PayPal. Dropbox. Uber. Airbnb.

What do these companies have in common, besides being some of the most valuable businesses in the world?

They can all attribute a significant part of their growth to successful referrals from their customers.

Consider these stats and you’ll realize why:

  • Word of mouth determines 20-50% of all buying decisions. (McKinsey)
  • Referrals bring in four times higher conversions than other marketing channels. (emarketer)
  • Customers referred by loyal customers have a 37% higher retention rate. (Deloitte)
  • Referred customers have a 16% higher lifetime value compared to non-referred customers. (Harvard Business Review)

Simply put, referral programs can grow your business.

What’s a Referral Program?

A referral program is a way for you to incentivize customers to spread the word about your product or service. Referral programs are also known as partner programs and can involve paying a commission to  brand advocates for helping generate sales for your business. With these programs, you’re extending your reach well beyond your own circle of influence to obtain quality leads from trusted sources.

And it works.

Dropbox went from 100,000 to 4,000,000 users in just 15 months due to the massive success of its referral program. Referrals helped PayPal go from 7% to 10% daily growth, catapulting its user base to over 100 million members.

At least one third of the people who buy from any brand do so on the recommendation of a friend or trusted acquaintance. Think about that for a second: One third – that’s a huge portion of your sales. That stat alone explains why referral programs can be so effective.

Current customers who love your brand are your greatest tool for influencing buying decisions for your product. You’re enlisting a troop of fans, influencers and consultants who are likely to connect with your target audience to spread the word about your goods or services. With reward as an incentive, advocates are motivated to refer new customers who in turn refer new customers. A confident recommendation of your product invites your brand into a pre-existing circle of trust between your brand advocates and those they refer. This is why referral leads are so valuable and tend to have much higher retention rates than organic leads.

Here are our best tips for creating a successful referral program.

1. Create a Product Worth Being Referred

The success of your entire referral program relies on your product being remarkable — not “just ok.” Your advocates must personally want to make the referrals in the first place.

Think about it this way:

Say your friend is looking for an SEO consultant to help his business rank higher on local searches. In the past, you’ve hired two different SEO consultants to help you with your own site. Would you rather tell your friend about the enthusiastic consultant who went well beyond your expectations to improve your business’s SEO or the impersonal consultant who did a fine job but never really cared about the success of your business?

Seems like a pretty obvious choice.

Fans of Seth Godin will recognize this point as the principle idea of his best-selling book, Purple Cow, in which he explains that the key to success is to find a way to stand out — to be the eccentric, purple cow in a field of monochrome Holsteins.

“Yes, you should make it easy for people to refer you. Yes, you should be aware that asking for referrals can help. But no, all the tactics in the world won’t help you get the referrals you want. The only thing that will make you remarkable is being worth remarking about.” – Seth Godin

Your referrers’ reputations are on the line, and they aren’t going to put their neck out and recommend you to their network if the product you sell is mediocre. So create a product good enough to warrant serious attention and watch your army of brand advocates mobilize.

2. Sweeten the Deal With Incentives

While a great referral program starts with a remarkable product, you still have to find ways to get referrers.

Some brands have fanboys — people who will endlessly promote the companies they love and believe in, for free — to help spread the word, but for a lot of businesses, even if people love your product and brand, you’ll have to sweeten the deal with an incentive to get them to promote your business. And it needs to be good.

By offering incentives, advocates are motivated to refer new customers who in turn refer new customers — causing exponential brand growth. So offer your referrers incentives they’ll really want to take advantage of.

For example, the Ontraport referral program offers small business owners a recurring 25% commission on the lifetime of each account they refer. The program is a zero-risk, high-reward situation for referrers, which is why our program is so popular.

Take, for instance, Jake Hower, Founder of FuzedApp and Ontraport referral partner:Or another successful Ontraport referral partner, owner of SuperFastBusiness James Schramko:Big payoffs, minimum effort, super simple.

To learn how to set up your referral program’s incentive structure, check out this post by ReferralCandy.

3. Make It Easy for Your Referrers

Another important part of creating a quality referral program is to make it painless for your referrers to promote you. The easier it is to be referred, the more referrals you’ll get.

In some cases, it’s as simple as asking them to share a link with family and friends via email or social media after they’ve purchased from you. For companies like Ontraport that have more extensive referral partners, you can provide them with promotional tools such as a banner ad to embed on their websites.

Here are more details on these common types of referral promo tools:

  • Banner Images: A banner ad is a commonly used method of attracting a click. You’ll design the ad, then upload it. Partners download the banner, which is already linked with their partner information, and embed it onto their web pages.
  • Email Messages: These are marketing emails written by you, usually with links in them to your sales pages or order forms. These links come pre-populated with the partner’s referral links so all they have to do is copy/paste the whole email into their email service of choice and mail their people with it. You’ll simply create the email in the editor provided.
  • Links: A standard link that passes along your referral tracking information.

Make it easy for your referrers to promote your business, and the sales will come.

About Andy Reese
Content Specialist Andy Reese graduated from the University of California, Santa Barbara in 2014 with a B.A. in Environmental Studies (emphases in Sustainability and Entrepreneurship). In his short career, Andy has already written grants and media plans for several businesses and nonprofits, worked at two tech startups and the Surfrider Foundation.