How to create a referral marketing strategy that works (and 2 things to avoid)

But referral programs often fall flat. Despite a big unveiling, they don't get the sustained traction that was anticipated and end up on the back burner, forgotten.

For this article, we researched dozens of referral programs to see what works and what doesn't, so you can understand why these programs fail, and how you can avoid the same fate.

A referral program is a marketing strategy where a business rewards existing customers (or partners) for bringing in new customers. 

You give each customer a unique referral link, referral code, or invite for them to share with their network. When a new person signs up or makes a purchase through that referral, both parties get a reward, such as discounts, VIP perks, account credits, cash, free months of service, or upgraded features.

Tracking rewards is straightforward with any number of software tools. The second part is what really matters: you need to choose a reward that will actually motivate people to take the time to refer your product. 

Referral programs have a lot in common with affiliate marketing programs, but there are several key differences:

• Referral programs focus on existing customers; affiliate programs are open to anyone who wants to promote the brand

• Referral programs typically reward both the referrer and the person making the purchase, while affiliate programs often only reward the affiliate

• Referral programs can use a wider variety of rewards, while affiliate programs pay out as a commission on a sale

That said, if you already have a successful affiliate marketing program, you could use it as your referral program, or at least take the learnings and adapt them when creating your refer-a-friend program.

If you can get your referral program working, you can build an impressive, low-cost customer acquisition flywheel.

Referred customers have a higher conversion rate, because 86% of people consider recommendations important to the buying process. To put that in perspective, only 2% say the same about ads.

Word-of-mouth marketing is also extremely cost-effective since you only pay when someone actually makes a purchase. 

This makes it easy to set up the program to be profitable from day one, unlike most forms of marketing, where you pay upfront and then hope to recoup the cost through purchases.

Many of the brands we looked at for this article had great programs that you could see working. But others had offers that simply weren't that appealing.

Sometimes the reward was too small, or the conditions were too inflexible. In the worst cases, referral programs were actually undermined by other offers being actively promoted on the same website.

Take the example of a business that offered referrals $15 off a first purchase of $100 or more, while simultaneously promoting 15% off the first purchase to all website visitors. 

The referral reward was a worse deal than the standard welcome offer, rendering it ineffective and wasting the time of anyone who made the effort to refer their friends.

The second common issue is that promotion of the program isn't built into the product journey. The referral program gets announced with an email and a social post at launch, but it's not woven into the ongoing customer experience.

This is a recipe for failure. You need to treat your referral program like a feature or a product: promoting it at every step of the customer journey to turn it into a true flywheel.

So how do you make sure your referral program doesn't fall flat? Here are some practical tips.

1. Choose a refer-a-friend platform

The easiest way to create a refer-a-friend program is to use a dedicated referral software tool that runs the program for you. These tools let you set up your program, create unique links for customers, provide dashboards for tracking rewards, automate reward distribution, and more.

MailerLite customers can choose from several providers, including Partnero and Rewardful, that integrate directly with both MailerLite and major shopping platforms like Shopify, WooCommerce, and Stripe. 

Don't overthink this stage: just choose a tool that works with your existing software.

2. Create an appealing, double-sided offer

Choose an offer that's compelling enough to motivate referrals while still keeping the program profitable. This is easiest if you have a clear sense of your customer lifetime value and your profit margins.

Rewards typically come in the form of a percentage off a purchase or a fixed amount off, but you could also offer store credit, a gift, or, if you already have a loyalty program, bonus points.

The best referral programs are double-sided, meaning they reward both the person making the referral and the person being referred. This ensures both parties are motivated to take part.

In some cases, you may be willing to take a loss on your referral if you know that customers have a high chance of making repeat purchases. A good example of a program that did this successfully is Uber, which offered free rides to all referrals when it expanded to new locations.

3. Announce your program

Now that your program is set up, you need to spread the word. Create a referral program announcement email and send it to your list. Then announce the program wherever you have an audience:

• Create social media posts inviting people to join

• Use a promotional website pop-up to direct visitors to the referral program page

• Write a blog post or landing page that will surface when people search for your brand's referral program on Google

• Add signage to your physical store, if you have one

You could also segment your subscribers by customer type and send relevant emails. For example, send one version for people who have bought multiple times, another for first-time buyers, and a third for subscribers who haven't purchased yet.

The goal is to make sure every customer and potential customer knows the program exists.

4. Send follow-up emails

Don't stop at a single announcement email. Use MailerLite's sending options to follow up based on how people engaged with the first message:

• Didn't open: These people never saw your original email. Consider resending it with a different subject line to catch their attention. Our resend to non-openers feature makes this easy.

