How To Choose Right Referral Incentives (20+ Examples)

At ReferralCandy, merchants often ask us how to choose the right referral rewards and incentives. With so many options, such as cash or custom reward, flat discount, or percentage, it can be difficult to choose the right one.

Ultimately, it all depends on your brand and business, but we’ll help you figure it out.

Here’s our comprehensive guide (with plenty of examples!) to walk you through setting up your referral program for success. We will first go through four steps that explain the things required when selecting your referral program incentive. After that, we will look into 20+ examples from other brands using different referral incentives.

How big should referral incentive be?

Agency owner Jonathan Snow recently did a great analysis on X and this comprehensive blog post regarding affiliate commission levels. His conclusion was: Ecommerce stores should pay the highest commission level possible based on their margins.

You may wonder, won't high commissions reduce my profit margins? Well, generally speaking, not at least in the long term.

The math is quite straightforward. For an 80% margin on a $100 product, after seller fees, your variable profit at different commission rates would be:

• 10% commission: $64 net profit
• 20% commission: $54 net profit
• 30% commission: $44 net profit
• 40% commission: $34 net profit
• 50% commission: $24 net profit

Higher commissions result in more affiliate promotions, impressions, organic sales, product reviews, and more. You can play with the numbers & see how each bump in commission affects affiliate orders, but would you prefer getting:

• 100 orders at 10% commission = $6,400 profit
• 150 orders at 20% commission = $8,100 profit

Obviously, 150 orders at a higher commission and more net profit is better. If you offered even higher commissions and got:

• 200 orders at 10% commission = $12,800 net profit
• 500 orders at 50% commission = $12,000 net profit

With 500 orders, you'd lose a bit of money, but you'd generate more free impressions, build a larger customer base, and establish stronger brand recognition. The key takeaway is that you should test out different commissions and track what they do to the number of orders you get and your profit margins. Losing money in the short term can mean that you gain more in the long term.

What are referral incentives and rewards?

Referral incentives and rewards are strategies businesses use to encourage their existing customers to refer new customers. Referral incentives are usually two-sided, and they benefit both the advocate (the existing customer) and the referee (the new customer).

To set up your own referral incentives, you can use referral program software like ReferralCandy. You can take advantage of ReferralCandy's 14-day free trial if you're interested!

Why is choosing referral incentives important?

Incentives modify human behavior. Choosing the right referral incentives means that your customers are motivated to make a referral. Research shows that of every 10 satisfied customers, 8 want to tell a friend, but only 3 customers actually do.

An attractive referral reward might just nudge them to make an effort to be a spokesperson for your brand.

For instance, here is an example of a motivated customer sharing his CycleBoard link:

The above customer wouldn't feel motivated to share the link if there wasn't something for him. The referral rewards also serve as a nice conversation starter: Where did you get that free toy? Which charity did you donate your reward to? These help to boost your word-of-mouth.

The right referral incentive will also make it easy for new customers to buy. A tempting discount combined with a friend’s recommendation makes an offer you just can’t refuse.

How to choose the right referral program incentive? 4-step process to follow

Next, we will go through four recommended steps when choosing your referral incentives.

(NOTE: If you want to set up customer referral programs for your online store, here’s our quick setup guide for Shopify and WooCommerce.)

Step 1: Choose your incentive structure

1. Two-sided referral program structure

A two-sided referral program rewards both sides of the referral for a successful referral: the advocate receives the referral offer, and the new customer receives the friend offer.

While there are also one-sided and cumulative incentives, we recommend two-sided incentives for most merchants simply because they have been proven to work best. One-sided programs are more like affiliate marketing.

Most referral programs are two-sided and equally balanced. Most commonly, you’ll see something like “Give 10, Get 10” or “Give 25, Get 25”, whether it’s in dollars or percentage off.

Here are some examples of the two-sided formula:

• DIY home goods supermarket Do It Center offers Give $5, Get $5
• Secondhand Mac products store Mac of All Trades runs a Give $10, get $10 referral program
• On the higher end of the scale, Cycleboard offers a generous Give $100, Get $100m, presented on their referral landing page.

