Referral marketing is one of the most powerful marketing tools to date. In fact, it is 5 times more effective than paid ads. Diversifying your marketing mix by investing in referral marketing will undoubtedly increase your sales. But what are the best practices for setting goals for such programs? In this blog post, we explain why goals are important and provide some examples of the most popularly used metrics.
By monitoring specific metrics and measuring them against your wider marketing and business goals, you can quickly identify how strong your referral program is and how you can optimize it moving forward.
Your goals should be specific, data-driven, time-bound, and measurable — such as, “Increase customer share rate by x% over the next 6 months.” Don’t set goals that are vague and difficult to quantify, such as, “Grow revenue by the end of the year,” — have a clear metric that you can compare your entire referral program against. With specific metrics and goals as your guide, you’ll have more control over the implementation and optimization of your referral program.
1. Share rate
It’s always important to know how many active users are referring your products, services, or brand to other people over a set period of time – especially when presented with an opportunity to do so via a referral widget. Measure this metric over a specific timeframe, such as three months. The share rate varies from industry to industry and it also depends on the placement of the referral widget. The more visible the widget is, the more likely you are to get a higher share rate.
2. Referral visits
Running referral marketing programs will not only help you acquire customers but also raise brand awareness. Referral visits are the number of friends who see shared content on Facebook, Twitter, email message, and visit your website.
3. Customer acquisition cost (CAC)
When you run referral marketing programs, you can choose how much you spend to acquire new customers. Whether you opt for cash incentives, discounts, or vouchers you are in charge. Naturally, if you use SEA in order to increase the reach of your campaigns, your CAC will be impacted. If you are just getting started, use your own touchpoints to begin with. If the results are subpar, you can consider testing SEA.
4. Lift in sales
How much revenue does your referral program generate? Ultimately this is the main reason why companies do referral marketing. Keep monitoring this metric and try to optimize it over time.
5. Customer lifetime value (LTV)
Customer lifetime value refers to how much revenue a customer provides your company over a set amount of time. It’s calculated by: the annual profit contribution multiplied by the number of years someone has been a customer. When running referral programs, you should not only track the immediate value the new customer brings but what value they bring over a certain number of years. Try to understand what the average CLV is for your company and optimize it.
6. Customer retention rate
Your customer retention rate refers to the number of customers that you have retained over a set period of time — from weeks to years. Ensure you are setting the right conditions for your referral program. For example, if the customer can cancel the new contract anytime, they might take advantage of it and churn right after getting the reward from you. Best referral programs have conditions clearly explained so customers know what to expect. If you are trying to sell a subscription, for instance, try to understand what would be a reasonable amount of time that customers should stay with you after purchasing it and receiving the award. Remember, best deals are those where both parties win.
Deciding on goals for your referral marketing programs is important to be able to identify any weaknesses in your programs and figure out what you can do to improve in the future. With your goals in place, you’ll need to establish whether you’ll outsource your referral marketing programs or not. In our next blog, we will describe why finding external support is a cost-effective choice and what to look out for when choosing the right vendor.
Interested to find out how Aklamio can help make your referral program a reality? Reach out to us here.
May 20, 2022
May 17, 2022