In this piece, I share how to create a referral marketing strategy that boosts your sales and grows your customer base in just 7 easy steps, including information on software that automates the process.
Are you considering launching a refer-a-friend program for your business but don’t know where or how to start? If you find yourself in such a dilemma, then the best recommendation will be to use a referral marketing strategy as your starting point! It will help you get started fast, and it will also help you optimize your referral program as it takes off. In this article, I’ll reveal how to put together a referral marketing strategy that’ll impress your team in 7 easy steps.
Think back to the last time you heard about a cool product or service and immediately believed what you heard. Was it an ad? It could have been, but most people rarely believe ads that much these days. In terms of credibility, they don’t even come close to recommendations from friends, family, or colleagues. It’s simple: you trust the people you know and their experiences, isn’t that right?
Well, guess what? That’s the biggest secret of a referral marketing strategy! It is purely based on personal connections and trust. Think of a cold sales call and a recommendation from a friend. Those two produce polar emotions. Even though you learn about the product or service for the first time in both cases, a sales call is pretty much annoying, but a friend’s recommendation is very often more helpful and reliable because you tend to believe they have had some experience with the product. Correct, right?
That’s exactly why referral marketing always seems much more native than most other marketing strategies. Besides, referral programs are highly flexible and adaptable to almost any business.
When your clients are satisfied with your product or service, they virtually become your brand ambassadors and will sing your praises and share their experiences with friends and family, which eventually builds trust! However, hoping that this will happen organically is probably the wrong tactic.
No matter how good your product is, without a strategic referral marketing plan, customers will mention you to their friends occasionally at best. Therefore, this is not a great strategy if you want to acquire a steady stream of customers for your business. That said, let’s take a glance at the 7 easy steps that will help you put together a referral marketing strategy that’ll impress your team and bring in sales.
How Much Will It Cost to Acquire Customers?
The first step is to know the baseline cost of acquiring customers. Once established, this will help you set the right goals for your referral program and decide on the budget you can allocate to reward people for bringing in new customers.
But what exactly are customer acquisition costs? Simply put, it’s the amount of money you spend to acquire a new customer. Once you know this, you will be able to make decisions that will ensure the success of the program.
So, before you start your referral campaign or pitch the idea to your team or management, take the time to calculate how much it will cost to bring in a customer. It’s one of the essentials that you need to determine to make your referral program a success.
Create A Funnel
The second step is to determine who you want to spread the word about your awesome products or services. These groups of people will be the funnel through which you sell your products. The good thing is that, in this game, you’re spoiled for choice because of new technology. The list can be endless, but let’s take a common few.
1. Your loyal customers who love what you offer.
2. Your potential customers who are still on the fence.
3. Your hard-working employees who believe in your mission.
4. Your strategic partners who share your vision.
5. Your influential fans who have a large following on major social media platforms.
6. Your affiliate marketers earn a commission for each sale they make.
Plus, the good news is that you don’t have to pick just one. You can create different referral programs for each of these groups and tailor them to meet their needs and preferences. Sounds complicated? Well, honestly, I don’t think so. Because with the right software, you can manage any referral program without any difficulty.
What is a successful referral?
You know that feeling when you’re waiting for a lead to convert and you’re not sure if they’ll ever do it? You keep checking your email, your phone, etc., hoping for a sign that they’re ready to buy. Yup, that’s right!
Unlike other methods that require you to pay upfront or gamble on the outcome, referral marketing only rewards your referrers (the people who recommend your product or service to their friends or family) when the invitees (those to whom the products or services were recommended) take action.
That means you only pay for results, and you get customers who are genuinely interested in your offer. Sounds good, right?
So, first and foremost, for a referral marketing strategy to be successful, you need to determine what a successful referral is to your business. This is also called conversion, and it depends on your industry and goals.
