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How to set up a refer-a-friend program, which accounts for 30% sales featured image with the 5Tales logo

How To Set Up A Refer-A-Friend Program Which Accounts For 30% Of Sales

by | Aug 8, 2016 | Case Studies

After finding product/market fit, one of the major challenges new businesses’ face is finding a scalable marketing channel to grow.

From 2011 to 2013 we launched and grew It was an online retail baby store for Australian mums. We were the first online business in Australia to treat nappies as a loss leader to get customers in the door.

MyNappies was a typical startup, in that we were cash-strapped from the beginning. We needed to find a marketing channel which was viral, cash-flow efficient and scalable… No easy feat.

Mums love to talk and we knew our low nappy price was a talking point for them. We wanted to find a way to encourage and reward those who shared MyNappies with their friends, so a referral program seemed like a logical step.


For any non-believers out there I want to make sure no one has any doubts about the power we are working with here. Two word of mouth statistics from Newstex recently caught my attention:

  • “50% of purchase decisions are influenced by word-of-mouth.”
  • “92% of consumers trust recommendations from friends and family more than any other form of advertising”

One of the more famous referral programs that makes the rounds online quite regularly is from Dropbox.
In its early days and still to this day: 35% of daily sign-ups come via the referral program. According to founder Drew Houston, referrals increased signups by 60% percent…permanently!!


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Most Common Mistakes Brands Make With Referral Programs

1. Your Incentive Stinks

You need to provide real value in exchange for your customers talking about your service. If you can provide long term value (more storage space, ongoing savings) rather than a one time 10% off discount you’re setting yourself up on a stronger base.

2. Set and Forget

You can’t expect customers to go digging for your referral program, no matter how good the incentive is. You must build it into the customer funnel (e.g. during signup) in order to provide the exposure it requires.

Our Referral Program 2.0


We came up with a simple, yet highly effective Refer-A-Friend program. The above graphic shows the breakdown of how it worked including the numbers.

  1. A customer refers their friend by providing them with a unique discount code which they enter on the checkout page.
  2. The referee receives $10 off their first order over $55
  3. The referrer receives $1 store credit for every order placed by their friend (no cap!).

In this way it costs less to acquire customers who are less valuable. If the customer refers a friend who only makes one order we only pay out $1 store credit and the $10 first order discount. On the other hand we payout $7 credit and $10 discount for a referred customer who ordered 7 times.

The Results

Here are some quick stats on the referral program we implemented at MyNappies:

  • When a customer used the Refer-A-Friend program they referred on average 3.2 friends who went on to place an order.
  • 38% of people who had been referred went on to place an order and become a customer.
  • So for every person who uses the program, they bring with them 1.2 new customers. This is what makes this marketing channel viral!
  • The average order size for regular customers was $78, while the average order size for referred customers was $89.
  • Over the following nine months after implementing the program, 30% of our monthly sales came through the referral program.

Developing The Program

When we initially launched MyNappies, we had a simple referral system which we had given little thought to and as a result was rarely used by customers (less than 1% of customers had used it). It was the standard $20 for $20 program which most retail sites offer.

For the new program all the technical setup was done by our in-house developer. Here is the exact job description we provided him:


This provided him with a clear understanding of how the first program worked, the changes we wanted, and a location where he could experience a live version of it. It’s important to provide your development team the context for the program so they can approach the creation of it with the end product/result in mind. The timeline for the development of the program was:

  1. Initial Skype call to brief our developer and answer their questions
  2. Eight days of development and with daily progress reports
  3. Three rounds of revisions
  4. Final bug test before sending the program live

In total this cost us $700 to have the referral program built as a custom module on our Magento based site (you can easily do the same thing on WordPress). The deliverables for this project were:

    • the referral system
    • unique referral code generated for each customer
    • post purchase Facebook sharing prompt
    • customer referral dashboard
    • customers are able to print out coupons with their referral code
    • ability to share their referral code on social platforms and email with a few clicks

Here is what the customer’s referral dashboard looked like:


This was an important feature as it ensured the customer was constantly reminded of how many credits they had remaining, how much they have saved their friends, and the amount of credits they have earned in total. This gamification of the referral program for the customers was one of the sticking points which kept them active (read more on gamification here). Not only did the dashboard keep the customer informed on their progress, but it also served as motivation to earn more credits by referring more friends.

Getting The Word Out There

We wanted to launch the new program with a bang! Here are the four steps we took to ensure we set the program up to succeed.

Step 1: Notify Your Community


The best group to advertise your referral program to is those who already have engaged with you. We sent out a variation of the above email on launch day, 7 days after, and then 3 weeks post launching the program.

The above image cuts-offs the email after a few lines, but the layout of the email followed the AIDA copy formula:

      1. Attention: cost of nappies for their child + potential savings
      2. Interest/Desire: provided a case study of a mum who had used the referral program
      3. Action: laid out the exact steps they need to take in order to start saving

Make sure you write in a manner that will get a response from your audience. Our customers disliked how much they had to spend on nappies as it limited what they could be spending on fun or functional baby products (i.e. the best pram/toy). Knowing this we wrote about how the referral program would enable them to spend less on nappies so they could buy the pram/toy/clothes they wanted.