• Clicked but didn't sign up: These people were interested enough to engage but didn't complete the signup. Send a follow-up that encourages them to finish the process.

The goal here is to ensure as many people as possible learn about your program and have everything they need to sign up and start referring.

5. Build referral program promotions into your customer journey

This is the critical part. Once your referral program is live, you need to weave promotion of it into every stage of the customer journey, creating multiple touchpoints so people get repeated exposure.

Automated emails are an easy way to do this. For example, you could set up a post-purchase email automation that reaches out in the days after someone buys from you, inviting them to join your referral program. This ensures every buyer hears about the program at exactly the right moment.

Our data shows that post-purchase emails for specific products achieve an average open rate of 77%, making them the most-opened category of triggered emails. This makes sense, since buyers are at peak engagement with your brand when they make a purchase. 

You can also build touchpoints directly into your store or app. For example, adding a mention of your referral program to the order confirmation page will ensure people see the offer whenever they visit your site.

6. Automate the post-signup experience

Consider that while 83% of customers are happy to refer a product, only 29% actually do. This shows that getting people to sign up is only the beginning—you also need to encourage them to start making referrals. 

Build an email automation that sends a series of messages in the period after someone joins the program:

• Welcome email: Include the essential information, such as where to find their link and how to track referrals

• How to succeed: Share tips for making referrals more effectively

• Case study: Highlight someone who has used the program to earn significant rewards

• Reminders: Gently nudge people to share their link and get started

• Feedback request: Ask for a review and use the response to improve the program and add social proof to future emails

Send the welcome email immediately on signup, then space the follow-ups across the days and weeks that follow. The feedback request email can be triggered when someone makes a successful referral.

7. The secret to your success: Target your biggest brand ambassadors

You've probably heard that it's easier to sell to an existing customer than a new one. The same logic applies here: it's easier to encourage someone who has already made a referral to make another than it is to activate someone new.

With that in mind, take steps to:

• Structure your program so brand advocates can keep earning rewards: Consider increasing reward size when referrers hit certain milestones

• Set up automated messages that thank people for successful referrals and encourage them to keep going

With this in place, your most effective referrers will have the motivation to keep referring.

So far, we’ve shared how to create an effective referral program. Now we’ll highlight some of the best referral programs we found across multiple industries to give you inspiration for your own. 

Casper: E-commerce discount

Mattress brand Casper offers 30% off to both the referrer and the referee. This stands out because 30% is among the highest percentage-based discounts we found. 

Given that Casper's mattresses start at around $799, that's a meaningful saving, making the referral process well worth it for both parties.

Dropbox: SaaS referral program

Dropbox’s referral program is one of the most referenced in the industry. It offers Basic and Plus users up to 1 GB of additional free storage when they refer someone who creates a new account, with both parties receiving the benefit. 

What makes this program particularly effective is that the referral incentive is directly tied to the product's core value proposition—more storage is exactly what Dropbox users want—making it highly motivating without any cash outlay from the company.

Storyarb: Services referral program

Daily business newsletter Morning Brew is well known for its newsletter referral program, which incentivises signups through tiered rewards.

This is why we took notice when Morning Brew’s founder, Alex Leibermann, launched a referral program for his agency, StoryArb. 

The agency pays out between $750 and $1,500 to people who refer new clients, depending on the plan they sign up for. This is a substantial reward likely to generate serious word of mouth. 

For context, the plans range from $9,999 to $13,999 per month, with higher rates for enterprise accounts.

Tesla: High-ticket, infrequent products

Electric car brand Tesla has a referral program that offers benefits such as free full self-driving capability, monetary discounts, and free supercharger access. 

This is a standout example because it operates in an industry that doesn't typically use referral programs, and cars aren't the kind of frequent purchase that usually lends itself to this model. 

If your business faces a similar challenge, think beyond purchase discounts and consider what other benefits you can offer existing customers that have real perceived value. 

Uber: The no-brainer offer

Uber’s referral program stood out for its generosity. The program initially gave both the referrer and the referee a free ride up to a certain value, making it a genuine no-brainer to share and accept. That's a meaningful step up from the typical 10 to 15% off offer.

The Body Shop: Welcome offer beating deal

The Body Shop offers both parties 20% off when they spend over £20. The minimum spend threshold is well-judged; it’s low enough to be accessible while nudging people to buy multiple products. 

Cosmetics is also a category people purchase regularly, which means satisfied customers are likely to refer friends more than once. 

Crucially, the referral bonus beats the standard new customer welcome offer of 15% off, so there's no risk of the program being undermined by a better deal elsewhere on the site.