Why a Referral Program for Your E-commerce Store Is a Must

Priya Singh
Dec 15, 2022
5 min read

Updated: Jul 4, 2024

The cursor was blinking, the page was blank and so was my mind. It was a chilling morning in the 2018 winter and I was looking at a Canva design on my screen.

I sat there, in my chair, waiting for all the logo ideas in my head to finish their battle and declare a hero and guess who won?

A minimal-looking logo that said — All Say Wow.

Yes, that was the name of my soon-to-be-launched Shopify store. Now that I think of it, the name sounds quite silly to me honestly but you know why I chose it?

It was because of products I was going to sell as part of my dropshipping business.

Building My Shopify Store

Yes, one of my friends from the Digital Marketing domain and I had decided to try our hand at dropshipping because we wanted to help a junior with a final-year project on marketing.

Additionally, this also meant that we would get to learn how to start a Shopify store, use Facebook ads to drive traffic and of course, make some money if it all works.

So next, I did the basics such as registering a domain name and building a Shopify store with products which were most selling and had a wow factor.

Promotional graphic with detailed offers

After this, I set up social media accounts along with a Facebook ads account and there it was, my newly launched Shopify store with impatient me waiting for traffic and sales.

Traffic Yes, Sales? Not Really.

Okay, I’ll be honest. Since we’d done our part of the research on the most-selling products on Alibaba, we knew our products were trending.

That’s why soon after my Facebook campaign went live, I started seeing good impressions, likes and CTR which brought in a fair amount of website traffic.

However, after spending close to 20 thousand INR on website traffic, I was able to get one sale. Can you believe it? Yes, one sale which cost me 20 thousand CPC.

With a happy feeling for my first sale but not-so-happy vibes for such a high CPA, I placed an order for my one and only customer, Joe.

Weeks later, our junior presented his project and I put both my Shopify store and dropshipping side hustle behind the shutter of my daily job’s hustle-bustle.

As years passed, I learned various marketing ways one could use to boost e-commerce business but you know which one gave me an instant sense of regret?

Referral Marketing. I’ll tell you why.

Refer Pet Parents

Let’s rewind. The product that I’d received a sale for was a pet water bottle. Now, what if after a week, I’d nudged Joe with communication like —

“We hope your pet loved its new water bottle! Why not spread the good word with other pet parents and you both get a purchase discount on a wow product”?

Do you think Joe would have referred a friend upon reading this?

Well, I strongly do and here are 4 reasons why a referral program would have helped me increase my e-commerce sales.

1. Joe Trusted My Brand

Having a referral program for your e-commerce business builds brand trust.

For instance, Joe’s first purchase built a relationship of trust, increasing the likelihood of her sharing a good word about her experience with others. In fact, 83% of customers prefer to refer a business after making a successful purchase, as per a 2022 report. Sounds so convenient, right? A customer who’s already had a good experience with your product, service or brand will tell others about it.

Now here’s a reality check - out of the 83% of customers, only 29% actually refer and that’s where a hook such as rewards comes into the picture.

Most e-commerce businesses reward both their referrers and referees as part of their referral program as that cancel out social risk factor and boost conversion rate.

Let’s look at how Cotopaxi, an innovative adventure products brand, does it.

2. Joe Would Save My Marketing Cost

Sigh! I’d spent 20 thousand INR on acquiring just one customer through Facebook ads. Doesn’t seem that cost-effective, right? Had I continued running Facebook ads, the success rate of more conversions would have been a huge question mark and let’s not forget, would come with a high CPA. On the other hand, if I’d offered Joe a ₹200 off discount code on her next purchase for a successful referral, I could have used the same CPA to acquire new customers.

Referral programs enable low-cost customer acquisition and have higher ROI (overall ROI from a referral program is 4x for SMBs).

Think of it this way — I acquired Joe for 20 thousand INR. If she referred a friend who further made a successful purchase, the CPA would now be 10 thousand INR.

This means for the price of one, I’d have received two customers and more based on the number of referral conversions. What a win, right?

Speaking of this, ACAI Outdoorwear, a brand that revolutionises women’s outdoor clothing experience, was able to generate up to 4.8% extra revenue with a referral program.

3. Joe Would Bring More and Quality Customers

You may be surprised to know this but referrals have close to a 4% conversion rate which is the highest of all customer acquisition channels as per stats. So there’s no doubt about the fact that if Joe were to refer a friend, it would lead to a chain of reaching out to more customers.

That’s not all. People who Joe would refer to would not only bring in more sales but also stick with my brand for a longer period of time since customers that come via referrals have longer CLTV.

Brands like Bloom & Wild, a flower delivery eCommerce store that got £17 million in sales through referrals, are proof that referrals bring in customers that stick and generate more sales.

4. Joe Would Become a Brand Advocate

Those who refer to a brand are nothing but brand advocates and influencers.

If you run a referral program for your e-commerce store, your existing customers would automatically become part of your branding through word-of-mouth.

In my Shopify store’s case, Joe would be my brand’s advocate. She’d go on sharing her referral link among her friend circle which would get me good brand visibility.

If she was someone who’s active on social media platforms, she could help me get social reach by sharing referral link on her social media profile.

This would help me as a brand, reduce my marketing efforts and connect with a larger audience base.

Here’s an example of how I could add to the brand visibility of Crave by Leena, a vegan bakery.

Launch a Referral Program for Your E-commerce Store

When I launched my Shopify store in 2018, I wasn’t aware of the power and capabilities of a referral program.

But unlike me, you now know all the ways your e-commerce store could benefit from a referral program. In case you're someone who has already launched a Shopify referral program and it didn't work or would like to improve it, hear what our Co-Founder and CTO, Venkatesh Rao has to say.

So how do you go about setting up a referral program for your e-commerce store? Set up sounds like a lot of work, right?

With all the reward set up, tracking, communications? Well, let me save you those worries by telling you a secret —

Flyy is launching a comprehensive referral program plugin using which you can