What is a Referral Code and How Can You Use it for Your Ecommerce Business

A referral program is an effective way to boost sales for an ecommerce business. 

A referral program also called a refer-a-friend program, allows your loyal customers to earn rewards when they refer you to their network. The more people they refer your brand to, the more rewards they get. 

But, how do you know which customers have earned a reward for spreading the word about your brand? That’s where referral codes come in.

What is a Referral Code?

A referral code is a unique combination of letters and/or numbers. It can be a random one, like XY6NM82W, for example, or several words strung together, like 1REF25OFF. 

So if you’re an ecommerce company running a referral program, you’d give referral codes to members of your audience, the referrers, who want to participate. The referrers can share the code with their friends, family, or their social followers, who can then use the code typically to avail of a discount or other incentives on their first purchase from the recommended company.

For best results, you should assign a unique referral code to every referrer when they join your program. You might want to include the referrer's name, as in LAURA25OFF. Or just use a main keyword and then a series of numbers specific to the referrer, like the one below: 

Whenever a new client completes their purchase and avails of the discount through the referral code, the business can track who made the referral and the referrer receives their reward. For instance, under the Skin referral program, every time someone places their first order, the referrer gets a $20-gift card:

Giving referrers the reward can help boost morale and even encourage them to want to share more. Think of it as incentivized word-of-mouth marketing.

The referral code can also be used in recruitment. Including a referral strategy in any guide to recruitment marketing doesn’t just help companies increase employee engagement. It helps them land the best talent, too.

Advantages of Referral Codes for Ecommerce

Referral codes can help your business in many ways so don’t miss out. Here are the three most important benefits:

Improves Brand Recognition

Referral codes can help boost your brand recognition. You can do this by customizing your referral code so that it reflects your brand personality. For instance, this referral code, 25%OFF! as opposed to 25%OFF, tells the referrer and the new customer or prospect that you’re a fun brand. So, the next time they see a referral code or even a marketing message that’s fun and quirky, they’ll likely associate it with your company.

Referral codes could also include a part of your brand name, like an abbreviation that’s easy to identify.

Helps Save Time

Referral codes can help your ecommerce business save time. Through referral codes, you don’t have to spend too much time determining who gave a referral for whom and, therefore, deserves the reward.

The referral code can help you track the origin of the referral in seconds. Speaking of which, having referral codes makes it a whole lot easier to use referral tracking templates for better attribution.

Builds and Fosters Relationships With Customers

Another great thing about referral codes is that they can help you build and maintain stronger relationships with your audience. 

When you run a referral program using referral codes, you need to interact with your customer more frequently. After all, you need to send them the code and give them instructions about the referral program. You’d need to answer questions they may have about the program, too. It may sound farfetched but all these interactions help you build and foster your relationships with them.

This strategy helps you increase customer retention since it gives people reasons to keep engaging with your brand. 

Setting Up and Using Referral Codes

Now that you know the main benefits of referral codes, you might be wondering how to set them up and use them. Here are the steps to follow:

1. Build a Referral Program

As a first step, you should create a referral program. 

Determine what your referral rewards and incentives will be. For this, you need to offer something of value. It’s what will motivate your customers to recommend your brand to others and what will get your new customer to make their first purchase. The rewards and incentives usually come in the form of discounts.

Overall, it’s best not to use a reward (or incentive) that’s not related to what you’re selling. Let me illustrate. If you offer a $25 Amazon gift card for every new referred customer, the recipient will use the card on Amazon, of course. So, anything they buy in excess of the $25 will go to Amazon instead. 

If, however, you reward them with a $25 gift card from your own online shop, they’ll use the card to avail of the products you sell. Anything they buy in excess of the $25 translates to profit for you. 

In creating your referral program, make sure you also determine your referral program guidelines. For instance, will you handpick the customers who can join your referral program? Or can anyone just join? Do customers have to undergo some sort of training before they can start promoting your brand?

Determine the structure of your referral program, too. Rothy’s example above, for instance, if a client refers the brand to a friend, and the friend makes a first purchase, Rothy’s gives them both $20 off their purchase. 

The more specific your referral program guidelines, the better. Put them in writing so everyone can see them. You can include them directly on your website, but I suggest generating a QR code for a PDF that contains your guidelines, too. 

The QR code works just like a digital business card. What is a digital business card? It’s a QR code that contains your business contact details. When people scan the code, they can save your contact details on their phones.

So, if you have a QR code for your PDF document that contains your referral program guidelines, anyone interested in reading these guidelines can just scan the QR code and download the PDF on their mobile phones. They can then read the document when they have free time.

Just make sure you make the QR code visible across your marketing platforms. Include it in your emails to customers, website, and social media posts. You can even include it in your creative packaging design.

2. Assign Referral Codes to Customers

Once you have your referral program in place, give a unique referral code to every customer who joins. 

You can assign codes manually or use referral program software to automate and streamline the process. Apps like ReferralCandy make it easy to implement a reward program. 

For best results, your customers should get their code immediately. You want them to start recommending your brand to other people right away.

You can give your referral codes in person as well. Have printed referral cards or flyers whenever you attend fairs, or if you also have a physical store. 

3. Motivate Customers to Share Their Referral Codes

Running a refer-a-friend program requires encouraging your current customers to share their referral codes. So, don’t stop after assigning codes. Continue promoting the initiative via social media channels, or messaging apps. Send out a referral email to your most loyal clients. 

Place a banner reminding shoppers about the program on the thank-you page after checkout. Install opt-ins and pop-up widgets on your ecommerce website. Here’s a Post Purchase Popup Widget (PPPW) example that customers of a company see immediately after making a purchase. 

It’s important for ecommerce businesses to constantly seek promotional opportunities to beat their competitors.

4. Collect Referral Codes and Monitor

Now you just have to wait for someone to input a referral code into the checkout page when they make their first purchase from your site. So, make sure you include a field on that page that allows you to collect the referral code in the first place. Check out the example below:

Once a new customer inserts the referral code and checks out, you’ll know who recommended your brand to that new customer.

Using referral software is the best way to monitor referrals. Apps like ReferralCandy can also tell you how much revenue from referrals you generated. They even tell you how much traffic was referred to your website.

The apps create reports that break down all the data. This screenshot, for instance, shows an example of a ReferralCandy report:

Apart from helping you accurately determine who needs to be rewarded for a referral, the reports can help you determine whether your referral program is successful or not.

So, if it is successful based on the parameters you set, continue what you’re doing. If it isn’t, then make adjustments. For instance, if only a few of your customers make referrals, you need to make your reward more valuable or promote your referral program more.

In Closing

Referral codes are key to implementing a successful referral marketing program. They enable the ecommerce business to track referrals properly. They can also boost brand recognition and build and foster customer relationships.

To get started on using those referral codes for your program, create a referral program in the first place. Assign unique codes to every customer that joins. After assigning the codes, make sure you continue motivating your customers to share them. Then monitor and see how the codes are being used.

So, what are you waiting for? Start rewarding clients for spreading the good word through referral codes and expanding your ecommerce customer base.

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