Incentives are an integral part of your referral program and ensuring the right reward amount and the right type of reward are in place is essential. Optimizing the offer structure throughout the lifetime of the program helps identify which reward your customer responds to best.

When deciding on an offer consider asking:

For example, a specialty online retailer launched a 3:1 offer, meaning that for every three friends referred, an advocate would receive a reward. This resulted in a 5% conversion rate. After five months, they decided to try a 1:1 offer structure that increased the conversion rate to 11.8% in just one month. That's a 136% increase in conversion rate.

Internal vs. external rewards

The two primary options for rewarding your customers are with in-kind/internal rewards or external rewards like an Amazon gift card. It is always a good idea to test both structures. If you are using one option, consider testing the opposite to see if results differ.

Depending on your product's average order value, you should consider testing both the advocate and the friend reward value. One best practice is to choose the incentive that appears larger to the consumer. For example, if your average order value is $50 then a 20% discount sounds bigger than a $10 discount, despite yielding the same results. Always consider testing your offer to ensure you've found the optimal mix.

A high-end photo book company wanted to improve conversion. However, they had one main problem: they couldn't change their coupon codes. They did not want to increase the reward in order to keep margins low and did not have the resources to issue new codes. We decided to update the program copy to reflect a dollar amount off instead of a percentage to see if that would make a more enticing sounding offer to the friend. Rather than saying, "you get 15% off," we tried messaging "you get up to $30 off." By changing the messaging from 15% to $30 we saw conversion rate increase by 33%.

Keep the offer simple and easy to understand. We want a single, concise sentence that entices both the advocate and friend to participate in your program. One great strategy to encourage more sharing is to include messaging that highlights sharing with multiple friends. For instance, changing the reward copy from "Refer a Friend, Get $10" is made far more intriguing when replaced with, "Refer a Friend, Get $10 for every Friend who Converts".

There’s nothing worse than unfulfilled expectations. When you offer a reward to advocates for referring new customers, you should hold up your end of the bargain quickly. Issuing a reward as soon as possible after a friend converts doesn’t just deliver customer satisfaction; it also helps your referrals go viral by raising advocates’ excitement about the program.

Adding a limited time or seasonal offer can help boost your overall participation rate. By increasing rewards in the short-term you'll drive up your participation rate and also create buzz, which will lead to increased long-term success. Consider seasonality in your business and use limited time and seasonal promotions to help bridge the sales gap you may be expecting or drive incremental sales at peak times.

A VoIP company saw their advocacy rate nearly tripled from 15% to 40% when they ran a burst campaign and doubled their reward from $25 to $50.

Another great way to re-engage your advocate base is to offer a double rewards promotion. Reminding users about the refer-a-friend program and offering an exciting new incentive will compel advocates to share with more friends and re-engage users who have not shared in some time. These types of promotions increase engagement, motivate sharing, and drive action.

A retailer ran multiple double rewards promotions with great success and even saw long lasting effects after the promotion ended. Conversions were 5x higher than the weekly average and 2x higher than their highest converting week throughout the referral program with an overall 13.5% increase in their conversion rate!

You do not always need to double the reward to see a real performance impact. Even a slight boost can move the dial. Two consumer services company both ran increased rewards promotions: one increased the advocate and friend incentive from $7 to $10, and the other increased it from $5 to $7.

Prior to the promotion, the prior was seeing an average of 598 conversions per month. This increased to 5,081 during the promotion, an increase of 750%. The conversion rate went from 11.78% to 34.43%, an increase of 192%.

The second company was seeing an average of 383 conversions per month which increased to 1,097 during this promotion. While conversion rate decreased 24%, from 6.23% to 4.68%, it is important to note that the share rate increased 25% and the conversion per advocate ratio increased from 4.7% to 16.06%. This shows that while more people were sharing and there was a large increase in friend clicks, for every 100 advocates, 16 are converting rather than 4.7.

When promoting the program, make sure that you clearly call out the reward to the advocate. After numerous tests, the incentive is what truly motivates the advocate to click a promotion. Promotions that do not show the incentive have about half the CTR's as promotions with clear offer communications.