Referral Marketing Guide: Types, Benefits, and Tips for 2025

Imagine that you need an attorney to assist in a real estate transaction. What would help you choose a law firm: A billboard ad?” A firm’s website? A referral from a good friend?

For most people, the answer is a referral. Referrals and personal recommendations are among consumers’ most trusted sources for information. Studies show 89% of consumers globally trust recommendations from people they know, making it the most trusted form of advertising.

This creates a challenge for marketers—after all, businesses can’t create or control personal recommendations. They can, however, encourage them through strategies like referral marketing. Here’s how to implement a referral marketing program for your business.

What is referral marketing?

Referral marketing is a strategy for motivating customers to recommend your business and its products or services to other consumers.

Referral marketing strategies replicate the results of organic customer-to-customer promotion. If you’re impressed by your new espresso machine and recommend it to a friend, you’ve made an organic referral. Referrals can also come from social media platforms, blogs, articles, or customer testimonials or reviews. Referral marketing programs use incentives, such as discounts or rewards, to encourage this behavior. Under a referral marketing program, for example, you may receive $20 in store credit for any referral resulting in a purchase.

Types of referral marketing programs

Choosing the right referral structure directly impacts your participation rates and return on investment (ROI). Here are the most effective options for your online store:

Direct referrals

The classic “tell-a-friend” approach, direct referrals happen when existing customers share unique links with friends and family. It’s a great model for businesses with strong customer relationships and a product people naturally talk about. For example, your customer might share their referral link in a group chat after friends ask where they bought their new jacket.

Two-sided incentive programs

Both parties get rewarded in two-sided incentive programs. Incentives might include store credit, percentage discounts, free products, or early access to new releases. Two-sided incentives remove hesitation from both sides of the equation, making them especially powerful for getting a referral program off the ground quickly. 

For most ecommerce stores, starting with a simple two-sided program offers the best balance of simplicity and effectiveness.

One-sided incentive programs

In these programs, only one party gets the reward—either the referrer or the new customer. Consider this approach when your margins are tight, but be aware they typically generate less engagement than two-sided programs. One-sided programs can work well for luxury brands where discounting might dilute perceived value, or for products with very high margins where you can afford to be generous with just the referrer.

Tiered programs

In a tiered program, rewards improve as customers successfully refer more people. This model works great for products with higher price points or when you want to turn customers into brand ambassadors who refer multiple people. Tiered programs create ongoing engagement rather than one-off referrals—perfect for businesses focusing on long-term customer relationships and community building.

Review-based referrals

Customers earn rewards for leaving public reviews that help convince other shoppers to make purchases. Review-based referrals are most effective for products where social proof significantly impacts purchase decisions. 

Benefits of referral marketing

• Control customer acquisition costs
• Attract high-intent, high-value customers
• Build trust between business and customer
• Increase customer lifetime value

A referral marketing program can help you control customer acquisition costs, boost sales, and build trust in your brand. Here’s an overview of the benefits.

Control customer acquisition costs

Customer acquisition cost (CAC) is how much it costs a business to attract new customers. A successful referral program can help lower these costs. Instead of competing with other retailers in an increasingly competitive digital ad market, you can use a referral program to harness the power of your existing customer base.

Running a referral program also gives you more control over the terms of your customer acquisition strategy, allowing you to design your program around your available budget. For example, a business with little cash on hand might design a program that rewards new customers and referring parties with a discount applied to their next purchase. Although this strategy will reduce your profit margins on sales resulting from referrals, it also allows you to reach new customers and boost sales with minimal upfront investment.

Attract high-intent, high-value customers

Your customers have a nuanced personal understanding of those in their social and professional circles. Existing customers can recommend products and services they know someone is looking for and likely to appreciate, thus bringing in high-intent customers who are much more likely to make a purchase. It’s hard for brands to match this level of personalization through targeted advertisements, so it’s no wonder that customers referred by a friend are more likely to convert. Referral marketing works, in part, because the customers it targets already have a need or desire for your product.

Build trust between business and customer

Think of a product you’d recommend to a friend. Odds are that you genuinely believe in it—and if you didn’t, it would probably take more than a discount code for you to recommend it. After all, when you recommend something, you’re putting your own credibility on the line.

It’s no wonder, then, that consumers tend to trust recommendations from individuals they know over information put out by companies. In fact, research by Fortune shows that 92% of consumers trust personal recommendations from friends more than ads. While paid ads, blog posts, and direct-mail campaigns do little to move the needle on consumer trust, a referral marketing program can help you start off your relationship with new customers at a higher level of trust.

