A referral program is a fantastic way to grow your business and build a loyal customer base. But before you jump in, let’s discuss something important: referral program terms.
These are the rules and guidelines that everyone involved needs to follow. By understanding these terms, you can set up a referral program that’s not only successful but also fair and transparent for you as a merchant.
Let’s dive into the details together!
24 Common Referral Program Terms You Need To Know
Understanding these key terms is crucial for mastering the world of referral marketing. Whether you’re setting up a referral program, leveraging word-of-mouth marketing, or analyzing your ROI, familiarity with these concepts is essential for success.
Referral
Referral marketing is when people recommend a product or service to others, often based on their positive experiences. It’s like word-of-mouth advertising, where satisfied customers share their thoughts with friends, family, or colleagues, leading to new customers for the business.
Referral marketing isn’t just about customer referral programs. It includes other methods like influencer marketing, brand ambassadors, affiliate program marketing, and relationship marketing. These techniques all aim to get people talking about a company’s products and services and encourage others to try them out.
Referral Program / Customer Referral Program / Refer-a-Friend Program
Referral Program, Customer Referral Program, and Refer-a-Friend Program are all variations of the same concept.
These terms are all about getting an existing happy customer to recommend a company’s products or services to their friends. These programs offer rewards or bonuses to customers who successfully bring in new customers. It’s a way for companies to use word-of-mouth to attract more potential customers.
If you have a customer referral program, make sure to promote it across all your communication channels. Spread the word in emails, blog posts, a social media post, ads, and anywhere else customers may see.
Also, you should ensure it’s user-friendly and straightforward so satisfied customers can easily share it with their friends.
This way, you maximize the program’s reach and encourage more referrals, helping your business grow.
Word-of-mouth marketing
Word-of-mouth marketing is when people share their opinions or recommendations about a product, service, or brand with others through conversations, both online and offline. It relies on personal experiences and trust between individuals rather than traditional advertising methods.
Essentially, it’s like telling your friends about a great restaurant you tried or recommending a movie to your family members. Word-of-mouth marketing is powerful because people are likelier to trust recommendations from friends or family than advertisements.
Customer Advocacy
Customer advocacy refers to customers actively promoting and supporting a particular brand, product, or service. These customers go beyond simply purchasing from the company—they actively recommend the brand to others, share positive experiences on social media, write reviews, and may even defend the brand against criticism.
Customer advocacy is a powerful form of word-of-mouth marketing and can significantly influence others’ perceptions and purchasing decisions.
Referrer / Advocate
A referrer is someone who recommends your product or service to others. They could be users, resellers, affiliates, or partners—anyone spreading the word about your offer. Think of them as your ultimate word-of-mouth marketers!
They’re rewarded for referring others, but more importantly, they help promote your business. Remember to show appreciation to your referrers—they’re vital to your business’s success and are often called ‘the lifeblood of your business.’
Referee / Referred Customers / Friend
A referee is someone who another person recommended to try out your product or service through your referral program. They could be paying customers, non-paying customers, or others who signed up through the referral program.
Think of a referee as the person who was referred. It’s just a fun way of saying it! So next period of time you hear someone talk about referees, now you know what it means! Pretty neat, huh?
But remember that referees might expect special treatment or freebies for being referred. So, it’s important to be prepared to make some deals! Having a good referee on your side can ensure fairness and that everyone gets what they deserve in the end.
Viral Loop
A viral loop is a system where customers share a product or service with friends, who then become customers and refer more friends. This cycle repeats, leading to viral growth.
To build a strong viral loop, create a referral program with attractive rewards for both referrers and friends. Use automatic prompts to encourage customers to refer others, fostering a consistent cycle of sharing and growth.
K-Factor
A K-factor shows how much your app or idea spreads. If it’s over 1, each new user brings in at least one more user, and it keeps going like that. Basically, if your K-Factor is 1 or more, your app is viral. That’s great because even without marketing, your user base keeps growing.
If your K-Factor is less than 1, don’t sweat it. It’s tough to get it higher.
