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Referral Marketing Best Practices for Ecommerce Stores

January 16, 2024


Why Use Referrals?

Word-of-mouth marketing is highly effective, capitalizing on the trust forged among friends and family. Recommendations from trusted connections hold a high level of credibility. Friends, more attuned than algorithms, provide targeted suggestions, influencing buying decisions and resulting in higher conversions. Statistics underscore the power of word-of-mouth:

Beyond this, referral marketing, when done right, offers brands a scalable, well-integrated marketing solution that can generate consistent positive ROI and provide secondary benefits such as higher conversion rates and reduced cart abandonment. 

How to Tell if Referrals Are Right For Your Business?

While referral marketing can be helpful for almost any business, certain industries and business types will see more benefit than others. One of the most impactful variables on a referral program is participation, and while there are many ways to increase participation none of it will be helpful if your business doesn’t have enough traffic coming to your site to see meaningful engagement. Referrals work very well for businesses that already have steady website traffic, and this can be augmented further by having a large social media presence or email marketing strategy in place. Prosper’s referral calculator can help you determine the results you can expect to see based on your website traffic. 

The second important factor to consider is your company's average order value (AOV). Generally, the higher the AOV, the better a referral campaign will be. This is because brands with a high AOV can offer more compelling rewards which leads to more engagement with your referral program, but high AOV also helps increase the impacts of conversions made by referrals. Again, our referral calculator can help brands determine the impact of a referral program based on their AOV. A good rule of thumb is products that are very low cost (sub $15) will see less impact, although this can be offset by higher margins. 

How to Make an Effective Referral Marketing Program

If you’ve decided that referrals are right for your business, there are a variety of things you can do to maximize results and make sure your referral program adds meaningful value to your business. Before even setting your program in place it’s good to understand a few key things.

  1. Start with KPIs

Before even setting your program in place it’s good to understand a few key things. First, it is good to have an understanding of what success means to you, and what KPIs you’ll need to see to prove referrals are working. The easiest way to do this is to benchmark existing marketing channels and compare referral KPIs with those. Common benchmarks include customer acquisition cost (CaC) and return on investment (ROI). A good referral program should have a significantly lower CaC than other channels, and have at least 5x ROI. A great referral program might see a CaC up to 10x less than other channels, and closer to a 50x ROI. 

  1. Understand The Full Picture

Many companies approach referrals with a set-it-and-leave-it approach, but this isn’t ideal and usually leads to a failed program. It’s good to understand all the ways your referral program can be beneficial, and see if there any secondary objectives besides generating new traffic and sales, are that can be supported by referral marketing. A few common benefits e-commerce users can see include increasing conversion rates, reducing cart abandonment, or amplifying email or paid marketing efforts. Before creating a referral program, map out what you want it to do and how it can best be integrated into existing systems that drive sales. 

Once you have these basics understood, it’s time to start putting your referral program in place. During this process, there are a variety of things you can do to maximize the impact you will see. 

  1. Create an Irresistible Incentive

What draws a consumer to engage with a referral platform is usually the incentive, so you must create a compelling reward for referees. Prosper supports this by offering instant rewards, but even that is just a start. When deciding on a reward, it is important to look at your AOV and average margin. Many of the best rewards are immediate discounts on existing products that the shopper may already be considering, and it’s a good practice to link rewards to revenue-generating activities. Every product has a different ideal reward structure, so it is also good to run tests to find the optimal point that balances cost-effectiveness with consumer engagement. 

  1. Prioritize High Visibility Placements 

Prosper is unique in the sense that it can be added virtually anywhere online, allowing businesses to add referrals to high touch point and high traffic areas of a website or digital product. Common placements for this include product display pages, checkout pages, or high visibility areas of a landing page. Many companies will also set up a dedicated landing page for referrals, which can be used to link consumers from email or social media marketing campaigns. A good way to understand where to place your referrals is to look at your web analytics tools and see where most of your traffic goes, and what areas see the highest engagement. 

  1. Communicate Rewards and CTAs

How you communicate about your referral campaign is very important. Being clear on rewards is very important, and can help attract consumers to engage with your referral program. Usually there is very limited real-estate for communication of a referral program, so dialing in a short but impactful call to action (CTA) is very important. Some of the most effective CTAs we’ve seen have been the simplest, such as “Get 20% off” or “Share for a Surprise”, but each brand has to consider their tone and language. 

  1. Integrate With Your Other Marketing Systems

Referrals are more effective when they don’t stand alone. Integrating referrals into other marketing channels and systems can improve your marketing across the board. Doing email marketing? Link some of your emails back to referrals. Have high social media engagement? Add a link in bio to your referral program. Have a comprehensive analytics tool to measure website and sales impacts? Sync your referral data to it. These are just a few examples of how you can make the most of your referral program, but it pays to cross-network your referral marketing with other marketing channels. 

  1. Test and Optimize Everything 

Similar to a digital marketing campaign, referral marketing can, and should be, optimized over time for different variables. Pick one variable at a time and test it. The best place to start is with the reward, and other great variables to optimize for are placement, call to action, and the design of your campaign. 

This is just a starting point for making sure you’re building a powerful referral marketing strategy, but if you want more insights or a custom consultation our team can help you if you book a meeting with us.


Why Use Referrals?

Is Referral Marketing Right for Your Business?

How to Make an Effective Referral Marketing Program:

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