Customer referral programs are a solid part of any online eCommerce business. Why? Because using your business to develop advocates for your company is a fundamental aspect of customer success. An army of happy customers can do a lot of the heavy lifting for you!
Customers trust word-of-mouth up to ten times more than paid media, and 74% of buyers believe recommendations from people they know are important factors in their purchasing decisions. Not sure how to set the stage for these customer connections? Begin by implementing a client referral program. Here’s what you need to know about creating, extending, and administering a successful customer referral program.
Customer referrals are extremely useful because they are inexpensive to obtain, if at all. The exact worth of a referral varies per business, but it is roughly equal to the lifetime value (LTV) of a client plus the cost of customer acquisition (CAC), which you can then use to recruit other customers.
If you’re ready to start using word-of-mouth at your company, continue reading for advice on how to set up a client referral program.
What is a referral program?
A customer referral program, often referred-a-friend, is a formal system that encourages current customers to recommend a product or service to their peers. In most cases, this requires some referral incentive that motivates your audience to seek out potential new customers actively.
The job of an effective referral program is to turn satisfied customers into brand ambassadors. Instead of investing in ads that directly target potential buyers, your team can use this program to let your best customers speak for you, which can be much more effective than spreading the word themselves.
People trust peers more than any other group or advertisement. Up to 92% of shoppers trust recommendations from friends and family members. When real people start recommending your brand, you can instantly gain the trust of new users – even those you may not have approached – and see your conversion rates skyrocket.
Word-of-mouth is the ideal medium for your brand message, and referral programs are one of the most effective ways to achieve this.
Why do I need a referral program?
Finding a reliable channel for customer acquisition or attracting new customers is one of the most stressful aspects of any business. However, if you have a good referral marketing program, you enable your current customers to attract new customers to your brand. Not only does this lower your cost of acquiring new customers, but it also encourages customer loyalty, which is a positive thing.
But why?
Because loyal customers have a better conversion rate than new customers and spend more on each transaction, customer referral programs are the most cost-effective and profitable marketing approach your business can use.
Benefits of customer referral programs
Companies employ referral programs because they effectively attract new customers, build trust, and increase sales.
They promote trust.
According to one survey, 79% of consumers trust Internet reviews as much as recommendations from friends and family. However, it’s estimated that by 2021, only 49 percent of shoppers will feel that way. Within a year, reviews have lost much of their importance (due to fraudulent reviews), making personal recommendations more important than ever.
People may not trust just any consumer, but they almost certainly trust their friends, relatives, and work colleagues. According to a survey by Sprout Social, in the United States, social media posts from people they know influence at least some of their purchasing decisions.
They bring new customers at a reasonable price.
Referral marketing allows companies to reach new users simply by word-of-mouth from satisfied customers. The only costs are the initial paid advertising efforts you undertake to launch your program and the prices you charge your subscribers. Referral programs, therefore, have a lower customer acquisition cost (CAC) than most other digital marketing methods.
They are money machines.
According to Semrush, word of mouth brings in five times more money than paid advertising. According to another research by SaaSquatch, more than half of referral programs use credit as a reward, and 90 percent of these programs link a purchase to a “successful conversion. “Essentially, companies use referral programs to get existing and potential customers to buy, which translates into higher profits.
What are the different types of referral programs?
B2C and B2B brands can run referral programs to encourage customers to refer the brand to their circles of influence. Although many of the dynamics of B2C and B2B referral programs are generally the same, there can be significant differences. Such as the timeframe between the referral and the actual purchase, the fact that many more stakeholders may be involved in a B2B referral, and the benefits of a B2B referral being significantly higher.
Although a big part of B2C and B2B referral programs are similar, there can be significant differences, such as the timeframe between the referral and the action, the fact that a B2B referral may involve many more stakeholders, and the benefits of a B2B referral being significantly higher.
While referral programs are frequently targeted at customers or clients, they can also be limited to specific audiences such as a subset of customers or clients (e.g., loyalty program members), employees (as a perk for the employee’s friends and family), or business partners, affiliates, and influencers.
Although a sale or subscription is frequently prompted, this is not necessarily the case, as a referral program can trigger any activity that is valuable to the business and can be tracked, such as joining a loyalty program, downloading an app, signing up for a newsletter, and so on.
Furthermore, we can distinguish between a typical referral program that provides a reward to the referrer as well as an incentive to the referred friend (a dual or two-sided referral program), programs that provide a reward to the referrer only, or only an incentive to the referred friend (a single-sided referral program), and programs that provide neither a reward nor an incentive to either side.
How do I create a referral program?
The greatest strategy to attract new customers is focusing on your potentially pleased customers. Rather than simply offering cash rewards or free goods in the hope that your clients will refer a friend to your store, it requires some forethought to build a successful referral program.
1 – Choose The right Customer Referral Software for your business
Once you’ve finished designing your program, choose software that manages it and helps you maintain the customer relationships you’ve built as a result.
Look for referral program software that can:
- Keep track of your referral links—both the senders and the receivers.
- Marketing efforts that use A/B testing
- Examine important success indicators
- Conversions (where referrals from your users result in revenues)
Referral marketing software is another must-have tool. This will help you:
- Follow up with your prospects
- Maintaining customer relationships
- Personalize customer communications
- Keep track of consumer preferences.
