How To Build a Successful Customer Referral Program in 2025

Wondering whether you need your own referral program? We’ll walk you through how they work, the benefits of having one, and a six-step guide to creating your own.

A referral program is a system that incentivizes previous customers to recommend your products to their family and friends.

Retail stores create their own customer referral programs as a way to reach more people and grow revenue. 

Compared to other types of marketing strategies (such as traditional television ads), referral marketing can be more cost-effective because you are tapping one of your most valuable resources: existing loyal customers. Incentivizing these customers to become brand advocates can benefit your business in the long term. 

Considering starting your own referral program? Here is a deep dive into how these programs work, the benefits of having one, and a six-step guide to creating your own.

What is a referral program?

A customer referral program embraces a word-of-mouth marketing strategy, which incentivizes existing customers to recommend your products to others in their network. Referrals can be to family, friends, or anyone on popular social media platforms looking for a product like yours.

Since you are leveraging your existing customer relationships, this strategy can cost you less money compared to other types of marketing. The referrals themselves are free (although there can be costs related to referral software or any incentives you provide). Examples of perks to subscribers include your brand’s products or exclusive access to email newsletters or special events.

Ultimately, encouraging existing customers to refer your company to their network increases their lifetime value and aids customer retention. These loyal customers are worth up to 10 times the value of their first purchase. Word-of-mouth marketing can drive growth and revenue, generating five times the sales of paid advertising. 

A referral program should not be confused with an affiliate marketing program, as the former relies on your existing customers or subscribers.

Why referral programs are important

Referral programs can be extremely effective when strategically planned and implemented. Here are three benefits to referral programs for retailers: 

Drive conversions

Referral marketing is effective in optimizing conversions, with data indicating referrals are twice as likely to convert as leads from paid marketing channels, including social media marketing and traditional marketing like television and radio ads. New customers earned via referral have pre-established trust in your brand. 

Reduce costs

It’s expensive to market and promote your brand and products. The more you can reduce these expenses, the lower your customer acquisition costs become, and your profit margins grow. 

Plus, many shoppers are willing and eager to share their experience on your behalf—at no out-of-pocket cost to you. More than three-quarters of customers are willing to refer a friend after a good experience with your business.

Access qualified leads

Referrals often have some sort of commonality with the referrers—your target customers. 

It’s an effective way to reach your ideal audience. In fact, referred customers make more purchases than customers from other channels—and they also refer about 30%–57% more new customers. There’s an undeniable snowball effect. 

How does a referral program work?

A referral program works by inviting your current customers to become brand ambassadors. When they join your referral marketing program, they receive a unique code or link to share with their personal network. 

There are a few components to every referral program: 

• Signup – Retailers must offer customers a way to sign up for their referral program. This typically involves creating some sort of account or customer profile. 
• Referral link or code – Every member of your referral program needs a unique identifier so you can track who refers whom, and give the appropriate rewards. This may be in the form of a link or a code.
• Referred incentive – While it’s not mandatory, it’s a good idea to incentivize the first purchase from a newly referred customer. You can offer a percentage off, a dollar discount, rewards points, or a free gift, for example. 
• Referrer reward – Again, it’s not mandatory, but it is effective to incentivize existing customers to refer new customers. You can offer the same incentive as the referred customer is getting or something else. 

Your referral program software tracks the activity of a customer’s code or link. If someone uses the shared code, for example, the referrer earns a reward. Most platforms will do this automatically, so you don’t have to worry about keeping up with and applying discounts for referrals. 

Types of referral programs

• Incentivized referrals
• Direct referrals
• Reputation referrals

There are multiple types of referral programs, including:

Incentivized referrals

The most popular type of referral is incentivized, meaning a customer has a reason to refer your products to their personal network. In return for the referral, the existing customer may receive a discount on their next purchase, a complimentary product or service, or a cash incentive. 

Lifestyle brand Erin Condren offers a double-sided referral program: giving a $10 coupon code for referred customers to use on their first purchase, and a $10 equivalent in 1,000 EC Insider points to the person making the referral.

Direct referrals

Direct referrals are when your existing customer base actively refers your company to people looking for a product or service you provide. It’s the most traditional form of referral. 

There’s not necessarily an incentive for the referrer to act; typically they are just genuinely happy with the product and are willing to share it with others. 

