This is Part 5 of a 5-part series about the customer lifecycle. If you haven’t already, check out Part 4 to learn about the Delight stage.

You’ve attracted new prospects’ interest in your brand, converted those leads into loyal customers, fulfilled customer satisfaction through the delivery of an excellent customer experience, and delighted your customer by offering them additional products and services. But the customer lifecycle does not simply end with happy customers. If you’ve played your cards right in each other stage of the lifecycle, you’ll reap your ultimate reward in the Refer stage.

The greatest value you receive from your customers comes not from their initial purchase or even their upsell purchase, but rather from the new customers they refer to you. If you’ve succeeded in delivering a remarkable product and experience to your customers in each other phase of the lifecycle, referrals should become an easy ask — and achieving them sets in motion a return to the first phase of the customer lifecycle as new customers begin in the Attract (or, in some cases, the Convert) stage.

“Referrals don’t invent demand; they amplify it,” wrote Visakan Veerasamy of the ReferralCandy blog.

Not only do referrals bring you more customers, but they bring you the right types of customers. Customers referred by other customers have a 37% higher retention rate, according to Deloitte and, according to McKinsey, a lifetime value 16% higher than non-referred customers. This follows the simple psychological concept that people who are within your wheelhouse are likely friends with others who are too; people associate with others who are like them.

“If you tried (or want to try) Facebook ads, you know that if you don’t get your target audience right, your entire ads budget will go to a waste … But with referral marketing, all the targeting is magically and perfectly done for you,” wrote small business growth strategist Olivia Angelescu on the Duct Tape Marketing blog.

People trust their friends far more than anyone or anything else, which is why 92% of people trust word-of-mouth recommendations more than any other form of advertising, and 77% of people find the advice of family and friends the most persuasive (among 21 forms of advertising studied) when looking to buy new products, according to Nielsen.

“When your ideal customer prospects see others like them using and succeeding with your product, there’s a level of validation that trumps just about everything else you say or promise,” said customer success expert Lincoln Murphy on his blog, Sixteen Ventures.

But First, Be Remarkable

How do you get in on this extremely low-cost yet highly lucrative part of the customer lifecycle? It starts with making sure you’ve nailed down every other stage to an exceptional degree. As bestselling author and marketing icon Seth Godin says on his blog, “The only thing that will make you remarkable is being worth remarking about.”

Even that is often not enough. Referrals don’t often come automatically; in fact, according to a Texas Tech study, 83% of people say they’re willing to refer a brand, but only 29% actually do. This is likely either because people aren’t aware of the referral program or because they weren’t motivated enough to do it amid their busy lives and many other things vying for their attention.

Businesses need to harvest referrals by asking, reminding, making it simple, and giving customers a reason to do it. A referral program is a deliberate, systematic way of encouraging your customers to spread the word about your product or service, and they typically involve a reward for both the referrer and the referee.

Understanding the psychology of referrals

Understanding how to gain referrals starts with understanding why people refer.

The first step, as Godin explains, is to realize your customers don’t care about your business – they care about themselves. “Anyone who tweets about a brand or favorites a brand is doing it because it is a symbol of who they are – it is a token, it is a badge. It’s about them, it’s not about the brand,” he said in an Inc. magazine interview.

For someone to attach their identity to a brand requires a brand that successfully communicates and delivers on its purpose beyond its products and services. It must deeply connect with someone’s core values and traits, which begins with both showing and telling your value proposition throughout the customer lifecycle.

Similarly, people share things because they involve a certain level of social currency: it makes them look good and makes others like them. An entrepreneur, for example, might feel proud to refer or post on social media about a masterclass he completed because it elevates others’ perception of his level of expertise.

This also works in the reverse: People avoid sharing because their credibility is on the line. What if the person you refer has a bad experience or doesn’t like the product? Your customers need to feel extremely confident in your brand ‒ and in the customer experience you provide ‒ before they’ll take that risk.

“Being really good is merely the first step,” Godin wrote on his blog. “In order to earn word of mouth, you need to make it safe, fun and worthwhile to overcome the social hurdles to spread the word.”

