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How to Create a Referral Program – The Definitive Guide in 2024

The appeal of word-of-mouth marketing always remains. Brands worldwide are taking advantage of their most valuable resource – the existing happy customers. If referral marketing is your new passion, this guide is all you need. We’ll ...

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How to Create a Referral Program

The appeal of word-of-mouth marketing always remains. Brands worldwide are taking advantage of their most valuable resource – the existing happy customers.

If referral marketing is your new passion, this guide is all you need. We’ll make everything clear, from the concept to the potential benefits. Our list of tips and tricks will add a shining chapter to your marketing journey.

Are you ready to engage with your customers at a brand new level? Let’s begin!

What is A Referral Program?

A referral program is a popular marketing strategy businesses use to increase their customer base. In particular, they encourage existing customers to refer new ones (e.g., friends and family) to their products or services.

In return, these happy customers might receive a reward. It’s typically in the form of store credits, free products, gift cards, or cash. The brands also incentivize referred friends to make a purchase by offering vouchers, discount codes, credits, etc.

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In short, this word-of-mouth marketing scheme benefits businesses in different ways. It taps into a valuable source of sales and potential customers while building a lasting network of loyal customers.

If you’re curious about how it works, keep scrolling! We’ll explain the process in detail.

How Does A Referral Program Work?

A study by Nielsen shows that over nine out of ten customers put their trust in someone they know (i.e., friends and family) rather than in self-promoting methods.

This prominent bias is one of the reasons why brands dip their toes in referral marketing.

How does it work?

You’ll first need to set up a program and invite existing customers to join. It requires partnering with referral software to let the program be built and managed.

Then, attract customers with compelling incentives. This could be a discount, a free product, or a points system.

Everyone who signs up for your program will receive a special code or link that they can use to invite their friends. This link contains identifiers that track who made the referral. You can provide them pre-designed emails, social media posts, or other resources to make sharing easier.

Participants will share their unique links or codes with friends, colleagues, or other contacts. They might use email, social media, messaging apps, or word-of-mouth methods for a diverse reach.

When a friend clicks the link or uses the code during their purchase, their actions will be recorded. You’ll reward the referrer and their friends based on the agreed terms.

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You know what? Referral marketing is not just about one customer taking several friends to the brand. It’s a self-perpetuating cycle where these friends, in turn, become happy customers and refer more close contacts. Ultimately, it creates a wave of growth for your brand, also known as the magic of the “viral loop.”

As this loop continues, the number of ideal customers and referrals multiplies. It contributes to the sustainable success of your brand.

Thus, as you focus on creating a positive customer experience and offering compelling rewards, you can unlock the power of the viral loop. Remember, it’s beyond acquiring new customers. It builds a community of loyal advocates who authentically spread the word about your brand.

How To Create A Referral Program: Tips To Make It Successful

Now that you understand the importance of a referral program, it’s time to equip yourself with tips to create a successful one. While setting up this program is rather simple, making it thrive goes beyond offering a compelling type of rewards.

We’ve made up a list of the tactics that matter the most. Let’s see what they are!

Make sure you have a good product

Before diving into the allure of viral loops, ensure you have a good product or service to offer. Yes, your program can be incredibly effective, but only when built on a solid foundation – high-quality products.

Referral marketing programs don’t create new brand ambassadors. They empower existing ones.

Imagine recommending a product to a friend, and they return disappointed. Not only would you feel embarrassed, but your trust in the brand would fade.

A single negative review shared within a friend’s network can destroy the positive impact of numerous referrals. Conversely, positive testimonials will lead to the success of your referral campaigns.

Thus, focus on the quality of your products before investing in anything else. A high-quality product leads to satisfied customers. When customers are happy, they are more likely to confidently recommend their friends and family.

So, take a step back and ask yourself:

Do my products solve a real problem for my target audience?

Do they offer a positive user experience?

Would I confidently recommend it to my own friends and family?

If the answer is yes, you’re ready for the next steps.

Define your goals and KPIs

A successful referral program, just like any marketing strategy, requires clear goals and KPIs to track progress and success.

Consider what you aim to achieve through the program. Is it about boosting sales, expanding brand awareness, or increasing customer retention?

Once you’ve defined your goals, pick the relevant KPIs that show you how far you’ve come. For example, if you aim to “increase sales,” specify your target, such as “acquire 50 new customers through successful referrals in the first month.”

