How to give incentive to users to spread the word out?

We offer a flat discount per referal from our existing clients. 1 referral = 10%, 2 = 20%... so on. There is no need to refer all at once. Whenever a client refers a new client to us, 10% gets added to his discount eligibility on their next purchase.

Since the service we offer is very critical to our clients' growth and they often need to use it every couple of months - a discount like this works well for them.

Other ways of getting referrals is doing case studies on existing clients, giving them exclusive coverage through your own network/fb/twitter, etc and then asking them to spread the word for their own benefit. Their network will automatically use it as reference and come to you when they're looking for a service like yours.

Really depends on how much you are talking about. If it's just tiny amounts/value sometimes it will be hard for it to be an incentive. If it's bigger value then I would think cash/gift certificates work well. If the GC is form a big retailer or somewhere in your industry.

Legally I would stay away from cash. An important thing to identify and think about first as well is who are you marketing too?

In the B2C space for instance iPhones, iPads or GiftCards from Amazon.com seem to garner a fair bit of traction.

In the B2B space for instance you'd be better off selecting something like a BlackBerry torch and a GiftCard to Staples because you really want to steer clear of the Consumer space as much as possible.

Coupons to your service or product or a greater discount to your product or service on referral can also be a compelling offer.

For instance if you used something like the WildFireApp.com you could offer an additional 10% of a customers next transaction with you if they refer 5 friends. (so on and so on)

I'd suggest to first just make it supper easy to spread the word. This site does an awesome job of hooking into the twitter, facebook and a few of the other notification sites that people have accounts with. The ease of use is more then half the reason to "like" it.

So go with an easy way for people who like the service/product to give you recognition.