# What is Referral Program?

What is Referral Program? A system that rewards existing customers for bringing in new ones. Rewards: discounts, credit, free product.

## How it works in practice

A referral program is organized word-of-mouth. A happy customer recommends you naturally — a referral program creates an incentive for that to happen more. CAC from referrals is 50-70% lower than paid, and referral-customer LTV is 16-25% higher.

## Related metrics

- CAC — referrals mean very low CAC
- LTV — referral customers have higher LTV
- NPS — promoters (NPS 9-10) are the natural referrers
- Word of Mouth — a referral program is organized WOM

## Common misconception

'Referrals only work for big companies.' Dropbox, Airbnb, Uber all built on referrals from day one. A store with 500 happy customers and a simple referral program can double its customer base in a year.

## How to fix it

Referral program not working? (1) Check the reward — is it compelling enough? ($15 credit vs $3 is a different world), (2) Check ease of sharing — one link, then click 'share,' (3) Check timing — ask for a referral after a wow moment (fast delivery, a great experience), (4) Check framing — 'give a friend 20% off' beats 'get store credit.'

## Real-world example

Coffee shop: a referral program — 'give a friend 15% off their first order, get $8 in credit.' 340 customers shared. 180 friends ordered. Referral CAC: $8 (vs $26 from ads). Referral-customer LTV: 22% higher.

## Where to start

Launch a referral program once you have 200+ happy customers. Tools: ReferralCandy, Friendbuy (Shopify). Setup: 3 hours. Meaningful ROI in 60-90 days. Promote it actively — a footer link isn't enough.

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Category: Marketing · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/referral-program