Increase customer lifetime value

Referred customers don’t just convert better—they also tend to be more valuable over the long term. Research shows that referred customers have 16% higher lifetime value than non-referred customers. This increased value comes from several factors:

• Higher retention rates: Referred customers have a 37% higher retention rate than customers from other channels, creating more recurring revenue over time.
• Larger average order values: Customers who come through referrals often have higher average order values than those acquired through paid advertising.
• Better brand loyalty: These customers already start with higher trust in your business, making them more likely to become loyal and even refer others themselves.

Tips for successful referral marketing

• Ask at the right time
• Use referral links
• Reward everybody
• Build a loyalty program
• Promote your program
• Say thanks

There are many referral marketing models-and you can design yours around your unique business goals. Here are a few popular strategies to consider as you build a referral marketing program.

Ask at the right time

The cornerstone of any referral program is asking for referrals. To increase your odds of winning a recommendation, time your ask strategically. Common points include after a customer makes a purchase, after a customer leaves a positive review, or after a customer mentions your brand on social media.

Use referral links

A referral link is a unique, trackable link that makes it easy for your customers to participate in your referral program-all they have to do is embed the link in an email, direct message, or text.

Some companies use referral forms to simplify this process even further on their websites. A referring party can then enter the email address of a friend they’d like to refer, and the company will automatically generate an invitation email that includes the link. If a new customer makes a purchase after clicking on a referral link, you’ll be able to associate the sale with the referring customer. This can be particularly valuable if you plan to reward existing customers based on their purchases.

Reward everybody

Referral programs typically use discounts, store credit, or other incentives to reward customers who refer new customers to your business. Some programs also empower the referring party to pass an incentive along to the new customer—for example, by giving newly referred customers 20% off on their first purchase. Rewarding both parties can increase the likelihood that a current customer will make a referral and that the referred customer will make a purchase.

Build a loyalty program

Starting a loyalty program can help you connect with your most enthusiastic and engaged customers—in other words, the individuals most likely to become ambassadors for your brand. You can reward referring customers with loyalty points or other status-based incentives, such free upgrades for frequent buyers. As with discount programs, businesses have the flexibility to customize terms. For example, you might base point allocations on purchase value or incentivize other activities, such as signing up for marketing emails or leaving product reviews.

Promote your program

Even the best referral program won’t succeed if customers don’t know about it. Make your program visible across multiple touchpoints—add it to your website navigation, feature it on your homepage, and mention it in email campaigns to existing customers. Leverage post-purchase moments when customers are most satisfied, such as order confirmation emails and packaging inserts. For maximum impact, train your customer service team to mention the program during positive interactions and share success stories on social media that highlight the rewards available.

Say thanks

The incentives a business attaches to a referral program can provide the extra nudge needed to encourage a referral, but they’re unlikely to work unless a customer truly believes in your product or service. In other words, there’s a good chance that customers who participate in your referral program truly believe in your company. Going the extra mile to thank them—with a personalized email, a surprise gift, or even a phone call—can make them even more loyal to your brand and increase the odds that they will make more referrals.

Measure your program’s success

Don’t just launch your referral program and hope for the best—track its performance to ensure it’s delivering results. Focus on key metrics like your referral conversion rate (how many referrals become customers) and cost per acquisition (how your referral program compares to other marketing channels). Pay special attention to whether referred customers spend more and stick around longer than other customers—many businesses find these customers have significantly higher lifetime value. 

Test different incentives, promotion methods, and referral requests to continuously improve your results. Small improvements add up: increasing your conversion rate by just 5% could mean hundreds of additional customers over time.

Referral marketing examples

Referral marketing is a common strategy. Here are three successful ecommerce examples.

Bombas

Apparel company Bombas creates and donates one item of clothing for every item purchased, and the brand’s referral program, Best Buds Give Bombas, highlights this commitment. Bombas provides a referral link that grants new customers 25% off and gives referring customers $20 in store credit. The final step in the brand’s four-point referral program points out that purchases made by both new and referring customers help Bombas donate clothing to people in need.

Brooklinen

Bedding company Brooklinen has built up its customer base in part through its referral program. For every referral, Brooklinen awards the existing customer 1,000 points, which can be redeemed for store credit or a variety of products. The new customer gets $25 off their first order of $100 or more.

Saie

Beauty brand Saie’s Give $10, Get $10 referral program allows existing customers to give new customers $10 off of their first order—and when a referred customer makes a purchase, the referring customer also receives $10 in store credit.

The Saie referral program page instructs users to enter their email address before automatically generating a referral link. Users can then copy the link, share it to social channels, or input a potential customer’s email address into the form to send a referral link using the Saie system.