Reputation referrals

Reputation-based referrals are when you have built a brand with such a strong reputation that people are confident in mentioning you to someone looking for the products or services you offer—even if they haven’t bought from you themselves. 

While it’s a good target to aim for, it’s not necessarily easy to get these types of referrals. They happen as an indirect result of having great products and a strong brand reputation.

How to build a referral program

• Start with a great product
• Understand your customers
• Determine the incentives
• Choose a referral marketing tool
• Invite previous customers to join the program
• Make it easy for people to refer you

So how do you create your own successful referral program? Here are six simple steps to get started:

1. Start with a great product

Develop a referral program with a great product by going through the product development process. This includes conducting market research, sourcing quality materials and finding reputable suppliers, and testing your product from prototype to soft launch before its full release to your target audience. 

These steps are key to creating a product that is high-quality, reputable, and valued by your customers—the entry point to building a solid reputation.

2. Understand your customers

What does your target customer value? Why do they purchase your product over a competitor’s? Which incentives drive the most referrals? 

Knowing your ideal customers and what influences their behaviors can help you educate those joining your referral program—and give them the insights necessary to effectively connect with their networks. 

You can collect this information by leveraging ecommerce analytics tools such as Shopify’s analytics and reporting and others available through the Shopify App Store.

3. Determine the incentives

Incentivizing customers to make a referral can be an effective tactic to get more people using your program. Make a plan to determine which customers receive rewards and clearly state the details on your website. 

Some companies give both the referrer and the new customer an incentive for joining. This is a win-win: New customers are incentivized to purchase through a referral link. When they do, the person who referred them is also rewarded. 

Dollar credits are among the most popular referral rewards. Percentage discounts are also commonly offered as rewards. Other reward options include free products, free month subscriptions, and points to redeem on future purchases.

Regardless of which incentive you chose, a solid understanding of your customer lifetime value (CLV) is key. You want the cost of acquiring each referred customer (i.e., the cost of the incentive) to be less than the total revenue brought in by the customer. 

4. Choose a referral marketing tool

Select a referral marketing platform that handles referral invitations, generates unique codes or referral links, and tracks conversions. Some options that integrate with Shopify stores include:

• Referral Candy & Affiliate
• Retainful: Email Marketing
• Rivo: Loyalty & Referrals

Next, design and create a landing page explaining how the new program works (plus, any referral incentives you give). On this page, include a form for people to join. Ensure that people who fill out the form receive a unique referral link by email. 

The best referral marketing platforms let you monitor the progress of your referral campaigns, and your referrers get access to a dashboard to track how many customer referrals they’ve made.

5. Invite previous customers to join the program

Loyal customers make the best referrers because they are already familiar with your brand and its reputation. Invite them to join your referral program using email marketing.

Start by sending a broadcast to announce your new program and any incentives. Most referral marketing tools have an email feature to send a customer’s unique referral code or link without participating in a signup process.

A best practice is to continue promoting your referral program by mentioning it in your purchase confirmation emails—when customer excitement is fresh. Consider using the footer of the email to invite new customers to join your referral program. 

6. Make it easy for people to refer you

In addition to designing incentives, make sure your referral process is seamless and engaging. There are a couple of ways you can do this.

First, make it easy to refer friends and family with templates customized to your brand voice. Templates could be for emails, social media posts, or direct messages—simply formatted and supported by software allowing customer referrals to be sent with a click of a button. Include key information such as brand name, type of reward (with reward value), and discount code or link.

You can also collect online reviews that can help improve your overall reputation and grow your community of brand advocates. Ask happy customers to share their experiences on Trustpilot, Yelp, or other credible review sites that your target customers are likely to visit before purchasing. 

Referral program examples

1. MeUndies
2. Loot Crate
3. Outdoor Voices
4. Tentree
5. Rothy’s
6. 707 Street
7. Junglück
8. Swan
9. Negative Underwear
10. Bauer
11. QALI Hair Extension Studio
12. Good AirX
13. LIVELY

Check out these real-world referral programs for some inspiration:

MeUndies

MeUndies has a referral program in addition to its affiliate and ambassador options. The program is available to customers who have made a MeUndies purchase before. It’s straightforward, rewarding $25 for every referred new customer when they purchase at least $12. 

Loot Crate

Pop culture subscription box company Loot Crate also has a refer-a-friend program. Loot Crate customers receive a referral link they can share with their networks. The corresponding customer receives a reward when someone makes a purchase using the referral link. 

