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It looks like a simple, straightforward proposition: incentivize the customers – who love your brand – to drive in new customers. It’s a win-win situation, right? But not necessarily. For example, Worldwide101, a remote virtual assistant platform, stated that their referral program failed not once, but thrice — undermining their brand value while wasting both time and effort.

Their experience isn’t uncommon: businesses of all sizes have a hard time creating referral programs that work. While they focus on every little aspect, they forget to pay attention to the core of it, which is referral rewards and incentives.

The psychology of referral rewards is rooted in the concept of social influence and motivation. People are social creatures that are influenced by the opinions and actions of others in their social network. Referral rewards tap into this social influence by providing an incentive for individuals to share their positive experiences with others.

To help you make the most of this referral marketing strategy, we have put together a detailed guide that explains the importance of referral incentives, their significance, best practices, reward ideas for customers, employees, and channel partners, and more.

What are referral rewards?

Referral rewards are incentives or benefits given to individuals for referring others to a product or service. They are designed to encourage people to spread the word about a brand and help businesses acquire new customers through personal recommendations.

Referral incentives can take many forms, including cash bonuses, discounts, free products or services, loyalty points, contest entries, exclusive access to products or events, and charitable donations. The goal of referral incentives is to motivate people to refer others by offering a tangible reward or benefit for their effort.

Referral incentives can benefit both the referrer and the person being referred. The referrer receives a reward for their effort, which can increase their loyalty and engagement with the brand. The person being referred may receive a discount or other incentive to try the product or service, which can increase their likelihood of making a purchase and becoming a loyal customer.

How referral rewards drive engagement?

Referral incentives can be a powerful tool to drive engagement, as they motivate existing users to bring in new users and increase the overall user base.

Here are a few ways incorporating the right referral incentives can drive engagement:

1. Encourages word-of-mouth promotion 

Referral rewards motivate users to share their positive experiences with others, which can lead to increased word-of-mouth promotion. This can build brand awareness and attract new users who may not have otherwise heard of the product or service.

2. Creates a sense of exclusivity

Rewards can create a sense of exclusivity by making the referral program available only to selected individuals, providing a benefit that’s not available to others. It makes the invited participants feel special and creates loyalty towards the brand.

3. Boosts user loyalty

Referral rewards help boost user loyalty, as they provide existing users with a tangible benefit for promoting the platform or service. Users may feel more invested in the platform and more likely to continue using it over time.

4. Increases user acquisition

People are motivated by the possibility of receiving a reward, especially if it is something of value or that they perceive as being exclusive. Rewards tap into this motivation and encourage people to take specific actions that ultimately drive acquisitions.

Key elements of a good referral rewards system

A good referral rewards program should be simple, clear, easy to use, and flexible enough to accommodate different types of referrals and reward levels. It should also be transparent, timely, and customizable to encourage continued participation in the program.

Here are some key elements of a referral rewards system:

1. Clear goals

A referral rewards program should have clear goals and objectives, such as increasing customer retention, generating new leads, or increasing sales.

2. Customizable incentives

A referral reward system should allow you to customize incentives based on your business goals, such as offering different rewards for different types of referrals or for different referral sources.

3. Referral process

A clear and easy-to-use referral process is vital. This can include a referral form on your website, a referral link or code, or an email or social media share.

4. Tracking & reporting

A good referral rewards system should be able to track and report on your reward spends, no. of referrals, reward email open rates, redemption status, and more.

5. Personalization

A referral rewards system must enable you to personalize your rewards to match the recipient preferences. This can include reward curation, custom messaging, branding, etc.

6. Tech integrations

The ability to integrate with existing systems, such as your website, CRM, HRMS, LMS, etc. helps streamline the referral process and ensure accurate reporting.

7. Flexibility

A good referral reward system should be flexible enough to include different types of referrals and reward levels. This allows you to tailor the program to your specific business needs.

8. Timely rewards

Incentives must be delivered in a timely manner, ideally shortly after the referral is made. This shows the referrer that their efforts are appreciated and further, continue to refer others. 