Common KPIs for referral programs include:

  • Number of referrals generated
  • Conversion rate
  • Revenue generated from referrals
  • Customer acquisition cost
  • Return on investment (ROI) from the referral program

Customer lifetime value of referred customers

Defining clear goals enables informed decision-making throughout your program’s lifecycle. This allows you to measure performance to optimize for maximum results.

Conduct market research

Market research is a daunting task. But it’s an essential step to help you craft a successful referral program. By analyzing your target customers, what motivates them, or what existing programs work well, you can refine your approach to achieve desired outcomes.

Let’s start with identifying your audience.

Who are you trying to reach out to with your referral program?

Conducting market research lets you tap into the needs and habits of your audience. Once you know what motivates them, you can tailor your program to drive maximum participation.

Next, research to see what referral programs your competitors offer. It helps you identify opportunities to differentiate your program and offer a more compelling experience.

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Let’s say you work in the beauty field. Scour competitors’ pages to access their offerings. For instance, both The Body Shop and Radiance Clean Beauty give a coupon reward for the participants. But while the former brand offers a percentage off a purchase, the latter gives a fixed rate. Which option better fits your business?

Analyzing customer preferences and competitor offerings leads you to the most effective incentive structure. However, remember that it’s not a one-time event. It’s essential to conduct new research when necessary to stay on top of the market trends and customer changes.

Make a list of referral sources

The question now is: Where do you find those valuable mouth referrals? The answer lies in identifying diverse referral sources, as follows:

Your customers 

Existing customers are often your most powerful sources of referrals. Happy and satisfied customers are willing to advocate for your brand among their friends, family, and colleagues. Their positive firsthand experience with your products or services is the strength that helps them persuade others.

Besides current customers, reconnecting with past ones is another great idea. Offer incentives to re-engage them and encourage organic referrals.

Your employees

Another valuable referral source lies within your own company. Motivate your dedicated employees to say positive words about your program. They’ll become potential brand ambassadors who might share positive experiences and encourage referrals among their networks.

Additionally, consider collaborating with individuals or organizations aligned with your brand to leverage their audience and reach new customers. It could be influencers, vendors, industry leaders, etc.

Make an approach plan

Once you have identified potential sources, it’s time to develop a comprehensive plan to reach out to them effectively.

Not all customers possess the same power of advocacy. That’s why you need to divide your customer base into segments to fit your outreach efforts. From this segmentation, you’ll develop persuasive content that captures their attention and encourages them to apply.

Additionally, segments allow you to select the most appropriate communication channels to promote your program effectively.

For instance, you can invite loyal customers to join your program via email marketing. Consider mentioning it in your purchase confirmation emails. Omnisend reveals that this email type scores an impressive open rate of around 60%.

Besides these aspects, pay attention to timing. Choosing the perfect time to contact your potential advocates increases the likelihood of participation.

So, what is the golden time? Interact with them after they’ve had a positive experience with your product or service. This could be after a successful purchase or positive reviews or feedbacks. When they’re happy about their experience, they’ll be more likely to want to share it with others.

Select the right referral program software

Now, you need a phenomenal assistant to help host your program and boost customer acquisition. That’s where referral software comes into play.

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What features to look for in this software?

First, make sure it’s easy to use for you and your customers. Plus, there are customization options to tailor the referral program to your brand’s unique needs. It might involve customizing referral incentives, program rules, or messaging.

Second, look for software that provides automated referral tracking and reporting. Typically, it’ll track referral clicks, conversions, and revenue generated. The data helps you monitor the performance of your referral program in real time.

Third, make sure the software you choose can connect with the rest of your tech, such as your CRM (customer relationship management), email marketing software, or analytics tools. It’s perfect for streamlining program management and tracking.

Expectations go beyond these main criteria. It might include robust security, customer support, scalability, etc. Thus, take the time to evaluate the available options.

While you might scour the internet to choose the best solution, we’ll help you save time with UpPromote’s customer referral. Our feature ticks all the boxes and goes beyond. It’s sure to be a strategic partner that nurtures successful customer referral program ideas for your business.

Decide your incentives and rewards

The incentive adds a layer of sweetness to attract participants. It is a powerful motivator for users to participate in your referral program.

As you do market research in the previous step, developing an incentive plan that differentiates you from competitors is crucial. Unique perks will make your program stand out in the minds of your customers.