Social currency is one of the six factors that encourage people to spread the word outlined by Jonah Berger, an expert on word of mouth marketing, in his book Contagious: Why Things Catch On. The factors are:

  • Social currency: We share things that make us look good.
  • Triggers: We share what’s top-of-mind.
  • Emotion: We share things we connect to on a deeper level.
  • Public: We share to imitate others.
  • Practical: We share to provide value and information to others.
  • Stories: We share when there’s a story attached to something.

When determining your referral program format, consider how you can play into one or more of these factors to increase your odds of getting referrals.

Creating a Referral Program

With a broader understanding of what motivates people to refer, you can determine what specifically might motivate your particular customers.

It begins with remembering your “why.” Why does your business exist, and how does it align with your customers’ values and needs? That’s the foundation of why your customers will connect with your brand enough to refer others.

Make sure you do these three things to create a successful referral program:

Reach referrers at the right time and place

There are several triggers within the customer experience that are ideal times to remind your customers about your referral program:

  • After a customer has been using your product or service for enough time to have experienced an “aha” moment or otherwise understand its value
  • When a customer achieves a milestone, such as using your product for a year or completing a level in your educational program
  • When a customer is likely going to need a refill or renewal of a subscription, especially if your referral program provides a discount or related benefit
  • After a customer has left a positive review of your product online or on social media
  • After a customer has filled out a survey with positive remarks

Review your own purchasing cycle and your customers’ habits to determine which times in the funnel are right for you to communicate your referral program.

Give a dual incentive

This is one of the most critical pieces of your referral program: People will only go the extra mile to refer someone if they’ll receive something in return, and they’ll be even more motivated to do so if the person they’re referring will also be rewarded. When there’s an incentive for the referee, the referrers feel like they’re giving a gift.

To determine the right incentive for your business, consider what motivates your customers. What value can you provide to customers in return for referrals? Are they more likely to be interested in something monetary, such as a discount or bonus cash, or would they prefer receiving a physical gift or an add-on related to your product?

If you plan to go the monetary route, you can decide between discounts and cash based on customer buying habits. If your customers typically make repeat purchases with you, offer a discount to encourage them to buy more. If your product is not one that’s typically purchased repetitively, give them cash.

If you plan to go with a non-monetary reward, again consider what your customers most want and need from your product, and see if there’s a way you can offer more. For example, Dropbox famously grew to four million users in 15 months solely based on its referral program, which offered additional storage space for both the referrer and the referee. Storage is the core reason people use Dropbox, so referring others in exchange for more is a no-brainer.

The reward you offer to the friend who is referred can be the same or different from the reward the person who makes the referral receives. Just be sure to keep in mind what would motivate the friend and what would make the referrers feel that they’re giving a gift.

Make it easy

It’s already challenging enough to encourage someone to make a referral – if the act of making it is a cumbersome process, it’s not going to happen.

Making it easy begins with very clearly, briefly and simply explaining the program – what your customer will receive and what his or her referred friend will receive.

Secondly, support your customers in explaining your “why.” They might naturally know what to say about your brand and how your product has helped them, but a reminder from you about your value  and the value you’ll also provide to their referred friend – makes it even easier on your customer.

Thirdly, make the “how” clear and simple. Typically this involves providing your customer with a referral link that can be copied into an email to their friend or shared via social media. Provide social sharing buttons with the link so they can automatically make the share.

Lastly, the process for the referred friend needs to be simple as well. For example, on the order form, don’t ask the friend who referred him or her; you can gain that information from the referral link tracking.

If you’re an Ontraport user, a Refer campaign is already built for you and ready to use for free. Simply upload it to your account from the Campaign Marketplace and add your content.

About Angela Fornelli
Angela Fornelli is a writer and editor with over a decade of experience covering the healthcare, aviation, and technology industries. A Chicago native, she currently serves as Ontraport's managing editor and has a Bachelor's in Journalism from the University of Illinois.