We know that referrals are an incredibly valuable source of profit for companies of all sizes. The data is conclusive: word of mouth marketing is a great way to grow your business sustainably. 

We also know that customer rewards are one of the best ways to encourage your loyal fans to spread the word about your business. However, the way you structure your referral promotion campaign can vary widely. Some companies offer discounts; others offer freebies. 

As you consider your own referral promotion, figuring out the best way to motivate referrals will be your primary goal. What type of reward will your customers respond to best? Does the reward need to be financial? How many referrals does a customer need to make to earn a reward? 

This quick guide will help you understand the best ways to use customer rewards effectively – as well as some alternatives and customer engagement platforms to get you started. 

What are the different customer rewards?

The first consideration is whether or not your reward will be financial or non-financial. A customer reward can be cash, discounts, free products, exclusive access, or a combination of these incentives. And, surprisingly, a study by the University of Chicago found that non-cash incentives are 24% more effective than cash incentives. 

What you choose as an incentive depends on your customer and your budget. The best incentive is one that aligns with your brand. “What you offer should boost the connection between your user/customers with you; it should put people in a position where they can’t do anything but to talk about you,” writes one expert. 

The incentive you choose will also impact the way you structure your referral promotion. At GrowSurf, we’ve determined four broad categories of customer rewards that help companies bring in more high-quality referrals. 

• Single-sided reward: Reward a customer when they refer a friend (and that friend makes a purchase).
• Double-sided reward: Reward both participants when a referral results in a purchase.
• Milestone reward: Reward a participant when they reach a specific referral goal.
• Leaderboard reward: Reward the top referrer(s).

Companies running a tight budget – but hoping to offer a cash referral incentive – may opt for a single-sided reward. Companies that are offering an increasing level of exclusive access will run a milestone or leadership rewards program. There are many examples of relationship marketing campaigns that use each of these types of rewards successfully. It all depends on your individual business!

In later posts, we’ll explore deeper each of these reward types to provide best practices for setting up referral campaigns that optimize your rewards budget to drive higher engagement and word-of-mouth marketing.

How to determine the right reward

Incentives and rewards come in many different forms. Ask yourself these questions as you consider what to offer and how to structure your referral promotion. 

• Who: Who will earn referral bonuses? Your top participants? The people they bring in? Are your employees eligible to participate?
• How many: Is there a limit to the number of rewards that can be earned? Is there a limit to the number of referrals that one can make?
• Your brand: How should participants represent your brand when sharing your company with others? Is there a specific hashtag you want them to use? Should a participant be upfront about the referral promotion? 
• When: When do participants receive their reward – upfront, after a certain milestone, or after referrals hit a certain purchase value? Does the person they referred need to purchase a certain quantity of products, or be a repeat customer? 
• Where: How do you want participants to share the referral promotion? Are there any places where referral promotions shouldn’t be used?  
• Legality: Are there any sponsored content guidelines members need to be aware of? Influencers, for instance, need to declare sponsored content for the FTC. Are there regulations that apply to your referral campaign?

If these questions feel overwhelming, this is where a customer referral tool like GrowSurf can come in handy. Our referral marketing platform lets you create a referral program in 15-60 minutes, test it out, and adjust your campaign as you go. Change your rewards at any time to see which structure is more effective. With endless possibilities, it’s critical a tool that makes it easy to test cash and non-cash incentives, as well as various reward mechanisms. 

How to get started with referral rewards

The easiest way to get started with customer rewards is by using referral marketing software. There are a ton of referral solutions on the market – we rounded up 41 of your options in this guide. The right referral marketing program for you will depend on the type of business you own, as well as your specific use-case (whether you want to run a double-sided program or a waitlist, for instance). We strongly recommend exploring different successful referral programs that other companies have run, and building your plan from there.