Types of Referral Partners and How To Build Partnerships

Referral partners are individuals or companies that refer new business to you via high-quality leads in exchange for an incentive. This can be a high-growth tactic for businesses of all sizes. According to Gartner, referrals generate 43% more qualified leads than other channels.

“Referral is just such a valuable channel,” Wild cofounder Charlie Bowes-Lyon says on an episode of theShopify Masters podcast. “Those people haven’t been sold to by us. They haven’t been sold to by an advert. They’ve been sold to by a friend they trust.”

This guide explains the key aspects of building referral partnerships, and shows how you can build a successful referral partner program that delivers quality leads.

What is a referral partner?

A referral partner is an individual or business that sends qualified leads to your business, and, in return, receives an agreed-upon financial incentive for each successful referral. Referral partnerships help businesses find new customers without paying the customer acquisition costs of outbound marketing campaigns. 

Referral partnerships are common in professional services and software-as-a-service (SaaS) sales, where customers and non-competing businesses can send prospective clients your way. For example, a web designer may have a referral partnership agreement with a website builder software, recommending it to their clients. Complementary providers, such as financial planners and estate attorneys, may have an official partnership agreement to send their customers to each other. 

However, the same concept can be applied to ecommerce businesses as well. For example, a furnishings brand may partner with an interior designer, who suggests their products to customers in exchange for a commission. 

Affiliate marketing vs. referral marketing vs. referral partnerships

Referral partnerships differ from affiliate marketing and general referral marketing in a few ways: 

• Affiliate marketing. An affiliate or influencer promotes a brand to their network. They cast a wide net and may have the same target audience as the brand, but do not personally know those whom they recommend or vet them in any way. 

• Referral marketing. Customers recommend a brand to individual friends or family members and receive a benefit like a discount on a future purchase. This is a less formalized arrangement than a referral partnership. 

• Referral partnership. This is a formalized arrangement where a partner refers a brand, often in a professional capacity, to personalized, interested leads. 

Types of referral partnerships 

You can develop a referral partnership agreement with individuals and companies across your network. Here are some options: 

• Complementary brands. Look for companies that share the same customer base but aren’t in competition with you. For example, a coffee bean company may have a referral partnership agreement with a coffee machine manufacturer, both brands referring the other to their business-to-business (B2B) clients like cafés and restaurants. 

• Consultants and agencies. Partner with industry consultants and agencies who promote your brand to their clients. For example, a wedding planner may have a referral partnership with a clothing boutique specializing in bridal and bridesmaids dresses. 

• Industry experts and community leaders. Consider partnering with prominent voices in your field, such as researchers, journalists, and technical experts who may be frequently asked for their recommendations.

• Customers. Your existing customers can also send qualified leads your way, recommending other interested individuals or businesses who may benefit from your products or services. This differs from a simple referral program in that you have a formal agreement with customers, typically for large-scale contracts rather than small, single purchases. 

How to develop referral partnerships

1. Define goals for a referral partnership
2. Scout potential referral partners
3. Develop your reward structure
4. Onboard referral partners
5. Track partner performance

Follow this sequence to build and maintain referral partner relationships with current customers and complementary companies:

1. Define goals for a referral partnership

Figure out what you want from a referral partnership, and define which metrics you want to focus on before you build your referral program. This can include revenue from referrals or conversion rate of a specific product. Doing this gives you a baseline for how you’re performing now, and serves as a measuring stick as your referral partnership program grows.

For example, if your primary goal is new customer acquisition, use dashboard data from Shopify apps like LoyaltyLion to monitor referral conversion rates and cost per acquisition. If you want to measure customer retention, track repeat purchase rates and customer lifetime value (CLV). Shopify merchants see these data points in their admin dashboard.

2. Scout potential referral partners

When looking for the right referral partners, consider complementary brands who sell different products to the same target audience and would benefit from partnering with you. For example, an athleisure brand can reach out to a company specializing in vitamins and health supplements.

For companies, research their social media presences to see what kind of engagement they get on posts. You’re not looking for the companies with the most followers, but those whose customers and fans are most engaged with the brand and who align with your own brand. Look for partners with an engaged community that trusts their advice.

3. Develop your reward structure

Decide what you want your referral commission structure to be. Here are some common approaches:

• Flat fee. This is the most straightforward reward; a cash payout for each successful referral, paid out after a time (such as 30 days) following the new customer’s completed purchase. ReferralCandy suggests 10% to 25% of your average order value (AOV) as a reward.

• Percentage of sales. With this commission, you pay referral partners a percentage of the sales revenue they’re responsible for. You can use the same 10% to 25% of AOV figure when determining this reward.

• Tiered rewards. Whether you decide on a flat fee or a percentage of sales, you can use a tiered rewards program to encourage more referrals from your partners. The more sales they’re responsible for, the higher their earnings are.

4. Onboard referral partners

Draft a referral partnership agreement and send it to your potential program partners. Include what each party is responsible for, the commission and payout terms for referrals, and guidelines for how they can and cannot promote your brand. This formal contract is the key difference between a general referral program and a partnership.

Once partners agree to those terms, Shopify has a wide range of referral program apps—such as Smile or ReferralCandy—you can use to onboard referral partners. You can create a partner portal, manage referral partner programs, and distribute rewards. You can also go with Shopify Collabs to create a structured referral partner program with automatic referral tracking.

5. Track partner performance

Monitor how well your referral partners refer clients or drive new business your way by tracking key metrics, such as:

• Number of referrals. Tracking this is an easy way to see which partners are generating the most referrals to your business.

• Conversion rate. This figure is the percentage of referred visits that end in purchases. This is measured by dividing the number of conversions by the total audience and multiplying by 100.

• Referral revenue share. Referral revenue share tracks the percentage of sales that come from referrals, with high performers ranging from 10% to 30%. Determine this by dividing the number of referrals by the total number of sales, and multiply by 100.

• Average order value. Track the average order value per partner to see how well it compares to your overall value. This tells you which partners are driving the highest value to you.

Instead of calculating these figures manually, use programs such as ReferralCandy to monitor these figures over time. These apps give you a dashboard where you can see performance at a glance and determine the effectiveness of your referral partners.