You might realize that discount is the most common type of referral incentive. However, consider other options to make your program more appealing.

Cash rewards, free products, and gift cards are great alternatives. Some brands offer exclusive access to their early product launches or limited-edition items. Others implement a points-based system or loyalty programs to reward customers for their referrals.

What’s even more remarkable? A tiered reward structure can take your effort to the next level. Simply put, you’ll provide bonus incentives for reaching specific referral milestones. This referral contest is perfect for encouraging continued participation and customer loyalty among referrers.

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As you create your program, communicate the incentives and rewards offered. Provide detailed information about what participants can earn. Note eligible cases to redeem rewards (e.g., when the referred customers buy the products in your requirement list).

Bonus tip: Consider your budget when deciding on incentives for your referral program. It’s critical to balance the value of the rewards with the potential return on investment.

Use multiple channels to promote your program

Go beyond a single channel to increase the visibility of your referral program. This way, you will be able to attract the attention of many possible referrers.

Promoting your referral program through multiple channels also allows you to reach out to diverse groups of customers.

Here are standard methods to make your program top-of-mind for customers and encourage participation:

Let your website and blog speak your mind

It’s essential to feature your referral program on your website. Include it in the header/footer section, which makes it easily accessible to visitors.

A dedicated landing page describing the program and rewards is a crucial part. Make sure you explain the referral process in detail. Plus, clear calls to action will encourage sign-ups and referrals.

Additionally, create targeted pop-ups or announcement bars to attract visitors at strategic points on your website.

If you have a blog, write engaging posts to highlight your referral program.

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Embrace the old but gold method – email marketing

Email remains a top choice for promoting your programs. Thus, launch well-crafted email referral marketing strategy to specific customer segments to encourage their participation. You can also briefly mention the program in regular newsletters or transactional emails.

Spread your program far and wide on social media

Don’t miss the opportunity to post visually appealing content to showcase your program. It might be about program announcements, infographics, and testimonials.

If you want to upgrade your investment, run social media ads. Use targeted referral messaging and audience segmentation to reach the most potential clients.

Leverage offline channels

Don’t overlook traditional offline marketing channels such as print advertisements, in-store displays, or conferences. Depending on your audience and market, these channels can still be effective in reaching potential referrers.

Track performance and optimize your program

Launching a referral program is just the beginning. To ensure its long-term success, tracking performance and continuously optimizing your program is crucial.

As you’ve defined goals and KPIs, analyze the data given to measure the effectiveness of your referral program.

In particular, you need to:

– Look for trends and patterns in your metrics to identify what’s working and what’s not.

– Compare results across different segments, channels, and time periods.

Tracking helps you identify areas that may need improvement or optimization. Optimization involves testing different strategies, two-sided incentives, and tactics to identify what drives the most customer referrals.

More specific?

Optimization means you focus your efforts on channels and segments with higher participation and conversion rates.

It also involves adjusting rewards based on customer preferences and program goals.

And we can’t exclude the A/B testing. Testing variations of your program elements (e.g., rewards, messaging) helps you see what performs best. From there, you can refine your approach and continuously improve program performance.

Optimization is an ongoing process. Don’t be afraid to experiment with new strategies. Stay up-to-date on the latest referral marketing best practices and adapt your program accordingly.

Benefits of the Referral Program

Building a successful business goes beyond having a great product or service. It’s about fostering lasting relationships with your customers. Referral programs will help you achieve this glory. Let’s glance at some remarkable benefits that this marketing method offers for businesses of all sizes.

It helps brands build trust

As previously stated, referral program ideas leverage the power of word-of-mouth marketing. This influential form of marketing comes with a level of trust and credibility that other forms might lack.

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Research from Nielsen reveals that over two-thirds of customers are inclined to buy a product based on recommendations from friends and family.

Satisfied customers act as brand advocates. They’ll spread positive words about your brand and products. Ultimately, it leads to increased brand visibility and awareness.

It’s cost-effective

Referral marketing is an optimal choice if you have a tight budget to boost your sales and awareness. Instead of investing heavily in paid advertising, businesses can rely on their satisfied customers to promote their products at the lowest cost. Typically, you’ll only spend on rewards, referral software, and advertisements (if any).

You’ll only issue rewards when you acquire a new customer. So, this cost is directly linked to results, minimizing unnecessary expenditure.

