Referral Program: What It Is and How to Run One With Points
By Alva Chew · Updated
Definition A referral program rewards an existing customer for bringing a new customer to your business, usually once the newcomer makes a first purchase. For a small shop the simplest version pays the reward in loyalty points, so there is no separate voucher or code system to run.
What is a referral program?
A referral program gives an existing customer a reward for bringing in a new one. The customer who recommends you is the referrer. The person who arrives is the referee.
The reward can be money off, a free item or loyalty points. Most programs pay once the referee makes a first purchase, so you only pay for customers who actually turn up.
How does a referral program work in a shop or café?
The steps are short.
- A member tells a friend about your business.
- The friend joins your loyalty program and makes a first purchase.
- You credit the referrer, and often the friend, with a bonus.
In an online business this runs on links and codes. In a café, restaurant or shop it can run at the counter. The friend says who sent them and staff add the bonus.
Why pay referral rewards in points?
Many referral schemes issue a separate voucher or code. That adds a second thing for customers to remember and for staff to check. If you already run a points-based loyalty program, the referral reward can be a fixed number of points on top of normal earning.
The customer sees one balance. The reward is worth whatever your redemption rate says a point is worth, and it counts toward the next reward just like points earned from purchases. Research on loyalty design points the same way. Our page on the case for points-only loyalty sets out the evidence for keeping rules few.
What does a referral reward cost?
Work the cost out from the value of a point, as you would for an earn rate. These are illustrative US$ examples, not benchmarks.
| Referrer bonus | Newcomer bonus | Value per point | Reward cost to you at face value |
|---|---|---|---|
| 100 points | 50 points | US$0.05 | US$7.50 |
| 50 points | 50 points | US$0.05 | US$5.00 |
| 200 points | 100 points | US$0.05 | US$15.00 |
Face value overstates the true cost. If the reward is redeemed on a drink that costs you US$1.50 to make, each US$5 reward costs about US$1.50 in goods. Some points are never redeemed at all, which is breakage.
A simple test is to ask how many visits repay the reward. Divide the reward’s cost to you by the margin on one visit, and you have the answer.
How do you set the rules?
- Pay after the first purchase. Sign-ups alone cost you without bringing in sales.
- One reward per new customer. The same newcomer cannot be claimed twice.
- Cap rewards per member. A limit such as 5 referral rewards a month stops abuse.
- Say it in one line. “Bring a friend, you both get 50 points” can be read in a few seconds.
What are the alternatives?
Some programs pay in tiers or add games and leaderboards. These add rules most customers never learn. A flat points bonus does the same job.
How Gimify fits
Gimify gives each member one points balance that works across every outlet, and staff can add points on any phone at the counter. A flat referral bonus is added to that same balance. The free plan covers one outlet with unlimited members.
Questions owners ask
What is a referral program?
It is a scheme that rewards a customer for introducing a new customer. The reward is normally paid after the new customer makes a first purchase, not when they merely sign up.
What should a referral reward be?
Keep it small compared with what a new customer is worth to you. A reward of 100 points worth US$5 on a first visit that spends US$12 is a common shape, and you can adjust from there.
Should the new customer get a reward too?
Usually yes. A welcome bonus for the newcomer gives the person being asked a reason to say yes, and it costs little. Keep both rewards in points so there is one balance to track.
Do referral programs need a code or app?
Not necessarily. At a counter you can ask the new customer who sent them and add the bonus points by hand. Codes and links suit online businesses more than a café or shop.
How do I stop people gaming a referral program?
Pay only after a first purchase, allow one reward per new customer, and cap the number of referral rewards one member can earn in a month.
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