5 mistakes You need to avoid when launching your Referral Program



Referrals are the most powerful tool a business can (and should) leverage. Recommendations for businesses from people we know has become increasingly important over the past years. The ability to easily contact friends & family through smartphones, email & social media has driven this phenomenon because a recommendation from someone we know is just a few clicks away. In fact, 84% of people said they would trust recommendations from people they know, which is 15% higher then the next closest medium.

The trend of trusting those we know has led to a rise in the number of referral programs launched by businesses in the past 3 years. Referral Programs are a great way to reach new customers, generate more revenue. Better yet, it comes at a lower cost of acquisition than acquiring Customers in other ways. The key to success is based on five key fundamental ideas. After studying referral programs of 500 businesses across North America, we discovered that over 85% of them were making crucial mistakes that are likely impacting their programs success.

Mistake #1: No Reward for the Referred Person

Over 80% of Referral Programs rewarded the Advocate while providing no Reward for the referred person (the “Friend”). This is a massive mistake that leads many Referral Programs to fail before launching. Friends are constantly being berated with advertisements for new goods & services, but there is no incentive to actually carry through any referrals. Although a recommendation from a friend stands out from other methods, providing the Friend with a Reward is the extra incentive that will give the extra nudge they need to try out your service. In addition, providing an incentive to the Friend allows the Advocate to be more comfortable sending referrals, as their friends will also get added value (i.e. Advocates don’t feel bad about benefiting from their friends ordering a service). Something as simple as providing the Friend 10% off their initial service can reap huge rewards and the lifetime value of a Referred Customer is typically more than any other Customers, so there is plenty of opportunity to make up for the initial discount that you provide.

Mistake #2: Complex Reward Structures

If you can’t explain how your Referral Program works to an 8 year old, its too complicated. Referral Programs need to be dead simple: Customers spend less time figuring out what they will earn in order to spend more time referring their friends to your business. We found that 25% of referral programs were overly complicated, requiring multiple steps or confusing rewards systems as part of their Program. Provide a simple system that can be described in the following construct is a good way to kick-start your Referral Program:

“Give your friend X off their first service with us and you will get Y”

Where X could be $10 off or 15% their first service and Y could be a $10 Gift Certificate or a free service. The more simple it is to explain, the more successful your Referral Program will be.

Mistake #3: Informal & Confusing Registration Processes

Customers are busy, they have their own jobs and lives to focus on – signing up for your Referral Program should be fast & easy. Shockingly, 1/3 of businesses did not have a simple way for Customers to sign up as Advocates or an easy way to share your business with their Friends & Family. Informal Programs have “passive” customers as opposed to a Formal Program that customers to promote proactively.

It’s important to only ask Customers for their indispensable information when signing up for the Program. When it comes to the digital landscape, there should be 1-click buttons, allowing them to easily share your business with Friends & Family on Social Media, by Email and in Newsletters and other communications.

Mistake #4: Minimal Promotion

2/3 of businesses did not prominently mention the Referral Program on their Website, meaning their Customers need to dig around (something that practically no customer actually does). The drawbacks of minimal promotion are obvious: no customer will sign up for a program they don’t know exists. Consequentially, without Customers registering as Advocates, you will not receive Referrals so it is important to prominently feature your Referral Program on your website, receipts, invoices, social media pages and in your stores. For more information how on how to promote your referral program, you can read our post here.

Mistake #5: No Automated Process or Feedback Loop

The last mistake that over 90% of businesses made was not using an automated system to help them with their Referral Programs. Automated systems can simply and easily increase conversion rates, reduce the time it takes to facilitate a referral program, improve the analytics and tracking of the referral program and automatically create a fly-wheel to increase the referral programs success. Automated referral programs can also help reduce the errors associated with referral program facilitation by logging all referral activity & reminding you of referrals that are.


If managed correctly, Referral Programs can generate significant return on investment. At ReferralMagic, we’re focussed on helping you launch the most cost-effective & rewarding Referral Program so you can avoid making the 5 mistakes we’ve outlined above. One of our referral experts will help you create a cost-effective, automated & optimized referral program, all without breaking the bank. To learn more about ReferralMagic, watch this video or visit referral-magic.com!

Get a Demo

Enter your details below to set-up your no-obligation demo. All fields are required.*