"Refer a Friend" programs?

Do they work?

[martyt]

A significant portion of our business comes from word-of-mouth referrals by existing customers. Based on the feedback e-mails we get, I know we've got a lot of enthusiastic "cheerleaders" out there - so I'd both like to reward them for their efforts and give them a reason to be even more enthusiastic.

The basic idea is that if you refer someone to my site, they make a purchase and enter your e-mail address as the referral, I'll give you X - maybe a dollar-off or percent-off your next purchase or something similar.

So I'm wondering if any of you use such a program and how you've constructed it (with as many details as you care to share), as well as how effective it is.

Thanks!

[incrediBILL]

Paid incentive to spam -

I like the idea but be careful, someone will abuse it, they always do.

Case in point, friends refer each other just to get the discounts, how will you track that?

Unless your discount is so low you don't care if they do that.

[Trucker]

That was my thinking too. I would limit the discount to people who's emails convert to a sale.

Never actually done this type of promotion, so I can't say how effective it is.

[martyt]

Good points. Certainly the system could be abused to some extent. I'm fortunate that my customer base is basically "little old ladies" who both are a little more honest than your average punk kid buying tech gear, and are not technically savvy enough to really figure out how to game the system.

My intent would be that the referral bonus is only good for the first order a new customer makes. I don't think the new customer would get any special discount just for placing the order, but once the order is completed, I'd offer the discount or incentive to the referring customer.