At ReferralCandy, we've been running referral programs for thousands of ecommerce stores for over half a decade now, and we've made our retailers almost $470,000,000 in referral sales.
A question we often get from ecommerce merchants is, "So, how well do referral programs perform, really?"
The answer is that referral programs can play a major role in revenue growth. One of our customers Branch Basics generated over $1.5 million from their referral program, and 10% of their overall revenue came from referrals. Brands like Farm Hounds have achieved even greater results, generating over $600,000 in referral sales with a referral rate of 22%.
It’s safe to say that referral programs work when executed right.
To get a better understanding of the effectiveness, let's examine referral rates more in detail and look at the referral rates by industry.
(NOTE: If you would like to set up your own referral program, be sure to check out ReferralCandy. You can try it free for 14 days.)
What are referral rates?
Your referral rate is the volume of referred purchases as a % of your total purchases.
So a 1% referral rate means that 1 in 100 purchases at your store happens through your referral program.
An advocate can share their referral link through social media platforms like Instagram, Facebook, X, TikTok, WhatsApp or through email. When the advocate's friend clicks on the referral link and makes a purchase, the referral rate increases.
Referral program software, such as ReferralCandy, shows your referral rate inside the dashboard:
How did we calculate the referral program benchmarks?
To calculate the industry benchmark figures, we studied thousands of data points, tagged
our users to one of the 11 largest industries and analyzed each industry.
From there, we learned that referral rates tend to reach a stable rate after around 6 months.
The resulting industry benchmarks represent the average referral rates that our users achieved after running their referral programs for 6 months.
Here's what the full chart looks like:
To put things into perspective, here are some examples of product categories in each industry:
- Apparel and fashion accessories: Clothing, accessories, shoes, etc.
- Beauty and grooming: Skincare, makeup, hair care, etc.
- Books and education: Book subscriptions, magazines, textbooks, etc.
- Toys, gifts, stationery, and crafts: Art supplies, etc.
- Food, beverage, and groceries: Pantry snacks, meal kits, etc.
- Gadgets and electronics: Electronic devices, electric scooters, etc.
- Health foods and supplements: Vitamins, etc.
- Home, garden, and pets: Pet food, gardening sheds, etc.
- Software and digital goods: SaaS products, etc.
- Sporting, outdoor goods, and accessories: Camping gear, etc.
- Vaporizers and tobacco products: Cigars, etc.
Referral program benchmarks from our analysis of different industries
Following are the results of our analysis of referral rates in different industries.
1. The global average referral rate is about 2.35%.
This means you can reasonably assume that any successful retailer that's been using ReferralCandy for 6 months or more is getting about 1 in every 50 sales via referrals.
This should be a useful rule of thumb for an established business thinking about getting started on referral marketing.
If you already have product-market fit, happy customers, and a steady stream of customers from your existing acquisition channels, you can expect to increase your sales by about 2% minimum.
2. Software and digital goods generally have the highest referral rate of all industries, at 4.75%.
It's a clear outlier compared to the other industries—software and digital goods have referral programs that perform a full percentage point better than all other industries!
If that doesn't seem impressive, look at it relatively: the average software and digital goods referral program get more referral sales than the average referral program.
This could likely be attributed to the nature of tech communities. They're close-knit and full of early adopters who're willing to try something new because a friend or influencer recommended it to them.
3. Not depicted - some brands have much higher referral rates, going up to 24%!
When we last checked in with Atmoph, we learned that they were getting a referral rate of 24%—that is, they were getting 24 in 100 sales through their referral program.
They’re not the only example of brands having this high referral rate. In our last conversation, a few of our customers reported these referral rates:
- Branch Basics has a referral rate of 9.57%
- iWader Fishing’s has a referral rate of 23%
- Farm Hounds has a referral rate of 22.25%
With the correct referral messaging, it is possible for some brands to achieve results as high as these.
Why are referrals important for your business?
A common misconception about referral marketing is that it’s the same as email or social media marketing.
However, there is quite a big difference.
Marketing methods, including email and social media marketing, take revenue from existing customers, but referral marketing generates new revenue because it always comes from a referred customer, i.e., a new one.
Referred customers bring in a new pool of customers who might not have otherwise discovered your brand.
On top of this, referrals bring businesses three additional benefits:
- High customer referral value. Referrals are typically more valuable than non-referred customers because of their increased lifetime value. Referred customers tend to trust your brand more and view it as more credible.
