Referral Program: The Complete Guide for 2027

A referral program turns your existing customers into an acquisition channel: they share your store with a friend, and when the friend buys, you reward them. I've worked with hundreds of Shopify merchants on their loyalty programs, referrals included, over the past three years, and this guide covers what a referral program is, how it works, which rewards you can offer and how to set one up, using the real offers of 16 brands. It is about customer referral programs; if you're researching employee referrals, that's a different topic.

This guide is written by Kris, co-founder of Mage. Mage is a loyalty and customer accounts platform for Shopify, and referrals are part of it, so I've been specific about how ours works.

The short version

• A referral program rewards existing customers (the advocates) for bringing in new ones (the friends), and the friend usually gets a reward too.
• Reward both sides, work out the size of the reward from your margins and average order value, and use a discount code.
• Turn on every fraud setting, and hold the advocate's reward until the friend's order is safe.
• Show the offer on the post-purchase page, in your emails, in the customer account and on your loyalty landing page.
• For the detail behind each point, read our guide to referral program best practices.

What is a referral program?

A referral program is a formal way for a brand to reward existing customers, the advocates, for bringing in new customers, the friends. The brand sets the reward, provides the sharing tools, tracks conversions and issues the rewards automatically when a referred friend makes a qualifying purchase.

It's different from word of mouth, which is organic and unmeasured. In a referral program the links are tracked, the rewards are set in advance and the results can be traced back to the advocate who shared. It's also a specific tactic inside the broader practice of loyalty marketing.

The economic case is simple: a friend is doing the persuading, so you don't pay for an impression or a click. You pay a reward after a referral converts, which ties the cost to results. It still comes out of your margin, so the reward has to be something you can afford.

How a referral program works

1. The advocate gets a unique referral link tied to their customer account, which they can share by email, on social media or by copying it.
2. The friend clicks the link and lands on your store, or on a landing page you choose.
3. The friend signs up or buys, depending on what you've defined as a conversion.
4. Both sides receive their rewards.
5. The cycle repeats for as long as the reward is worth the advocate's effort.

In Mage, each referral campaign defines what counts as a conversion, a sign-up, a purchase or both, and the rewards are issued automatically when it happens. The Referrals overview explains the full flow.

Both parties need an incentive. The friend needs a reason to act on a link instead of ignoring it, and the advocate needs a reason to share more than once. A program that rewards only one side gives the other no reason to take part.

The key types of referral reward

Discount code

I recommend a discount code. It is the easiest reward for customers to understand and it has the least friction: the friend sees the amount at checkout, and the advocate gets a code to use. In Mage, the basic referral reward is a dollar discount code.

Percentage or fixed amount

A percentage scales with the size of the order, and a fixed amount is easier to read. Kylie Cosmetics offers give 20%, get 20% on a first order of $50, while Starface, INKEY List and Moroccanoil all offer give $10, get $10.

Points and store credit

Ten of the 16 programs we looked at pay the advocate in points. Points work well when a store already runs a points program with rewards people want, but they add a step: the member has to learn what a point is worth before the reward means anything. That is my reasoning, not a measurement.

Product rewards

A free item or a sample kit is another option, and it avoids discounting. It can suit brands where trying the product is part of the appeal.

Cash and gift cards

I would avoid cash and gift cards. They cost you real money and don't have to be spent with you, so they don't bring the customer back.

The same offer for everyone

All customers should have the same incentive to refer their friends. A flat offer is easy to explain and fair to everyone who shares. Different rewards for different groups add rules to explain without giving most customers a reason to share. This is also where a referral program differs from VIP tiers: tiers change what members get for buying, while a referral offer is the same for everyone. See VIP tiers for how those work, and types of loyalty programs for how referrals sit alongside points, tiers and memberships.

What 16 real referral programs offer

Our brand breakdowns cover 49 loyalty programs, and 16 of them publish a referral offer. Eleven reward both the friend and the advocate, and eight set a minimum first order for the friend, from $25 to $100. A few examples:

• ThirdLove: give $25, get $25, on the friend's first purchase of $75 or more.
• Our Place: give $20, get $20. The friend gets $20 off a first order of $100 or more, and the advocate is paid as 200 points ($20).
• Starface: give $10, get $10, on a first order of at least $40.
• Kylie Cosmetics: give 20%, get 20%, on a first order of $50.
• OSEA: the advocate earns 1,000 points after the friend's first purchase, and the page publishes no friend reward.

The full table, with the conditions each brand attaches, is in referral program best practices.

How to set up a referral program on Shopify

1. Work out the reward from your margins and average order value: what can you realistically afford to give away for each referred customer? Set a minimum first order for the friend, and give everyone the same offer.
2. Turn on every fraud setting and choose how long to hold the advocate's reward. In Mage the reward is held for 14 days after the friend pays by default, and you can change that in the Referrals settings.
3. Create a landing page that explains the offer, and show the offer in four places: the post-purchase page, your emails, the customer account and your loyalty landing page.
4. Choose your app. On Shopify, the cleanest path is a loyalty app with referrals built in, so the link is tied to the customer account and rewards are issued automatically. Mage's Shopify referral program does this, and the Basic referrals setup and Referrals settings articles walk through it. To compare options, see the best Shopify referral apps.

A referral program only compounds when customers already like your brand. See what causes customer loyalty for the foundation it depends on.

How to measure referral program success

Four numbers matter:

• Participation rate: the share of your active customers who send at least one referral in a year.
• Referral conversion rate: of all referral links clicked, the share that turn into a purchase.
• Referred-customer lifetime value, compared with what the customer cost you to acquire. See how to increase customer lifetime value.
• Advocate repeat rate: the share of advocates who refer more than once.

I don't give target ranges, because they vary by category and by offer. Compare your own numbers month to month and against what the reward costs you.

Frequently asked questions

What is a referral program?

A referral program is a structured way for a brand to reward existing customers, the advocates, for bringing in new customers. The brand defines the reward, tracks referral links and issues the rewards automatically when a referred friend completes a qualifying purchase.

What is the difference between a one-sided and a two-sided referral program?

A one-sided program rewards only the advocate, and a two-sided program rewards both the advocate and the friend. I recommend rewarding both, because the friend needs a reason to act on the link.

What are the best referral rewards for Shopify brands?

A discount code, because it is the easiest for customers to understand and has the least friction. Work out the size from your margins and average order value, and give every customer the same offer.

How do I know if my referral program is working?

Track four numbers: participation rate, referral conversion rate, referred-customer lifetime value compared with acquisition cost, and advocate repeat rate. Compare them month to month and against the cost of your rewards.

Do referral programs work for brands with smaller audiences?

Yes, but the numbers will be small early on, and a referral program grows with your customer base. Reward both sides, set a reward you can afford and show the offer where your customers already look.

Do advocates have to disclose that they get a reward?

Possibly, if they share publicly. The FTC's Endorsement Guides, 16 CFR § 255.5, list payment and free or discounted products among the connections that must be disclosed when the audience wouldn't expect them. Ask advocates to say they get a reward, and check with your own counsel. This is general information, not legal advice.

Referrals in Mage

Mage's Shopify referral program gives every customer a unique link, rewards both sides automatically, blocks abuse with fraud settings and sits alongside points, VIP tiers, store credit, memberships and wishlists in one app. See our Shopify loyalty program page, which covers store credit and customer retention, and the pricing page for plans.