Outdoor Voices

Outdoor apparel brand Outdoor Voices has a referral program. The program is points-based, rewarding shoppers for referrals, writing reviews, attending store events, and engaging on social media. Rewards include everything from discounts to exclusive access to products and promotions. 

Tentree

Tentree is a sustainable apparel brand with its own refer-a-friend option. The referral rewards both the referring and the referred customer—they each receive a 20% discount on their first or next Tentree purchase. 

Rothy’s

Rothy’s is a Shopify merchant that sells shoes and bags online and in its retail stores. Its referral program is straightforward with a minimum purchase requirement. 

Referred customers get $20 off a purchase of $50 or more, and referrers receive the same discount when someone makes a purchase using their referral link. 

707 Street

707 Street is a retailer that offers a unique variety of trendy apparel and accessories. The brand has gained a loyal following among fashion and pop culture enthusiasts for its commitment to quality and exclusive collections of highly sought-after styles. 

The 707 Street Loyalty Program is a points-based system that rewards members for referrals, signing up for the email list, making a purchase, or leaving a review, among other actions. 

Junglück

Junglück is a German sustainable skincare brand, offering natural products from facial cosmetics to shampoo and hand soap, with a referral program. 

Referring customers get a €10 “gift card.” When someone spends that gift card, the referring customer earns their own €10 discount voucher. Junglück uses the Yotpo integration for Shopify to manage its referral rewards. 

Swan

Swan is another Shopify merchant with a referral program. The household appliance brand also uses Yotpo to manage its referral program. 

The program is straightforward and similar to Rothy’s referrals—just with different amounts. Shoppers can refer a friend, each of whom receive a £10 discount on their next purchase of £30 or more.

Negative Underwear

Undergarment brand Negative Underwear uses the same structure as Rothy’s and Swan for its referral program. 

Referrals are worth a $20 discount to both the referred and the referrer, with a minimum purchase amount of $75. Currently, the brand uses Shopify Plus to manage all of its commerce channels in a central command center. 

Bauer

Hockey retailer BAUER is another multi-channel Shopify merchant. The BAUER MVP Loyalty Program is a tiered points-based customer loyalty program that rewards members for referrals and other actions. 

Members can redeem points for discounts as well as be automatically entered for sweepstakes and giveaways. Additional benefits include free returns, early access to products and promotions, free shipping on qualifying orders, and more. 

QALI Hair Extension Studio

QALI Hair Extension Studio is a full-service salon in Vancouver, Canada, with an ecommerce site that sells hair products. 

To incentivize its loyal customers to refer their family and friends, the brand created a points-based referral marketing program called TreatPoints. Customers earn points for every purchase—be that services in the salon or products.

Good AirX

Good AirX built its referral program to capture customers already buying through its ecommerce store. 

Both the referrer and the new customer are incentivized through discount codes: referrers get 10% off future products; new customers get 7% off.

LIVELY

Fashion retailer LIVELY offers referrals as part of its reward program, in which subscribers get one point for every $1 spent (and can sign up on the brand’s webpage). 

Referrers are incentivized to share 15% off and get 15% off in return if the referred customer shops with LIVELY. Within 48 hours of launching its initial rewards program, LIVELY received 133,000 emails and Its ecommerce store saw 300,000 online sessions. 

Choose the right referral program for your business

Now that you know a referral program's value, it’s time to move forward and create your own. Understand what your target customer looks like (and explain that to referrers), choose an incentive, and make it easy for happy customers to recommend you.

The best part? With Shopify POS integrations, you can create an omnichannel loyalty program that rewards customers shopping in-store and online. 

Referral program FAQ

What is a referral program?

A referral program is a marketing strategy that rewards customers for sending friends and family to your business and recommending your products.

What makes a good referral program?

A good referral program is transparent about what it is and what it offers. It provides reasonable incentives for customers sending referrals its way and gives out those incentives in a timely fashion to maintain its reputation.

What are four types of referrals?

The four types of referrals are:

1. Word-of-mouth referrals
2. Online reviews
3. Social media recommendations
4. Email referrals

How does a referral program work?

A referral program reaches out to loyal customers to let them know about incentives they can earn based on how many personal referrals they send to the company. Marketing outreach may start as an email exchange, SMS message, or pop-up on your website. The customer can opt into the referral program and then send their link or code to others to use; the referred customer may also receive some type of reward or discount.