- The cost to acquire is almost zero. Referral leads are cheaper to acquire than traditional customers since you only have to pay pretty much for your referral program software and any potential rewards for the advocate.
- Referrals create a domino effect. Once your referral program is up and running smoothly, it can lead to more and more growth. While the referral marketing ROI is usually high even in the beginning, over time, it often increases.
Instead of relying on one of the marketing methods, you can for example combine email marketing with referral marketing using referral program software, like ReferralCandy.
How to increase your referral rates?
Even if you have the best referral program software on the market and the best features, it won't matter if you can't increase your referral rates.
Let’s next go through a few of the best ways to increase your referral rates.
1. Analyze your referral program offering
Without an attractive referral program offering, increasing your referral rates can be hard.
Let’s go through a few tips from our customer success manager to help you craft an attractive referral program offering.
Here are some ideas of what to give to the referral program advocate:
- Give a discount coupon if your product is regularly purchased. Otherwise, cash reward.
- Discount coupons should be 10% to 25% of the average order value
- The cash reward should range from 10% to 25% of friends' purchase
- Offer a fixed amount discount on orders over $100
And this is what you can offer for the referred friend:
- A minimum of 10% of the average order value
- Give a fixed discount if the average order value exceeds $100
- Offer a percentage discount if the average order value is less than $100
If you don’t know how to create referral program offers like these, one of the easiest ways is to use referral program software, such as ReferralCandy.
If you use ReferralCandy, you can add pop-ups to your website that collect new referrals, and as an additional extra step, you can accompany it with a good Shopify theme if you want to add more custom blocks for customers to learn about your referral program.
2. Send post-purchase emails
Post-purchase emails are emails you send to your customers after they have placed an order.
It’s the best way to let new customers know about your referral program and, at the same time, one of the best ways to increase your referral rate. It's common for people not to remember their referral links, but when they're emailed to them, they have something to refer back to.
According to our analysis, you should send your post-purchase emails right after someone purchases to see the highest conversions. Not for example two days after that.
3. Inform your existing customers about your referral program
You should inform not only new customers about your referral program but also existing customers.
Referral program software, like ReferralCandy can automatically send emails to existing customers about the referral program.
The software automatically spaces the reminder emails so they don’t come across as spam to your existing customers.
How we calculated the referral program benchmarks
For the purpose of this study, we only included retailers who have at least 6 months of data with us. While 2.35% is actually a conservative estimate, we can't guarantee that everyone who signs up for a referral program will get a 2.35% referral rate.
If your sales volume is too low, or if your business simply isn't getting a lot of customers, you may not be getting many referrals at all. Business fundamentals are important.
High referral rates aren't everything. A high business referral rate is generally nice to have, but it isn't necessarily a great sign. It could also mean that your other customer acquisition channels aren't mature enough.
As a business owner or marketer, you always want to diversify your customer acquisition channels so that you aren't overly reliant on any single channel.
Conclusion
The main conclusion of this article is the importance of referrals and how they can’t be ignored.
Also, having a referral program isn’t enough; you have to know how to optimize it. How do you get your referral message right?
Check out our blog posts on how to improve referral rates, referral program incentives, or the secrets of Airbnb's referral program success!
Here are a few other referral marketing-related articles that could help you boost your referral rates:
- 20 Referral Landing Page Examples for Your Inspiration
- The Ultimate Referral Widget Guide to Improve Referrals
- 4 Ecommerce Brands on Shopify With Strong WOM Marketing
- How to Choose the Right Referral Incentives For Your Referral Program (With 20+ Examples!)
- How Influencer Marketing Can Help Your Referral Programs
What is referral marketing?
Referral marketing is a customer acquisition channel that incentivizes loyal customers and transforms them into advocates to refer their network to your product/brand in exchange for rewards.Referral marketing is a tactic that leverages word-of-mouth and also the social proof concept.
How does a referral program work?
When you set up a referral program, you have an organized way of tracking and rewarding existing customers that share about your brand and product to their friends. The flow is simple—existing customers sign up for your referral program, they share their referral link with others, and when others buy from your brand, both parties get the rewards that you’ve set up initially! Referral programs are a win-win-win situation for everyone involved!
Are you ready for a referral program?
Since referral marketing is highly dependent on the power of your existing customers, if you already have an established customer base and a decent number of avid followers for your brand and product, referral programs are a great way for you to scale up.