It’s flexible to design a referral program that fits your budget the most. You can start small and scale up when you realize your program is gaining traction.

It leads to higher conversion rates

Compared to other channels, referral marketing yields conversion rates that are three to five times greater (Annex Cloud).

It’s the result of a level of trust and credibility from the referrers. They’re satisfied customers who understand the value of your product or service. Their glowing reviews and recommendations play a vital role in persuading others.

When individuals see that their friends or family members value a particular product, they are more likely to view it favorably. This social influence can increase the likelihood of the referred individual’s decision to convert.

It fosters a long-term relationship with customers

By rewarding customers, you show appreciation for their loyalty. It’s also an impressive way to incentivize them to remain engaged with your brand over time, just like the loyalty program. This ongoing relationship-building can lead to higher customer lifetime value.

The impact is not just for existing customers but also referred ones. They will be more devoted to the brand than non-referred customers, becoming advocates themselves.

Different Types of Referral Programs

Referral marketing comes in different forms. Here are the three main types that you might relate to your business.

Incentivized referrals

This is the most common type of referral program. In this setup, you motivate existing customers to refer friends or family to your business through incentives or rewards. These incentives can take various forms. As mentioned, they include discounts, credits, free products, cash rewards, etc.

This direct approach has a direct impact on the referral volume. A clear incentive encourages participation and increases conversion rates.

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This method works well for various industries and customer segments. It also allows businesses to track rewards to assess program effectiveness.

However, if you head toward incentivized referrals, implementing safeguards is crucial to preventing fraudulent referrals.

Note: While initial incentives help retain customers, you need to develop strategies to achieve long-term engagement.

Direct referrals

This approach involves customers directly recommending a business without the need for formal incentives. Unlike incentivized referrals, direct referrals rely on the genuine satisfaction and enthusiasm of customers to spread the word about your brand and products.

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This type requires minimal investment in referral rewards. However, you can still facilitate word-of-mouth marketing by fostering strong customer relationships and creating memorable shopping experiences.

Note: It requires consistent effort to engage and motivate customers. Thus, seeing significant results may take longer than incentivized programs.

Reputation referrals

This type focuses on empowering the reputation of your brand. It’s about looking to others who confidently mention your business or products – even if they are not your customers. These people might showcase endorsements for your brand through online reviews, testimonials, or word of mouth.

So, reputation referrals leverage the power of social proof and influence. This way, you can still attract new customers and enhance your brand’s reputation in an organic way.

Note: It’s not an easy method since you rely on voluntary positive reviews from others. Plus, the results may not be directly measurable.

What Makes A Great Referral Program?

A thriving referral program requires more than compelling incentives. Scroll down to see some key ingredients that make your program stand out.

Clear value and transparency

Alleviate any vagueness by providing clear information about your referral program. Unclear or ambiguous terms can lead to confusion and hesitation. Thus, ensure your customers understand how it works and how they can join.

Then, you need to be honest about the benefits and limitations of the program. It makes no sense to exaggerate claims to entice participation. If you do so, you’ll destroy your reputation and credibility in your customers’ eyes.

Users are becoming more aware of the data provision. Tell your customers how you collect their data and what you’ll use it for. Typically, requiring email is enough to employ them in your program.

Crafting clear terms and conditions is a perfect way to showcase transparency. Explaining the referral-tracking and the reward-earning process helps build customer trust and confidence.

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A prime example of operating a transparent program belongs to T-Mobile. They explain everything in detail, from qualifying referrals to reward redeeming.

Motivating incentives

Effective customer referral programs require attractive incentives for both the referrers and the referred customers.

These prospects are often motivated by offers that resonate with their needs and desires. If you want to conquer their hearts, know their pain points and preferences.

What are the motivators at each stage of their customer journey? Understanding customers will help you craft compelling incentives that grab their attention and encourage them to take the next step. It’ll guide you to choose among cash rewards, loyalty points, free products, or other types of perks.

For instance, Dropbox offers free space as a reward to referrers and new users. This way, the brand addresses a practical need for its users and enhances their overall experience.

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AllTrails, an outdoor travel platform, has a completely unique approach. No cash or discounts. They tap into user emotion and environmental awareness.  They promise to plant a tree for both the referrer and the referred friend. Love points!