If you’re curious about the math, here’s an easy way to figure out your K-Factor or how fast your idea spreads:
K = Number of Invitations (I) multiplied by the Conversion Rate (CR). So, K = I x CR.
This gives you your Viral Coefficient.
Social Proof
The social proof idea says that people often look at what others are saying, doing, or buying before making their own decisions, and then they tend to copy those actions. A lot of the time, people buy stuff based on what others think because it feels safer when others approve of it.
The level of social proof a brand has depends on how many people trust it. If many people like a brand or product, it seems more trustworthy. Plus, if a friend landing or someone close already trusts that brand, it seems even more reliable to you.
Referral programs can boost your brand’s social proof. When someone gets referred to your brand by a friend, they’re more likely to see you as trustworthy since their friend vouched for you directly.
Social Currency
Social currency is like having a good reputation or being well-liked by others. It’s about how people see you or your brand in social groups. If you have high social currency, it means others think highly of you, and they’re more likely to talk about you or recommend you to others.
Having good social currency can help you make friends, get ahead in your job, or make your business more successful.
Referral Link
A referral link is a unique URL used in referral marketing programs that companies provide to their existing customers to promote their brand and products.
When customers join a referral program, they are assigned their unique referral link, which contains a unique ID that allows the company to track how visitors arrive at a website and the account that provided the referral.
This link helps the company track the referrer’s success and gives insights into their performance.
Referred friends can use the referral link to visit the website and hopefully purchase or sign up for products or services. If a referred friend becomes a new customer, the link indicates a successful conversion, and a valuable reward is issued to the referring customer.
Referral links make the entire referral process easier by enabling businesses to keep track of the referrals each person makes, know exactly where all their referrals are coming from, and ensure customers are rewarded for all their successful referrals.
Referral Code
A referral code is a unique combination of letters or numbers identifying individuals participating in a referral program.
It helps track who’s part of a referral program. When someone shares their code, and someone else uses it to buy something or sign up for a service, both get rewards.
The code is usually in a link you can click. When the new person uses the code, the system knows who referred them. This ensures the person referred gets credit, and both get rewarded.
Referral Email
A referral email is a communication sent by a company or an individual to promote a referral program, invite others to participate in the program, or recommend a product, service, or job opening.
Referral emails can be used to:
- Inform recipients about a referral program and its benefits
- Request referrals for new customers, employees, or job candidates
- Thank referrers for their efforts
- Provide referral links or codes
Referral emails are an essential part of referral marketing, as they help to expand a company’s customer base, increase employee engagement, and improve the hiring process
Referral Message
A referral message is when a customer tells their friends, family, or coworkers about something they like, like a product, service, or job. It usually has a special code or link to use. The goal is to convince the person receiving the message to try what’s being recommended. A good referral message is short, personal, and includes:
- A friendly greeting
- Why the product or service is great
- What the person should do next
- Any special deals
- A bit about the company
- A mention of the friend who referred them.
Referral messages can be sent by email, text, chat, or person. They’re important for getting more customers or finding new employees.
Self Referral
This type of behavior is known as self-referral abuse or fraud. It occurs when customers try to refer themselves to gain a reward or referral incentive, often by exploiting the referral program’s mechanics. This is especially prevalent in retail referral programs where rewards, such as instant discounts, are immediately granted.
An example of self-referral abuse is when a customer sends a referral message from one email address they own (e.g., yourcustomer@gmail.com) to another email they control (e.g., yourcustomer@hotmail.com), then proceeds to make a purchase using the referral link to receive a discount. In this scenario, the brand does not gain a new customer yet incurs the cost of the reward or customer incentive.
Self-referral abuse can undermine the effectiveness of referral programs and result in financial losses for businesses. Therefore, it’s important for brands to implement measures to detect and prevent this form of marketing of fraudulent activity.
Cannibalization
Cannibalization is the idea that an individual sale would have happened even without a referral program. This means that the purchase might have occurred through other means, like organic word-of-mouth or someone seeking out a reward or incentive and using a referral code they found online.
