boost performance as you grow.

Your customers are your best promoters.

Referral marketing is a technology-driven approach that enables your customers to promote your brand to their friends. By digitizing word of mouth, you can accelerate customer acquisition through the most coveted and sought-after form of promotion. Your happiest customers are your most valuable asset. Activate them to become advocates for your brand with a best-in-class referral program.

Download Now: Referral Marketing: The Essential Guide