9. Fraud prevention

Having fraud prevention measures in place ensures there’s no abuse of the program, such as limiting the number of referrals per user or using unique referral links or codes.

How to choose referral incentives for your referral program

Would more participants join if you gave them a digital gift card or a discount percentage or a cash payout? What to offer? Is it two-sided incentives or one-sided? The options are just endless.

Here are some steps to consider when choosing rewards incentives for your referral program:

Step 1: Define your goals

Start by identifying your goals for the referral program. Determine what you hope to achieve, such as acquiring new customers, increasing sales, or improving customer loyalty. This will help you determine what type of incentives to offer.

Step 2: Know your audience

Understand your target audience and what they value. Consider factors such as age, gender, income, interests, and lifestyle when selecting rewards incentives.

Step 3: Determine your reward budget

Decide on a budget for your referral program, and consider how much you can afford to spend on rewards incentives. Make sure to factor in the cost of the incentives as well as any associated fees or shipping costs.

Step 4: Decide who gets the reward

Deciding whom to give the referral incentive will help lay the foundation for other components of your referral campaign. Also, knowing your target audience makes it easier to plan the kind of rewards to offer, the type of structure to use, the messaging you want to put, and more.

Referral incentives are generally offered through any of these types:

  • One-sided: A one-sided referral incentive is when only the referrer receives a reward for referring a new customer. This type of incentive is common and can take the form of discounts, cash rewards, or free products or services. One-sided incentives are straightforward and easy to administer but may be less effective in motivating referrals since the referee does not receive anything in return.
Best for: Newbusinesses who want to grow their brand awareness. One-sided incentives encourage users to bring more users to your brand. And with an amalgamation of strong recommendation + reasonably-priced products = the referred user is highly likely to purchase, even without any incentives.
  • Two-sided or double-sided: A two-sided or double-sided referral incentive is when both the referrer and the referee receive a reward for a successful referral. For example, a company may offer a discount to both the referrer and referee on their next purchase. This type of incentive is often more effective in motivating referrals since both parties benefit. However, it can be more complicated to administer and may be more costly.
Best for: Any business type, but mostly ones with adequate resources to offer referral rewards to both the parties involved. For such businesses, having a good referral rewards software is the better bet, as it helps track all the key metrics and makes it easier to run those referral campaigns.
  • No incentive: Some businesses choose not to offer any referral incentives at all. Instead, they rely on the goodwill and loyalty of their customers to refer to new business. This approach can be effective if a company has a strong brand reputation and customer base, but it may not be as effective in motivating referrals compared to incentivized programs.
Best for: Businesses without a budget to offer referral rewards, or are just establishing an organic referral rate.

Step 5: Choose the type of referral incentive to offer

Referral incentives are the key drivers of a referral program but know that they aren’t one-size-fits-all. Remember, the right reward depends on two things: your business type and customer base.

Here’s a table that outlines the commonly used referral incentives across different business types. Feel free to find out which rewards work the best for your business.

Repeat or frequent purchase

Big-time or infrequent purchase 

Common referral rewards

Discounts, store credits, free subscription period, free products, charity / donations

e-gift cards, swag, cash, donations, curated gift boxes

Companies using these types of rewards

Uber, Airbnb, Classpass, Dropbox, Mailchimp, Evernote

Morning Brew, 99Designs, H&R Block, Chili Piper, Square Cash

Step 6: Try and test different rewards to see what works best

Test different types of referral rewards to determine which ones are most effective. Consider testing a variety of incentives such as discounts, free products, cash rewards, or loyalty points to see what resonates best with your customers.

Step 7: Monitor the performance

Monitor the performance of your referral rewards program to determine which incentives are driving the most referrals. Use this information to refine your program and adjust your incentives as needed.

Referral reward ideas for customers, employees, sales and channel partners

Do you know what makes or breaks a referral program? It’s the REWARDS. The worst possible choice you could ever make is to give people something that they dislike, is of no use to them, or fails to resonate with your brand identity.

The prime reason to create a referral marketing program is to drive quality leads. Attractive rewards align ideally with what your brand stands for. The type of referral rewards you choose must boost the relation between your customers with you and should get people to talk about you. We know that this may sound poetic to you, but we got your back.