Side note: If you are looking to improve your copywriting skills, you should check out Neville Medhora’s blog.

Step 2: Showcase on the site

You want to put the program in front of as many relevant eyeballs as you can in order to give it the best chance of sticking. For most sites, including ours, the highest traffic page is the homepage. We wanted to highlight the program to returning customers and first-time visitors, therefore implementing a homepage banner made sense.

When showcasing a referral program you must make it clear the benefit that both parties receive. Don’t ask them to refer their friends, rather you should be trying to educate them first, and only then ask them to take action.


Ordinarily, we had a slideshow on the homepage which highlighted new products or any specials we had. For the launch of the referral program we replaced it with a static banner which showcased the referral program. It is cut-off in the above image, but the call-to-action was a yellow button which said “Learn More”. During the four weeks we had this banner up the CTR on the banner was around 18% vs. 13% for our previous banners.

Step 3: Share with blogs and outlets

We had 24 blog partners at MyNappies. These were mostly ‘mummy bloggers’ who each had their own blogs and audiences. Our arrangement with them was standard – In exchange for exposure to our audience, they would create regular content for our blog. Just prior to launching the referral program on the site, we pre-released it to our content partners:


Subject: Might be of interestHi {FNAME}

Hope all is well over at {Blogname}. We have just launched a new referral program, which enables mums to save every time their referred friend orders (no cap on potential savings!).

This is going live within a few days, however as one of our exclusive blog partners I wanted to give you a chance to jump onboard before the general public!

Would you be interested in sharing this with your audience?

You can find get your unique referral code here: {link here}.

{Email Signature}

Of the 24 bloggers we emailed, 18 of them ultimately shared their referral URL with their communities on their platforms (blog, social, newsletter etc.). This alone exposed the referral program to an audience of 70,000+ highly targeted Australian mums.

What if you do not have relationships with any blogs or media people relevant to your audience? Start by reading this SumoMe article by super connector Jason Quey. It will breakdown the exact steps you need to perform in order to start connecting with influencers/media types.

Step 4: Social platforms

We had a very active and engaged community on Facebook, therefore this was the social platform we focused on when launching the referral program.


We boosted each page post we made for a small amount in order to ensure it was seen by a wider audience. We targeted those who liked our page and their friends, as we knew our customers would be friends with other mums on Facebook (family/friends etc.).


The other way we tried to leverage Facebook was with post- share prompts. After customers placed their order with us, they would be presented with the option to share their purchase on Facebook – similar to the process Amazon has.


However, we took it a step further by having the pre-filled text highlight the referral program. Our text was:

“I just shopped with If you use my referral code the next time you order with them you will get $10 off your order! I will get a $1 credit for each order 🙂 My referral code is: {codehere}”

Below the text we provided the customer with their unique referral code so all they had to do was copy it into the box and click ‘Share on Facebook’. Make it easy for your customers to share with their friends. You should do as much of the leg work as you can, so they barely have to think about the decision.

Our own design for this feature was inspired by the post purchase Facebook sharing prompt.


Facebook is not the only platform this will work on, it was just the most suitable one for us to use based on our target audience.

Post Launch Results

Our original referral program was accountable for a meager 2% of our monthly sales. Two weeks after launching our new program that number had jumped to 12%, within 9 months it had moved to 30%. At the same time, the referral program helped grow revenue from $10,000 per month to $30,000 per month.

Key Takeaways

Treat the below takeaways as a checklist when building out your referral program (you can download the checklist as a pdf here)

      • You must reward both referrer and referee.
      • Try to build your referral process into the setup process of a new customer signing up. If your sign up involves 3 steps, add a 4th step which incentivises them to share with their friends. At MyNappies this accounted for 35% of our referral invites.
      • Add a referral prompt after purchase.


    • Ideally the reward is not just short term value. With our program the referee received short term monetary gain ($10 off first order), however the referrer received ongoing benefits ($1 credit every time referee ordered). Dropbox provides 500MB of extra space for both referrer and referee (see above image).
    • Present the referral program with the benefit as the eye catcher. For us that meant using the text ‘Save $ every time your friend orders’. Dropbox also did this by using presenting the referral program as ‘Get More Space’ rather than ‘Invite Friends’. Both of these examples presented benefits which were core to the value proposition of the customers’ experience.
    • Make the sharing process frictionless. Tweets, Facebook posts and emails should be pre-filled so customers can share within seconds.
    • Make sure you walk the customers through the exact referral process – when do they get their reward? This must be clear from the very start.
    • Notify referrers when they earn credit or are rewarded. Use this time to invite them to share with more friends. We had an automatic email confirmation whenever someone earned a credit, which would also encourage them to continue sharing to earn even more.
    • Allow customers to track their referrals and how much they have earned in rewards so far (referral dashboard).


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