For example, a conversion could be:
1. Spending a certain amount of money on your products or services
2. Placing a certain number of orders
3. Inviting a certain number of friends
4. Signing up for a demo account
5. Subscribing to your service
6. Staying with you for a certain period of time
You don’t have to stick to only one criterium. You can also use different combinations to make your conversions more specific and profitable. But remember, the most important thing to do is to find the right balance between your needs and your customers’ expectations. You don’t want to make your conversions too easy or too hard, because that could hurt your referral program’s performance.
Time to Crunch the Numbers
Thirdly, you have a great product or service, and you want to spread the word. You also know that word-of-mouth is the best form of marketing, and you want to reward your loyal customers for referring their friends and family, right? But you may ask yourself, How do I design a referral campaign that works for my business?
Ok, here’s the thing! Before you launch your campaign, you need to do a little math. Don’t be scared; it’s not going to be the most difficult type of math. It is meant to help you set realistic goals and measure your success. So, here are the key metrics you need to consider:
1. Customer base: How many customers do you currently have? This is your potential pool of referrers. The more customers you have, the more referrals you can probably generate.
2. Participation rate: What percentage of your customers do you anticipate might join your referral program? This depends on how attractive your incentives are, how easy it is to refer, and how satisfied your customers are with your product or service so it may require a questionnaire-based research or any type of research that you find feasible, but, a good participation rate is around 10% to 15%. However, it can vary depending on your industry and audience.
3. Referral rate: What are the possible leads that each person referring can bring in? This depends on how many contacts your customers have, how relevant your product or service is to them, and how persuasive your customers are. A good referral rate is around 2 to 3 leads per referrer, but again, it can vary depending on your situation.
4. Return on Investment (ROI): What return on investment do you expect from your referral campaign? This depends on how much you spend on your incentives, how much you earn from each new customer, and how long they stay with you. A good ROI is anything above 1, meaning that you earn more than you spend.
To make your life easier, you can use a service like referral factory, which has a free referral calculator that you can use to check how many referrals your campaign can generate, based on your metrics. You can also play around with different scenarios and see how they affect your results. Once you have a clear idea of your expected ROI, you can adjust your strategy accordingly.
What will your referral rewards be?
Next up, you need to determine what your referral rewards to those who will bring in customers via the program will be. Simply put, you offer your existing customers something valuable in exchange for bringing new people to your business. This is how you boost both your sales and your engagement.
But what kind of rewards should you offer? And how should you structure your referral program? Here are some tips and examples to help you out.
Types of Referral Rewards
Some of the most popular ones are:
1. Cash rewards: This is a simple and effective option that works for any size of referral campaign. Cash rewards are easy to automate and track, and they appeal to most people. Plus, who doesn’t like some extra money in their pocket?
2. Gift cards: Gift cards are another creative and practical choice for referral rewards. They have immense benefits for your business as well. For example, you can often get them at a discounted price, which means you can offer more value to your customers while saving on costs. Plus, you can choose from a wide range of retailers and merchants, so you can match the preferences and interests of your target audience.
3. Free products: This is a surefire way to delight your customers and make them loyal fans of your brand. By giving them something unique and valuable for free, you create a memorable and positive experience that will linger on for a long time and that they will want to share with others. Free products are especially effective for brands that sell physical goods or services that can be sampled or tried out.
4. Discounts: Discounts are one of the most common and easy incentives that can be rewarded to referrals. People love getting a good deal, and they are more likely to refer their friends if they know they will get a special offer. Discounts can also help you increase your sales and retention, as they encourage your customers to buy more and come back more often.
5. Charity donations: This is a noble and inspiring way to showcase your social responsibility and values. With this type of reward, you offer your customers the opportunity to donate their referral bonus to a cause of their choice. This can work well for brands that operate in the non-profit, environmental, or social sectors, or that want to align themselves with a specific mission or vision. Charity donations can also attract more customers who share your values and want to make a difference in the world. And as a bonus, you can deduct the donations from your taxes.
