A referral programme is a scheme that rewards existing customers for introducing new ones, usually with a discount, credit or gift for the person who refers and often for the friend as well. In the UK it is most often called “refer a friend”.
How a referral programme works
Each customer gets a personal link or code. When a friend uses it to place a first order or sign up, the system records the referral and issues the rewards once agreed conditions are met, such as the friend’s order passing the returns window. Most shops use an app or plugin for their ecommerce platform rather than building the tracking themselves.
The main design choices are:
- Who is rewarded. One-sided schemes reward only the referrer. Two-sided schemes give both people something, which makes the invitation easier to send because the customer is passing on a gift rather than asking a favour.
- What the reward is. Money off the next order, account credit, a free product, a donation to charity or, for a service, a month free.
- When it is paid. On the friend’s first order, after the cancellation period has passed, or after a second order.
- Limits. A cap on rewards per person, and a rule that the friend must be a genuinely new customer.
A referral programme is not the same as a loyalty programme. Loyalty schemes reward a customer for their own repeat spending; referral schemes reward them for bringing in someone else.
Why it matters
A recommendation from someone you know carries more weight than an advert, and the business only pays when a new customer actually arrives. That makes referral a useful counterweight to rising customer acquisition costs on paid channels. Referred customers also arrive with some trust already in place, which helps with higher-priced products and with local services, where people ask friends before they search.
It works best for a business people already talk about. A referral scheme amplifies satisfaction that exists; it does not create it. If customers are not recommending you unprompted, the product, delivery or service needs attention first.
Two UK rules shape the design. Under PECR, if your business sends a marketing email to a friend’s address that a customer typed into your site, you are the sender and you generally need that friend’s consent, which you do not have. The ICO’s direct marketing guidance treats “tell a friend” messages this way, so the safer pattern is to give customers a link they share themselves. The reward is also a promotion under the CAP Code, so the terms must be clear and easy to find: who qualifies, what they get, when, and any closing date.
Common mistakes
- Collecting friends’ email addresses and emailing them directly from your own system.
- A reward too small to be worth mentioning, or so generous that people open second accounts to claim it.
- Paying out before the cancellation and returns window has closed, so rewards go on orders that are later refunded.
- Hiding the scheme in the footer, so most customers never learn it exists.
- Not tracking referred customers as their own group, so nobody knows whether they stay longer or simply cost more.
- Asking for referrals before the customer has even received their order.
How to act on it
Ask at the moment customers are happiest. For a product that is usually a few days after delivery, in a post-purchase email; for a service it might follow a good outcome or a positive review. Put the referral link in that email, in the customer account area and on the order confirmation page.
Set the reward against margin, not against a competitor’s offer. Work out what a new customer is worth over time and what you currently pay to win one through ads; the referral reward should sit comfortably below both. Write short, plain terms and link to them wherever the scheme appears.
Track referred customers separately: the share of new customers who came through referrals, their repeat rate, and the cost per referred customer including rewards. Review after three months. Planning referral alongside your paid and email channels, rather than bolting it on, is part of my digital marketing strategy work.