Two-sided referral programs feel good because they are a win-win for both advocates and friends.

It taps into the principle of reciprocity; you give your friend a nice discount, and they help you earn a referral reward. As a bonus, it also serves as a conversation starter. How will you spend your discount? Which colour should we get?

2. Select your Friend offer: How can you make it easier for new customers to buy?

When you use a two-sided referral structure, the first step is selecting your friend's offer.

The friend offer is an incentive a referred customer receives when they make their first purchase. In general, friend offers tend to be discounts on the first purchase.

This is something that would make their first purchase a no-brainer. It could be a discount for being a new customer, a ‘starter’ subscription box, or even free shipping. The goal is to incentivize them to make their first purchase from your brand. There's no perfect amount, but we've observed that retailers that offer at least 10% off for Friend offers enjoy a higher referral rate.

Here are some other examples of friend offers that sweeten the deal and make it easier for new customers to make their first buy:

• Momomi offers 10% off your first order of their baby-friendly wool rugs.
• Cycleboard offers $100 off their motorized skateboards, which is about 10% off a board that costs $1300
• Riff Raff & Co offers free international shipping for their sleep toys (equal to a 20% discount).

3. Select your Advocate reward: How can I thank my loyal customers for referring their friends?

An advocate reward (sometimes called a referral reward) is what your existing customer receives when they refer a friend to your brand. To follow the example from above:

• Momomi gives existing customers a cash reward equivalent to 6% of their friend’s purchase value.
• Cycleboard gifts existing customers $100 via PayPal for each successful referral.
• Riff Raff & Co rewards customers who have made 5 successful referrals with a free toy.

Advocate rewards come in different types and values. One way to think about it is that your customers already love your brand, which is why they are inclined to refer a friend. So, how can you offer them more of what they love?

We cover the types of advocate rewards more extensively in the next section, but some ideas are:

• If your customers are likely to make a repeat purchase, offer a store discount or free shipping, so they can make another purchase.
• If your product is expensive or has a long purchase cycle, you can offer a cash reward.
• If you’re a subscription box, you can offer a free month or box for every new customer referred.

By offering both a friend offer and an advocate reward, you’ve created a two-sided referral program.

Step 2: Select the type of referral incentives to offer

After speaking to many merchants over the years, we realize that analysis paralysis is a common problem. There are so many types of referral incentives we can offer, and which is the right one?

We’ve narrowed it down to three categories to make it easier for you to decide: cash rewards, store discounts, and custom rewards

1. Cash rewards - The easiest, most versatile referral reward

• (+) Universal, practical reward; scalable and repeatable
• (+) Even $5 in cash will motivate customers
• (-) Complicated to manage unless you use referral software

Cash is the most versatile of all reward types. Everyone likes (free) cash, and even $5 will motivate a customer.

Cash rewards are repeatable and can be earned many times. Whether you refer three friends or 30,000 friends, the cash reward will be equally valuable. Also, cash reward payouts are easy to automate with referral marketing software like ReferralCandy.

2. Store discounts: Perfect for products you can purchase again

• (+) Great for products you can purchase more than once
• (+) A valuable tool for customer retention
• (-) Less scalable and less repeatable than cash discounts

Store discounts are most valuable when your customer can make repeat purchases - for example, fashion or pet food, or if your store has a wide variety of products, like a DIY store.

Offering a store discount can help customer retention by prompting a repeat purchase, for example:

• Seraphine sells maternity wear and offers a 15% discount coupon as a reward for referring your friend
• Branch Basics sells cleaning solutions and offers a referral reward of $10 off when you next purchase a refill.
• A Box of Stories mails you four books every month, and if you refer a friend, you get $4 off your subscription box for the next month.