How to Structure Rewards
Besides the type of reward, you also need to consider how to distribute it among your customers. Here are some of the most common structures for referral rewards:
1. Double-sided vs. single-sided campaigns: A double-sided campaign is when you reward both the referrer and the referee for a successful referral. A single-sided campaign is when you only reward one of them. Generally, a double-sided campaign is what I will personally recommend because it creates a win-win situation for both parties and increases the motivation to refer and accept referrals.
2. Tiered rewards: There’s a misconception out there that tiered rewards are pyramid-ish. But this isn’t true at all. A tiered reward system is when you offer different levels of rewards based on the number of referrals a customer makes. The more referrals they make, the higher the reward they get. For example, you can offer $5 for one referral, $20 for three referrals, and $35 for five referrals. This can help you encourage more referrals and reward your most loyal and active customers. You just get paid more for working harder; that’s it!
3. Commission-based rewards: A commission-based type of reward is when you give your customers a percentage of the revenue generated by their referrals. For instance, you can give them 10% of the amount that their referees spend. This can help you merge your interests with those of your customers and create a good, long-term relationship with them.
How to Track Your Referral Program
You want your referral program to be a success, right? Of course you do! But how do you know if it’s working or not? How do you keep track of who referred who and who deserves a reward? Well, there are different ways to do this, and some are better than others. Let’s take a look at what you can use:
1. Referral links
These are the most common in referral marketing. They are simple to create and track, and they let you add a personal touch to your messages. The best part is that you don’t have to lift a finger if you use good referral link generating software and a tracker.
2. Referral marketing software
This is like having a personal assistant for your referral program. It automatically tracks clicks, conversions, and rewards. This is the best way to see what’s working and what’s not. Plus, you can often get some extra benefits. For instance, I personally recommend Referral Factory which also lets you create customized landing pages. This means you can adjust your referral program without depending on a busy development team. That’s what I call a smart solution made by marketers for marketers.
3. Referral cards
These are the old-school ways of spreading the word about your referral program. They are physical cards that you give to your customers to share with their friends, family, or coworkers. However, this method is only effective for small business referral programs. Because once you have more than 50 customers, it will be too hard to track your campaign, and it may not even be cost-effective in this day and age.
4. Referral codes
These are another option for referral marketing. The idea is that your customers share their unique codes with their friends, and they get a reward when they use them. But this method is not suitable for all kinds of businesses. Why? Because referral codes need a digital checkout, they only work well for eCommerce. And they also require a lot of effort from your customers to get their friends to buy; there is no personalized offer and no guidance.
How Do You Get People to Enroll in Your Referral Program?
Now that you’ve done all the hard work of creating your referral program, what’s next? Well, it’s time to spread the word and get people on board! But how do you motivate them to share your program with their friends and contacts? The secret is promotion. This is a very important part of your referral marketing strategy! So, what are some of the available options to get people to join in? You have two main options:
Option 1: Opt-in & Sign-up
This is probably the safest option, where your potential referrers voluntarily join your program by filling out a form and agreeing to your terms and conditions. This way, there’s no confusion. You have their permission to send them program updates and monitor their referrals.
Option 2: Auto-Generated Links
This option speeds up the process a bit by creating referral links for your existing users. It’s simpler and doesn’t require any extra work from your customers, which increases participation. Just be careful about how you share these links with them; otherwise, you may come off as a spammer. However, you can avoid all this tedious work and have software do it for you. And, here, I am referring to software like Referral Factory where all the processes will be automated and everything will be on auto-pilot so that you can sit back and relax while customers trickle in for your business. I recommend you check it out.
So, there you have it. These are the 7 steps I would take if I wanted to grow my business cost-effectively. Loyal customers are the real’meat of the soup’ and if you want to acquire them, you need an effective and proven referral system that works. Thanks for reading!
Note: I may earn a commission from a couple of links in this article at no extra cost to you. I only recommend products i’ve tested, trusted, and believe in. Thank you for your support!