Some websites offer rewards for sharing referral codes openly, even if there’s no real connection between the individual referrer and the person using the code. This isn’t a genuine referral since there’s no actual recommendation involved, and the referrer often doesn’t even know the person using the code.
To address this issue, businesses can set referral limits or try to block IP addresses or codes that are widely shared online. This helps ensure that referral rewards are given for genuine recommendations and not just for random code sharing.
Incentives/ Rewards
Incentives or rewards are things you get as a bonus or prize for doing something. They’re like little treats for taking certain actions, like buying a product, signing up for a service, or referring a friend.
In business, companies often use incentives to encourage people to do things that benefit them, like purchasing or spreading the word about their brand. These rewards can be discounts, freebies, cash back, or other perks that make people feel good about their decision or effort.
Double-side rewards
Double-sided rewards refer to a system where both parties involved in a transaction or interaction receive incentives or benefits.
In referral programs, for example, both the person referring a product or service and the person being referred may receive rewards or incentives for their participation.
This approach encourages mutual benefit and participation from both sides, creating a win-win situation where both parties are motivated to engage and promote the product or service.
One-side rewards
One-side rewards mean that only one person gets a reward or benefit. In referral marketing, this usually means the person who refers someone gets a reward, but the person who’s referred doesn’t get anything.
It’s like when you recommend a friend to a store, and you get a gift card, but your friend doesn’t get anything.
Customer loyalty programs also use one-side rewards, where you earn points for shopping, but non-members don’t get any perks. While these rewards can motivate people to refer others or stay loyal, they might seem unfair if only one side gets the goodies.
Tracking
Tracking in referral marketing involves keeping tabs on which customers are referring their friends, how frequently they’re making referrals, and whether those referred friends actually make a purchase. This tracking allows businesses to gauge how effectively their referral program meets its objectives using measurable data.
Key metrics that can be tracked include:
- Number of referrals made: How many times are customers referring their friends?
- Number of unique referrers: The total count of customers who have made at least one referral.
- Participation rate: The percentage of customers who participate in the referral program.
- Share rate: How often customers share referral links or codes.
- Conversion rate: The percentage of referred friends who make a purchase.
- Return on investment (ROI): The referral program’s profitability compared to its associated costs.
- Customer satisfaction: Customers’ satisfaction with the referral program and the overall experience.
Referral codes and links are commonly used to facilitate easy tracking, as they link each initiated referral and successful referral to a specific customer, making it easier to attribute referrals and track their outcomes.
Referral rate
Referral rate refers to the percentage of customers or users who actively refer others to a product, service, or business. It measures how many people share their positive experiences and recommend the brand to others.
A higher referral rate indicates that more customers are advocating for the brand, which can lead to increased customer acquisition and brand awareness. Tracking referral rates is important for evaluating referral programs’ success and identifying improvement opportunities.
Conversion rate
In referral marketing, the conversion rate refers to the percentage of referred customers who take a desired action, such as purchasing, signing up for a service, or completing a specific task.
It measures the effectiveness of the referral program in turning referrals into actual customers or users.
A higher conversion rate indicates that more referred customers are successfully completing the desired action, which typically leads to increased revenue and business growth. Monitoring and optimizing conversion rates is crucial for maximizing the return on investment in referral marketing efforts.
Customer Lifetime Value (CLV)
Customer lifetime value, or CLV, is how much money a business can make from one customer over time. Referred customers usually have a higher CLV because they trust their friends’ recommendations. This trust makes them stick around longer and buy more from the brand over time.
Return on Investment (ROI)
Return on investment (ROI) in referral marketing is the amount of profit your referral program makes, which is the sales generated because of your referral program minus the expenses you had to pay to set up and run the referral program.
Referral programs often have a good ROI because the customers referred by others tend to spend more over time, making up for the costs of starting the program.
Wrapping Up
In summary, referral program terms outline the rules and conditions that govern how referrals are made and rewarded. These terms typically include details such as tracking referrals, the incentives offered for successful referrals, any restrictions or limitations, and how rewards are distributed.
By understanding and adhering to these terms, potential referrer and businesses can ensure a smooth and fair referral process that benefits everyone involved.