Store discounts can come in several different forms:

• A flat cash discount (e.g. $10 off your next purchase)
• A percentage store discount (e.g. 10% off your next purchase)
• A free month for subscription box services

In general, store discounts are awarded as coupon codes. But should you offer a flat discount or a percentage? You might want to consult the Rule of 100, which we discuss in more detail below.

Store discounts as an advocate reward help to prompt existing customers to make another purchase. Most friend offers are store discounts, to motivate new customers into making their first purchase.

3. Custom reward: The rewards only your brand can offer

• (+) Delivers a unique customer experience
• (-) It can be tricky to fulfill at a scale

With custom rewards, you need to be careful about fulfilment. If 2% of all your customers completed a referral tomorrow (industry average), would you be able to fulfil all the custom rewards? Tesla offered a Roadster as a custom referral reward and had massive trouble fulfilling their rewards.

Once you’ve selected your reward type, you want to be sure to present your incentives in the best light.

4. Other types of rewards could include

1. Exclusive access: Offer exclusive access to new products or events for both the referrer and the referred friend.
2. VIP perks: Offer VIP perks such as free shipping, early access to sales, or personalized recommendations for both the referrer and the referred friend.

Step 3: Showcase your referral incentives with a good copy

Good copy makes your incentives look more alluring. Here are four quick copywriting ideas to showcase your referral incentives in the best light.

1. Use the ‘Rule of 100’ to make your discounts look bigger

When you’re writing discounts, should you write in terms of the dollar value or the percentage discount?

The Rule of 100 says that if your product costs less than $100, you should write discounts in percentage terms; otherwise, you should write in absolute terms. Here’s an example:

• For a $25 product, say 40% off instead of $10 off.
• For a $2500 product, say $1000 off instead of 40% off.

In both cases, the value of the discount is the same, but we pick the number that looks bigger. For the $25 product, “40% off” looks more impressive than “$10 off”, and for the $2500 product, “$1000 off” looks like a bigger discount than “40% off”. When offering discounts, use the bigger-looking number.

Tesla’s friend offer is a great example of the Rule of 100: you get $1000 off the price of a new car! A thousand dollars seems like a lot, but not when you consider it’s only a 1.4% discount for their $70,000 car.

2. Make it sharp and snappy: “Give X, Get X”

The most common referral program follows this formula of Give X, Get X.

Thinx offers a give $10, get $10 in-store credits towards your next purchase

If you try Googling ‘Give 10, Get 10’, you’re likely to find plenty of refer-a-friend programs. It works because it’s easy to understand.

3. Make it about the social experience

Threadbeast's referral copy is all about the sharing experience - “make your friends love you”.

There’s even a guide to sharing on Instagram

Using the same angle on your own copy, you can make referrals a social experience.

4. Make it about the reward

I love this clean execution from Cycleboard, highlighting the value of the reward:

Spelling out the $100 value with words that sell

This is also another example of the Rule of 100: $100 looks like a more attractive offer than 5% off a $1,899 Cycleboard.

Step 4: Customize your referral incentives with some advanced ideas

These first three steps will cover 90% of referral programs. You may have a specific idea in mind, or a particular use case, so here are some successful variations we’ve seen.

1. Set conditions for redeeming the referral reward

If you offer cash as a referral reward, you may want to set a minimum purchase amount to avoid giving away more than you receive.

NextEvo Naturals has a minimum spend of $20

You may also want to set up terms and conditions for your referral program to avoid abuse. D'Artagnan mentions that there is only one promotional code available per order to prevent any fraudulent referrals.

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2. Give the referral reward after a number of successful referrals

You may also notice that Ledger only awards the $25 discount after four successful referrals. This is another way to adjust the ROI of the program.

Similarly, to earn the free toy from Riff Raff & Co, you need to make five successful referrals.

3. Use time-limited rewards to run a seasonal campaign

Love Yourself experimented with increasing the referral incentives for a month to boost the referral rate as part of a summer campaign. It worked, generating 20,000 and 14% more customers in the referral program.

