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Every ecommerce website needs a referral program. An ordinary online store depends on the influx of customers that comes from normal forms of marketing such as search engine optimization and social media advertising.

A referral program on the other hand is a system where you allow your customers to refer their family and friends to your website. With this, you can enlist your customers as your personal promoters.

They can do this in different ways. They can either key in the email addresses of their friends or they can refer people to your site by liking or sharing your page.

But ultimately, there are 10 main reasons why every ecommerce or business should have a referral program.

01. Successful Ecommerce Sellers Do It

Just visit some of the most popular ecommerce websites and you’ll instantly see a referral program.

For example, Walmart has a referral program wherein they give away a $10 discount to anyone who has bought from them for the first time. We all know that Walmart is a big company. But why do they keep on doing? The answer is simple – It gives them more sales.

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Costco, on the other hand, took the referral program up a notch. Instead of merely rewarding the friend, they rewarded both. So both the referrer and the friend get a $10 cash card that they can use in the store.

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Referral programs are not only reserved to eCommerce sites though. There are other types of businesses that use referral programs to drive traffic and sales to their website. Take some apps like AirBnb and Uber for example. AirBnb rewards referrals for new hosts as well as new renters. The same is true for Uber that reward referrals for new drivers and riders.

02. It Gives Your Customer a Reason to Promote You

Having a referral program encourages your customers to promote your business. While you can ask them to do it, they would often just ignore you. Why? It is because there is nothing in it for them.

When you create a referral program, you give your customer a reason to promote you. With a referral program, you will give them a referral incentive for promoting you to their family and friends. The reward doesn’t even need to be that expensive. As long as they have something to gain from promoting your site, that is all that matters.

03. It Ignites Your Customers’ Competitive Spirit

There are different types of referral programs. An ordinary referral program will usually ask your customer to refer their family and friends in exchange for a reward. But a referral contest gives something more. On top of the reward that they get from referring someone new to the site, they also have a chance to win a prize.

Now, you can approach this in two ways. You can give away prizes for the customers who referred the most people or you can allow them to enter a lottery that will allow them to win prizes.

In the first option, the goal of your customers is to refer as many people as they can. The more they refer, the higher their chances of making it into the leaderboard. This will then allow them to win some prizes.

In the second option, the goal of your customers is to increase their chances of winning by referring more people. This approach is useful because customers who are new to the contest will still feel that they have a chance of winning. The problem with the first option is that once your leaderboard is dominated by a select few, your other customers will no longer be motivated to refer more people to your site. But if you don’t have a leaderboard, then new customers will be more likely to refer more people.

Contests work because they ignite the competitive spirit of your customers. It is a type of referral program that is quite exciting to implement.

04. Referrals Offer High-Quality Leads

Did you know that 92% of consumers trust referrals from people they know? According to Nielsen, People are 4 times more likely to buy when referred by a friend. Customers even claim that they are 77% more likely to buy a product that is referred by a family member or a friend. And it is not just that, it seems that social media plays a vital role as well. It seems that customers have an increased chance of buying a product when they see their friends use it.

We no longer live in a secluded world. We are now interconnected. When it comes to promotions, the quality of the relationship matters and this is why referrals are so effective.

Think about it. Would you buy a product that is referred to you by a stranger? I don’t think so. But if that stranger is your long time friend or family member, would you buy? In this case, it doesn’t even matter if you need the product. Just because you have a relationship with the prospect already increases your chance of buying.

With this, referral marketing is the only form of marketing out there that is known to produce high quality leads. Why high quality? This is because these leads have a higher chance of converting into a sale.

05. It Strengthens Your Brand

I have mentioned above how referral marketing from family and friends are more effective in converting a lead into a sale. Alternatively, it have a positive side effect – Referral marketing can greatly strengthen your brand.

Word of mouth marketing has a tendency to have a powerful effect on you. But it is even more effective if it is done by someone you know. Referral marketing is just like that. As mentioned, it is a marketing system that allows you to recruit your customers as your personal marketers. They will promote your brand to the people that they know.

But here’s the thing. Word-of-mouth marketing has a compounding effect. When one person tells another about your product. That other person can also tell another about your product. This means that the word will just be passed from person to person allowing your brand to gain recognition.