With the information provided by referral marketing software, you can tailor your program to match the specific requirements of your customers and your business.
2 – Set Up a Customer Referral Tracking System
Regardless of the size of your business (though this is especially important if you have a huge consumer base), you must implement tracking. Once you have chosen the best software to power your referral program, it’s time to set up the tracking properly. This will ensure that no details are overlooked, especially for referred accounts. You should keep tabs on the following:
- Who was referred, and who made the referral?
- When did the referral occurs, location, time, and OS?
- Collect lead data irrespective of whether they were converted or not.
- How do you intend to cultivate and follow up with your leads, etc.?
If you have not yet invested in referral marketing software such as Scaleo, now is an excellent moment to do so! Keeping track of client relationships is an essential aspect of customer success; the ability to personalize each account or relationship lets each customer feel like a distinct member of your customer base.
3 – Set Goals and KPIs
Ask yourself, “What do I want our company to benefit from this program?” as your first inquiry. Examples of common business objectives include:
- Achieving a specified quantity of leads (impressions)
- Gaining a certain amount of new social media followers or email subscribers.
- Increasing income or conversion rate by a specific proportion
Before announcing your referral program, you should define your goals and KPIs to determine whether you are meeting your objectives.
4 – Keep It Real Simple
Provide a secure and easy way for participants to share using their preferred tools, including sharing naturally directly from cell phones and using links, catchy words, or codes that can be shared on other channels.
Make sure your design and user experience are as simple and user-friendly as possible, and continually work to remove any unnecessary friction points that could discourage referrals or activity from referred friends.
5 – Research how referrals are coming to your business.
Assessing where and how recommendations are arriving at your firm, or whether they are coming at all, is an excellent place to start.
Here, you should incorporate marketing, sales management, and support — everyone responsible for creating client relationships — and analyze how they have historically dealt with referrals. This will give you an indication of your current position.
You should also know the value of an existing customer. How many recommendations are required to compensate for the time spent on monitoring and managing onboarding programs? On average, the lifetime value of referred customers is 16% more than that of non-referred customers; therefore, you should perform the arithmetic to determine how much referrals could earn and modify your marketing budget accordingly.
6 – List your possible referral sources.
These individuals will be referred to as advocates, and they might be anyone to whom you are currently or have previously been related.
Start listing them off.
This list may comprise existing customers, former customers, leads that have not yet been converted, industry leaders, your suppliers, etc. This will provide a stable foundation upon which to build.
7 – Focus on value over cash
Before discussing B2B, eCommerce, and SaaS-specific incentives, here is a general rule of thumb for incentives: Whenever feasible, prioritize value over money.
Most people do not care about making a tiny amount of money. They did not begin using your app or purchasing your stuff in order to earn a few dollars.
This is why many of the greatest referral programs distribute value that corresponds with their product’s unique selling proposition. Instead of giving out cash, they provide increased product access.
Numerous e-commerce enterprises offer points redeemable for special discounts and promotions. For example, referring a friend to the online consignment business thredUP earns you store credit.
Below, we will describe a few scenarios in which cash discounts are appropriate. This may be the case if your goods cannot be distributed in units or if offering credits or points is not possible for your brand. Particularly for retailers, cash could match a brand’s core value propositions.
But if you choose cash, make sure your offer is substantial. To motivate individuals, it must be.
8 – Promote Your Customer Referral Program
Once you launch your referral program, promote it in all possible communication channels.
- Social media: Post your referral program on social media channels (Facebook, Twitter, Instagram, LinkedIn, TikTok, etc.) and add a link to your bio so that your followers may easily access the landing page for the program.
- Website: Highlight your referral program on the homepage and other “actionable” pages (e.g., account login and checkout pages). As indicated previously, create a dedicated landing page that contains all important program information. Create a blog article about it and distribute the link around your network.
- Email: Create an email campaign that outlines your referral program and its benefits concisely. Send the campaign to customers who make a predetermined number of purchases or spend a predetermined amount during a predetermined time period.
- Customer call service: Update the IVR system at your contact center to include information about your customer referral program. Add program information to call center scripts, and meet with your agents to determine when it should and should not be shared. For instance, if a customer is irritated and phoning to report a problem, support employees definitely shouldn’t mention the referral program. Additionally, program information can be incorporated into support tickets, invoices, and receipts.
9 – What constitutes a “Good Fit” customer for your business?
Before encouraging customers to seek referrals, you must define your ideal customer. Thus, your existing customers will refer prospects that purchase from your company instead of simply entering names to receive the reward.
These descriptions must be prominently displayed in your customer referral program. If you have a form that customers fill out, for instance, you should define a “good fit” customer at the start of the form. This will remind attendees that you are seeking specific individuals who need your product instead of a buddy who may be interested in your business.
Conclusion
Whether you have an e-commerce business, a physical store presence, or both, a solid customer referral program can help you attract new customers and increase your return on investment. Referral programs can help you convert existing customers into your most loyal followers, increasing both customer retention and customer acquisition rates.
If customers are already recommending your product or service, there’s no reason not to give them a bigger platform. Once your referral program is in place, you can maximize the power of your customer base by focusing on online reviews, a highly effective word-of-mouth technique for the digital marketing age.
Looking for a customer referral program? Try Scaleo for 14 days and see what it can do to help your business grow!
Last Updated on January 19, 2024