4. Offer points, contest entries, and other ideas

Awarding points as a referral reward is closer to a customer loyalty/customer retention strategy. It’s extremely popular in the beauty and grooming industry and might be modelled on Sephora’s successful Beauty Insider program.

For beauty brand Frank Body, points are integrated into your customer account. You earn points for making a purchase, sharing reviews on social media, or referring a friend. The more points you accumulate, the higher tier of rewards you achieve.

Frank Body styles its loyalty program as ‘Hotel Pink’

A points system has worked well for many brands - if your goal is to drive brand retention and customer loyalty.

But if the goal of your referral program is to acquire new customers, we have found that simple and clear rewards work best. Our customers have told us that a points system can be too complicated for their customers, which in turn deters them from referring their friends.

5. Offer a lopsided or one-sided referral program

While Give X, Get X is a successful referral program idea, sometimes you may want to offer a lopsided or one-sided referral program.

If you have a newer brand or one that’s less well-known in the market, you may want to offer existing customers a bigger reward - this can reinforce their connection to the brand and motivate them to make a referral.

This is similar to how Gymshark kickstarted its Gymshark athletes' program, and in fact, one-sided referral incentives closely resemble affiliate marketing programs. Using a referral link from Gymshark gives you no benefit, but earns the referrer a small commission.

21 examples of referral program incentives and rewards

1. Stanley

Referral incentive structure: Stanley rewards both the referrer and the friend with a two-sided discount.

Type of referral incentive used: A referral will receive a $10 discount for every five friends referred and the friend will receive a 10% discount.

2. The Skinny Food Co

Referral incentive structure: The Skinny Food Co has a two-sided referral program reward structure, rewarding both referrers and referred customers.

Type of referral incentive used: The referrer receives 20% off, and the referred friend receives the same.

3. Branch Basics

Referral incentive structure: Branch Basics uses a two-sided incentive structure to encourage customers to join the referral program.

Type of referral incentive used: Branch Basics will give $10 off to anyone who refers a successful referral. The referral will also receive $10 off.

4. Vital Sleep

Referral incentive structure: VitalSleep has a two-sided incentive that rewards both the referral and the friend.

Type of referral incentive used: VitalSleep uses cash rewards. For every referred friend, the referrer will receive $10. The referred friend gets 20% off.

5. Momomi            

Referral incentive structure: Momomi uses two-sided referral incentives where both sides are rewarded when there is a successful referral.

Type of referral incentive used: Momomi uses cash rewards and store discounts as their referral incentive. They pay referral payments through PayPal monthly to the referrals.

6. Eva

Referral incentive structure: Eva has a two-sided referral program structure where the friend and the referrer are both rewarded.

Type of referral incentive used: Eva has a unique referral incentive, where they promise a $50 Visa gift card for the referral. The referred friend gets a $50 discount into their next purchase.

7. Christy Dawn

Referral incentive structure: Christy Dawn rewards both sides, so their referral program is two-sided.

Type of referral incentive used: Christy Dawn has a popular give $50, get $50 referral incentive. One of their top referrers is Kait Bos, a fashion blogger and YouTube creator, who’s driven hundreds of new customers to Christy Dawn with her vlogs and blogs.

8. UNTUCKit

Referral incentive structure: UNTUCKit uses a two-sided referral program incentive where the friend and advocate are both rewarded.

Type of referral incentive used: UNTUCKit gives referred customers a generous offer of 25% off! UNTUCKit also gives a 25% discount to the customer who refers a friend - that reward is what we call the advocate reward

9. Endy Sleep

Referral incentive structure: Endy Sleep has a two-sided referral reward system, where the advocate and friend are rewarded.

Type of referral incentive used: Endy Sleep offers a free weighted blanket for a successful referral. If your product has a long buying cycle or a one-off purchase, cash or a free product is a good choice, which Endy Sleep shows a good example for.

10. CriticalPass

Referral incentive structure: CriticalPass offers cash as a referral rewards and incentives. The advocate gets a cash reward, and the friend gets a discount on the purchase.

