How to Select Winning Incentives for Your Referral Program

Just like every other component of marketing, a referral program requires a well-planned strategy to meet and exceed goals. Strategic thinking becomes increasingly important when it comes to one often overlooked aspect of referral programs — developing an incentive structure.

According to a recent survey conducted online by Harris Poll on behalf of Ambassador, 88% of Americans say they would like some sort of incentive (money, product or service, loyalty points, early access, swag) for sharing a product via social media or email. That number jumps to 95% among 18-to-34-year-olds.

There’s a fine line between throwing perks and freebies to your brand ambassadors and creating a revenue-generating channel. Companies that leverage referral marketing are investing in an opportunity to benefit from an active, engaged, and valuably rewarded audience of advocates. The best referral program incentives are reflective of the hard work that ambassadors put in as they share good news about your product or service.

While most marketers understand that a reward should be given in exchange for a referral, how can companies ensure that they’re using the right referral marketing incentives for the right audience at the right time, and that their referral software can streamline the process.

What To Offer as Reward Program Incentives

Start by selecting the specific action that ambassadors, otherwise known as members in your program, will be rewarded for. In other words, what is the ideal activity that should occur after a referral link is shared? Whether it’s product purchases, completed demos, or newsletter signups — aim for the outcome that will help you achieve your desired objective.

After you pinpoint activity that will be rewarded, choose between these two types of rewards:

Non-Monetary: loyalty points, early access, swag or any other reward without direct monetary value.

Non-monetary rewards are enticing for companies that want to spice up their customer outreach and give away branded merchandise or exclusive perks. While it’s always great to shake up the traditional customer experience, the problem arises when determining the one-to-one value of these interactions. How many company t-shirts would rightfully reward customers for new business they’ve driven your way? Non-monetary rewards are great add-ons when you want to thank your customers, but they aren't typically motivating enough to encourage advocates to drive more referrals. Given that consistency and ease are the pillars of a successful referral marketing campaign, it’s best to aim for a more straightforward and immediately rewarding incentive.

Monetary: incentives with a monetary value like cash, rebates or discounts, gift cards, and commissions.

Nothing is more straightforward than a cash reward. Cash referrals create a direct link between brand ambassadors and new revenue. Plus, it’s much easier to calculate your customer acquisition cost when cold hard cash is involved. According to a survey conducted online by Harris Poll on behalf of Ambassador, 77% of Americans identify cash as the reward of choice. By contrast, only 18% want to be rewarded with swag. Incentives can make or break your referral program, so be sure to choose a referral marketing incentive method that makes your advocates want to continue referring your brand.

Customizing Incentives to Match Customer Preferences

Customizing your referral program incentives to align with your customers’ preferences can significantly increase participation rates. By offering a mix of monetary and non-monetary rewards tailored to your audience, you can appeal to a broader range of customers. For example, offering discounts or exclusive access to new products might resonate more with loyal customers, while cash rewards could appeal to a broader audience. This customization ensures that your incentives remain relevant and motivating.

How To Provide Winning Incentives

After your ambassadors have performed the desired action, you’ll have to decide how they will be rewarded. Consider these two types of rewards:

Single incentive: the original referrer is rewarded for the new sale generated as a result of their activity.

Dual incentive: both the referrer and the new customer are rewarded.

A study conducted by the University of Pittsburgh and Korea University revealed that the referral benefits and costs of single and dual incentive structures are largely dependent upon the strength of a brand. Strong brands, defined as well-established brands with a high level of brand awareness, found success with dual incentives. Weak brands defined as less-established, low-awareness brands found success with single incentive structures.

There’s no one-size-fits-all approach to developing an incentive structure. In fact, many of our clients have found success with dual incentive structures because both parties feel like they're being rewarded and valued. Instead of looking for a textbook answer to your incentive structure questions, build a program that suits your company and what you want to reward.

A critical aspect of developing an incentive structure is determining how much it will cost you. As a rule of thumb, an effective incentive will intrigue customers without erasing the profit of the new revenue generated. Before you can develop an incentive structure you’ll have to consider the customer lifetime value and customer acquisition cost. Referral programs consistently generate great ROI, you just have to be mindful of your existing business before introducing rewards into the mix.

So what’s one surefire way to get your incentive structure started on the right foot? Opt for referral marketing incentives that you can maintain and offer in a timely fashion. Brands that keep their promises, keep their customers. With a rewarding referral system, you’ll be empowered to attract new customers too. 

The Importance of Transparency in Referral Rewards

Transparency in how and when rewards are earned is crucial for maintaining customer trust and encouraging ongoing participation in your referral program. Clearly communicating the referral process and the steps required to earn rewards helps to set expectations and reduces any potential confusion. This clarity not only boosts customer satisfaction but also enhances the overall effectiveness of your referral program by ensuring that participants are fully informed and motivated to engage.

Selecting the form and flow of your rewards is the first step in developing an effective program that will generate the most referrals for your business. The most successful incentive structures are easy to explain and easy to implement. What if your informed community of buyers, users, customers and fans is just one fully optimized referral program away? Ditch the guessing game and make customer rewards an essential element of your marketing outreach.

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