So if you’re struggling with brand marketing, you may want to launch a referral program in your ecommerce website. It may just be the missing element that you need to finally strengthen your brand.

06. It Can Explode Your Site’s Traffic

As mentioned, referral marketing has a compounding effect. As one person promotes your brand to another person. That other person can also promote you again. If you managed to promote to more than one person, then you also have another person who can promote you. The result is often an amazing amount of traffic to your site.

The traffic comes not only from the referral marketing process. It may also come from the promotion of the program itself. Audiences quickly take notice when there are giveaways or freebies. Referral programs usually have a reward as a focal point of their program. This can then be promoted for an explosion of traffic.

PRO TIP: Referral programs are easy to promote on Facebook. Since you are giving away something for free. It is easy to get more people to click on your ad.

07. It Allows You to Get More Users or Subscribers

One of the most successful referral programs on the Internet is the one by PayPal. Paypal has launched a referral program where they pay $5 for every referred user. This means that anyone can earn some money just from getting other people to open an account.

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However, there are some terms. First, it must be a US PayPal account. Second, the account must have 1 transaction in the next 14 days of signing up. This is to prevent people from abusing the system. Also, they have implemented a $100 limit per person. This means that every person can only refer a maximum 20 people.

This is one of the most effective referral programs on the Internet. As of writing, PayPal now has over a billion users. Most stores online are integrated with Paypal. I guess it came from the vision of PayPal’s owner. He is willing to lose money in the short term if it means winning in the long term.

This is an example on how your referral program can win you new users or subscribers. You can reward every referral and build your user base from there.

08. It Allows You to Get Leads at a Lower Cost

Buying leads can be expensive. For the most part, eCommerce businesses are so used to not getting their money back that most of them dismiss the idea of getting leads from ads altogether. While there is a way to optimize ads so that you can get a lower cost per click, nothing beats having a referral program. With it, all you need to pay for is your referral software and that’s it. You can enlist as many customers as you can and you don’t even need to pay for the promotion.

How can a referral program give you leads at a lower cost? As I have mentioned, it has a tendency to explode your website traffic. Plus, referrals usually have the power of trust. This means that more people tend to act on the promotion because of their familiarity with the person who did the promotion.

Plus, it doesn’t require you to pay for each impression or click. While you may need to pay a monthly fee for the software, you don’t need to pay for anything to launch your campaign. You just need to do your share of promoting it but you don’t need to have a marketing budget for it.

09. It Allows You to Get More Sales

As mentioned, there is a greater chance of converting a prospect into a buyer through referral marketing.

There is just something about referrals about family and friends that makes you want to act on them. It may be the motivation to get on the good side of your family member or friend. Or it may be because you get to witness the effect of the product or the service in your family member’s or friend’s life.

With this, there is a certain strength to a promotion when it is done by someone that you know. It is like they are a living testimonial that the product works so you are more likely to act on it.

10. It Gets More Influencers to Promote You

Influencers are slowly taking over social media. More than celebrities, customers are now following influencers for advice and product referrals.

A referral program can do a lot for your influencer marketing. And this is because referral programs can strengthen your brand and increases the chances of an influencer promoting you.

As mentioned earlier, referral marketing can strengthen your brand. With a stronger brand, you have a greater chance of being noticed by an influencer. Once your brand becomes strong enough, you may not even need to approach an influencer to promote you. Most of them will find you and use your products by themselves.

Also, it gives the influencer something to promote. Influencers can be quite picky on the brands that they promote. When they have no reason to promote that brand, they will usually skip it. With a contest or a giveaway, it is easy to get influencers to promote you.

PRO TIP: It helps to create an exclusive discount code for a particular influencer. Having their name on the discount code builds their credibility so they are more likely to promote it. This is simple. Simply create a discount code on your store that has your brand. Send this to your target influencer and ask them to promote you. And if you really want them to say ‘Yes’. You can always throw in a freebie.

As you can see, it is really important in eCommerce marketing to have a referral program. Referral programs do more than get your site traffic, subscribers and sales. It also strengthens your brand and gives you influencer recognition. So if you want your online store to succeed, having a referral program in place may be the first step.