Referral programme or more ad spend? The same cost per customer, paid differently
Should you start a referral programme or spend more on ads? Think of them as two ways to pay the same bill. You already accept a cost to win each new customer through ads. A referral programme pays a similar amount to the customers who bring you new buyers instead. Seen that way, it stops feeling like giving away margin.
We recommended this approach to a DTC brand we worked with, after its Meta ads and store were converting well. The thinking behind it applies to almost any e-commerce brand.
How does a customer referral programme work?
Customers create their own discount code. When someone they know buys with that code, the friend gets a discount and the customer who shared it gets a cut of the sale.
The best programmes are easy and always on. Customers don’t have to apply or wait for approval. They make a code, share it with people who’d like the product, and get paid when it’s used.
Why do so many store owners resist referral programmes?
Because it feels like giving money away. Paying a customer a share of a sale they “didn’t make” looks like a pure loss, and a discount for the friend on top can feel like too much.
But every new customer already costs you something. When you win them through ads, you pay Meta or Google. That cost is easy to accept because it’s familiar. A referral payout is the same kind of cost, just paid to a different place.
Referral programme vs ads: how do the costs compare?
Here’s an example with made-up round numbers. Say your product sells for $100, and you’re happy to spend $20 to win a new customer.
Example | Customer won through ads | Customer won through a referral |
|---|---|---|
Price of the product | $100 | $100 |
Cost to win the customer | $20 paid to the ad platform | $10 discount for the friend, plus $10 to the customer who referred them |
Total cost per customer | $20 | $20 |
The cost per customer is the same. The difference is who receives it: an ad platform, or two people who now have a reason to keep talking about your brand. In this example, the friend gets 10% off and the referrer earns 10% of the sale. That’s the minimum we usually suggest for each.
Where did the idea come from?
We first saw it work with a kitchenware brand we worked with. We started by getting them to run a referral programme for influencers: each influencer got a custom code to share, and earned from every sale it brought in.
It performed so well that we asked a simple question. Why limit it to influencers? Every happy customer could do the same, and that’s the thinking behind this post.
What makes a referral programme work?
It’s easy. Customers can create their own code in seconds, without applying or waiting.
It’s always on. The programme runs all year, so your best customers can share whenever the moment comes up.
It’s a revenue share. The referrer earns a cut of each sale they bring in, so the more they share, the more they earn.
The maths starts from your cost per customer. Work back from what you already pay to win a customer through ads, and set the friend’s discount and the referrer’s cut to fit within it. We suggest at least 10% for each.
It runs itself. On Shopify, an app like ReferralCandy can create the codes, track sales and pay out rewards for you.
When should you start a referral programme?
Once your store converts well and customers are happy with the product. A referral programme multiplies what’s already working. People share products they love, and the friends they send need a smooth path to buy.
For the brand we worked with, we suggested it as a next step after the ads, product page, upsells and email flows were in place.
Frequently asked questions
What is a customer referral programme?
It’s a way for existing customers to earn a reward when people they know buy from you. Usually the customer shares a personal discount code, the friend gets a discount, and the customer earns a cut of the sale.
How much should you pay customers for referrals?
We suggest at least 10% for both the friend’s discount and the referrer’s cut. Then check the total fits within what you’d happily spend to win a customer through ads.
Is a referral programme better than paid ads?
They do different jobs, and most brands need both. Ads find new people who’ve never heard of you. A referral programme turns happy customers into another source of new buyers, at a similar cost per customer.
What’s the difference between a referral programme and an affiliate programme?
A referral programme rewards your own customers for telling people they know. An affiliate programme usually pays creators, publishers or partners to promote you to their audience.
When should an e-commerce brand start a referral programme?
Once your store converts well and customers are happy with the product, so the friends they send have a good reason to buy and a smooth path to checkout.
Which Shopify app can run a referral programme?
ReferralCandy is one we’d recommend. It lets customers create their own codes, and it handles tracking and rewards for you.
See the full project
The referral idea came out of a wider project for this brand, covering Meta ads, product page changes, upsells and Klaviyo email flows. You can read how it all came together in the full case study.
Wondering whether a referral programme would pay off for your store? Get in touch with One World Ideas and we’ll work through the numbers with you.