Referral programme

What it means

A referral programme is a scheme in which a company rewards existing customers for bringing in new ones. The reward may be a discount, credit towards the next purchase, a free month of service, a gift or a cash bonus, often for both the referrer and the new customer.

Referrals are among the cheapest and best sources of customers. People trust friends more than advertising, and customers acquired by referral tend to be more loyal and have a higher LTV. For services such as accounting, where trust is decisive, referrals are often the main source of new clients.

A referral programme differs from affiliate marketing, where partners such as websites or influencers recommend products for a commission, and from a loyalty programme, which rewards repeat purchases. The tools can, however, be combined.

How it works in practice

A successful programme is simple: the customer gets a personal link or code, knows exactly what reward they will receive, and the reward arrives automatically. It works best when offered at a moment of satisfaction, for example after a tax return has been filed successfully or after a high NPS score.

The cost of rewards should be compared with the cost per acquisition through other channels. If the reward for a new client costs less than acquiring one through advertising and new clients stay for a long time, the programme pays off. Watch for abuse too, such as fake sign-ups made only to claim rewards.

In the books, a discount for the customer is shown as a price reduction, for example through a credit note, and also reduces the VAT base. A cash reward or gift is a promotional expense for the company. For larger rewards, consider whether they constitute taxable income for the recipient.

What to watch out for

A reward to an individual may be their other income, which is taxable unless an exemption applies. For business customers it is the company's income. The programme rules should also make clear who is responsible for any tax on the reward.

Sharing referrals is subject to data protection and electronic communications rules. A company should not ask customers for their friends' contact details in order to send offers without consent. It is better for customers to share the link themselves, for example in a personal message.