Easy referral process

People are more likely to refer friends and family if the process is simple. Complex steps and confusing terms can discourage participation.

Thus, the referral process should be easy to understand, with clear instructions and intuitive interfaces. Aim for a process that can be completed in as few steps as possible. Facilitate the process for users to share referral links or invite friends via email or social media platforms.

A smooth program can increase participation rates and encourage customers to refer more frequently.

3 Examples of Successful Referral Programs

We’ve equipped you with the most crucial tactics to jump into the world of referral marketing. Here’s the last notice: explore what brands are doing out there.

We’ve selected three remarkable referral program examples over thousands of others on the internet. Let’s learn how they work!


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Start with a successful refer a friend program by Hostinger, a trusted name in web hosting services. Their program is known for its attractive incentives and user-friendly features.

In particular, they offer a 20% commission for customers who refer someone to their web hosting plan. The new users also benefit from a 20% discount on their first purchase.

We value how the brand streamlines the referral process. As you sign up, you’ll enter their user-friendly dashboard. It is a central hub for facilitating the sharing process and tracking commissions. Here, you can easily invite your friends by typing in their emails. You can also share personalized invitations via social media channels with ease.

Additionally, Hostinger’s dashboard offers visibility into payment details and other program rules. This way, they ensure transparency throughout the referral process.

Do you know what takes Hostinger’s commitment to user support to the next level? They have a comprehensive article guiding users on utilizing their referral program effectively. Customers can feel how they are valued through a detailed explanation of the process.


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Let’s move on to another brand that works in the menswear industry. Indochino has implemented a compelling double-sided referral program aimed at expanding its customer base.

The company impresses us with its clean, visually appealing landing page. This page clearly outlines the benefits of the referral program and provides instructions on how users can participate.

Those interested in participating in their program will enter their email address and phone number. Upon submission, Indochino will send them a confirmation email. It’s where users get their unique personal referral links.

The email also includes various options for users to scatter the referral links within their networks. Users can choose among popular options, including social media platforms and messaging apps.

How’s the incentive?

They offer a $50 discount for both the referrer and the referee. This reward aims to encourage customers to recommend Indochino’s custom tailoring experience.


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Typeform jumps onto our list of customer referral program examples for its unique reward structure – recurring incentives. What does it mean?

They give the users an upfront reward of $20 whenever they refer someone to subscribe to a paid plan. Then, these referrers can receive 15% of the referral’s monthly subscription fee for up to a lifetime (capped at $500).

This combination of upfront and recurring rewards could potentially attract a wider audience. The ongoing commission also incentivizes long-term engagement and advocacy for Typeform.

As users land on their “Refer a friend” landing page, they’ll find full information about the program. Typeform makes the entire referral process visualized to attract and stay engaged with customers.

The company is also transparent about the rewards. They include this section in the user’s Typeform account.


  • When is the right time to launch my referral program?

In fact, there’s no single “right time” to launch your referral program. However, before launching, ensure you’ve established a base of satisfied customers. Plus, your product or service needs to be fully functional and in a state where you’re confident recommending it to others.

  • How much does a referral program software cost?

The cost of referral program software can vary. Some providers offer free plans or trials that allow users to try them out before committing. Basic software might have a low monthly fee (around $49-$99). Those with advanced features can range from $200 to $1000 monthly or more.

  • How many referrals can I expect to have?

It’s challenging to provide a precise number of referrals you can get. Some industries naturally lend themselves to more referrals than others. The number also varies significantly based on other factors, including your target audience, referral incentives, program visibility, and promotional efforts.


In summary, referral marketing is a great solution for businesses looking to boost their revenue with a tight budget. It also opens the door to a potent network of loyal customers.

We walked you through a detailed process on how to create a referral program. While it might be simple, it still requires careful evaluation of your goals, resources, and the whole plan.

Now that you know the ins and outs of this marketing method, it’s time to set up an effective one for your business.

The best part? With UpPromote’s built-in referral tool, you’ll run the program of your dreams.

Ellie Tran, a seasoned SEO content writer with three years of experience in the eCommerce world. Being a part of the UpPromote team, Ellie wants to assist Shopify merchants in achieving success through useful content & actionable insights. Ellie's commitment to learning never stops; she's always eager to gain more knowledge about SEO and content marketing to create valuable content for users. When she's not working on content, Ellie enjoys baking and exploring new places.