Type of referral incentive used: CriticalPass sells study aids to help customers pass law school exams. Customers never have to make a second purchase, so CriticalPass offers $10 in cash as a referral reward. The cash reward works well because seniors and managers can still recommend CriticalPass to their juniors taking the exams - and $10 is still $10 they can spend anywhere.

11. Dappertime

Referral incentive structure: Dappertime offers customers a percentage of the friend's order value as a cash reward.

Type of referral incentive used: Dappertime rewards customers with 20% of their referred friends’ order value, almost like a commission for a successful sale.

12. A Box Of Stories

Referral incentive structure: A Box of Stories has a two-sided referral program system, where the advocate and friend receive a referral bonus.

Type of referral incentive used: A Box of Stories has a popular give 20% off, get 20% off on your next order.

13. CycleBoard

Referral incentive structure: CycleBoard's referral incentive structure rewards customers based on the size of the friend order. The friend also gets rewarded with a 10% discount, so it's a two-sided customer referral system.

Type of referral incentive used: The advocate reward is 10% cash off the friend's total order value. The referred friend gets 10% off of their purchase.

14. J.Crew Factory

Referral incentive structure: J.Crew Factory has a two-sided referral program, rewarding both the advocate and the friend.

Type of referral incentive used: The advocate gets $20 through PayPal, and the referred friend gets $20 off their next order.

15. Dose

Referral incentive structure: Dose uses a two-sided referral reward system.

Type of referral incentive used: Dose has a typical store discount referral reward, giving 15% off for the referred friend and also the advocate.

16. Mila Cares

Referral incentive structure: Mila uses a two-sided referral reward structure where both sides are rewarded.

Type of referral incentive used: Mila offers $50 off for the referred friend's first purchase, as well as a free filter for the advocate.

17. NextEvo Naturals

Referral incentive structure: NextEvo Naturals has a referral reward system where the advocate and the friend are both rewarded.

Type of referral incentive used: Using cash rewards, NextEvo Naturals promises $20 off for the referred friend and the same $20 for the advocate.

18. D’Artagnan

Referral incentive structure: D’Artagnan rewards both the friend and advocate using a two-sided referral incentive.

Type of referral incentive used: D'Artagnan gives a $30 OFF coupon code for the referred customer and the advocate.

19. Timeless Skin Care

Referral incentive structure: Timeless Skin Care uses a two-sided referral structure.

Type of referral incentive used: Timeless Skin Care has a popular give $5, get $5 referral incentive, where the advocate and the friend get the same reward.

20. The RealReal

Referral incentive structure: The RealReal rewards both the advocate and the friend using a two-sided referral incentive structure.

Type of referral incentive used: The RealReal has one of the biggest referral rewards, offering $100 off for the friend and the advocate. This high reward is only possible because their products are high-ticket and the average order value is high.

21. Plufl

Referral incentive structure: Plufl uses a two-sided referral incentive structure, rewarding both sides.

Type of referral incentive used: Plufl gives 15% for the customer who refers new people. The referred friend gets 10% off their next order.

How to get started with your own referral program incentives?

If you want to build up your own successful referral program, you need a referral program software. Referral program software helps streamline and automate the process of managing referrals, tracking rewards, and measuring the success of your program.

One of the solutions merchants have trusted for a long time is our software, ReferralCandy. If you want to try ReferralCandy out today, I'd suggest taking advantage of the available 14-day free trial.

What next, after deciding your referral incentives?

Once you’ve set up your referral incentives, you’re ready to start promoting your referral marketing program. Here are some suggestions for what to do next:

• Take inspiration from other Shopify brands running referral programs
• Promote your referral program, and let existing & new customers know about it
• Keep an eye on the ROI of your referral program, and optimize it for better results
• Address referral fraud, if some people try to abuse your referral program
• The ultimate guide to referral programs with lots of examples for your inspiration

And of course, be sure to sign up for our email newsletter to get the latest articles and round-ups to grow your ecommerce store.

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