Here’s a section that highlights referral reward ideas for different users so you can find the right one for your audience.

Referral reward ideas

For Customers

For Employees

For Sales & Channel Partners 

1. Discounts

Offering discounts as referral rewards may incentivize them to come back and make additional purchases beyond their initial referral. Customers who receive referral discounts are more likely to share their positive experience with others, leading to positive word of mouth.

1. E-gift cards

These can be delivered instantly via email, providing immediate gratification for employees who refer new hires. They are versatile and can be used against a wide range of products / services, giving employees the flexibility they use their reward.

1. Commissions

Offering a commission as a referral reward can motivate sales and channel partners to refer more customers to your business. This can help increase the number of leads and sales generated through referrals. They are a cost-effective way to acquire new customers too.

2. Digital gift cards

These are cost-effective, easy to send and receive, which makes them convenient options for businesses. They can be easily customized with specific amounts or branded designs, which helps reinforce brand awareness and loyalty.

2. Cash bonus

Cash rewards are a tangible reward that employees can see and use, which can increase the perceived value of the incentive. They are a powerful motivator for employees to refer qualified candidates for job openings.

2. Event invitations

Inviting partners to attend events can help build stronger relationships between the business and its partners. This can lead to increased loyalty and more frequent referrals. It helps spread the word about the brand.

3. Loyalty points

These are more cost-effective for businesses since there’s no direct monetary costs involved. They provide an ongoing incentive for customers to refer others in order to earn more points.

3. Experiential rewards

Experiential rewards, such as tickets to a sporting event or a weekend getaway, can create lasting memories for employees. Also, they differentiate a business's referral program from others, making it more appealing.

3. Co-branded marketing

These feature both the business's brand and the partner's brand, which can help increase exposure for both parties. This can help attract new customers and increase sales.

4. Free products or service

These generate buzz and excitement around the business's offerings. It helps build trust and incentivize referrals. Not just that, it encourages trial and 

4. Flexible work arrangements

By offering flexible work arrangements as a referral reward, the organization can attract top talent who value work-life balance and culture. 

4. Training &

By offering training and support, the business can help partners improve their sales skills and product knowledge, which can lead to increased sales and more effective referrals.

5. Donations / Charity

Offering donations and charity as referral rewards can have an emotional appeal for customers, who may be motivated to refer others for contributing to a meaningful cause. 

5. Team activities

Providing team outings or activities as referral rewards can help reduce turnover by improving employee satisfaction and retention. Such rewards stand out and attract top talent.

5. Exclusive access

By offering exclusive access, the business can increase the partner's loyalty and engagement. This can lead to more frequent referrals and stronger partnerships over time. It provides partners with better networking opportunities too.

6. VIP treatment

Offering VIP treatment as a referral reward can create a sense of exclusivity and prestige, which can make customers feel special and valued. Also, they are highly likely to spend more money with the brand in the future.

6. Course subscription

Offering an expensive course as a referral reward not only helps the organization stand out from others but also signifies that they value the growth of their workforce.

6. Heavy discounts

By offering heavy discounts, a business can incentivize its partners to refer more customers without having to spend additional resources on advertising or other forms of marketing.

Explore our global reward marketplace >>


When it comes to creating successful referral programs, rewards are the ultimate deal breaker. The right incentives have the power to encourage participants to take action and engage with the business.

By offering unique and valuable rewards, businesses can stand out in a crowded marketplace and attract more customers or partners. Not just that, the right rewards help build loyalty and repeat business, encouraging users to continue doing business with the company and become advocates for the brand.

Lacklustre rewards = Failed referral programs.

Offering a logoed t-shirt, a bag, or a free pen as referral rewards won’t entice your participants to refer. Instead, find a balance with what they like and yet under your budget. Drive insane referrals by incentivizing referrers with rewards that are trendiest in the town.

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Neha Surana

Neha Surana

I help businesses in spreading delight to their customers at Xoxoday. When I’m not working as a content manager, I love doodling, painting, and cooking.