3 Reasons Referral Programs Acquire New Customers

 

Generating more revenue for your business generally falls into two strategies: get your existing customers to spend more, or find new customers. Luckily, referral marketing can do both!

Referral Marketing is Customer Generation

Referral marketing programs are often confused with lead generation strategies. But it’s actually more of playing with concepts. Referral programs generate customers, instead of only leads. While lead generation brings you interesting contacts, those take time to cultivate as customers. Instead of your business acting as a consumer educator, referral marketing uses your pre-existing customers to promote your brand. That ultimately results in their friends becoming your new customers.

Utilizing your customers as brand educators is extremely important because you’ve already built a trusting relationship with them. Nielsen found that referral marketing is the most trusted advertising source, and 84% of people said that they trust personal recommendations.

In examining 52 weeks of customer referral data, NYU Stern Professors Mazime Cohen and Anindya Ghose found that the experience of the customer is closely linked to the quality of referrals. The better the experience of customers sharing the offer, the higher quality of referrals coming.

The probability of a customer making a referral in a given week decreases with the experience level, increases with the current usage intensity, and decreases with the length of the inactivity period.

The Ultimate Guide to Referral Marketing

A step-by-step guide on how to make your customers come back for more and bring their friends, plus other secrets of sustainable growth.

Referral Marketing Guide

Why Referrals Get the Best Subscribers

  • Referred Customers are Less Likely to Turnover

To grow your subscription company, you must retain your customers. By reducing subscriber/customer turnover rate, you’ll boost revenue. Customers produced by referral marketing are more loyal and less likely to churn.

Mayvenn campaign

A study by the Wharton School found that rewarded referrals had a much lower turnover than referrals which were not rewarded. Furthermore, the referral customer churn rate was 18% lower in comparison to other types of customers. Referred customer retention was not only higher but also more resilient. In fact, after 33 months, referred customers had an 82% probability of still being active customers.

Another study found that referred customers are more loyal to the brand much more quickly. The State of Referral Marketing said 78% of surveyed respondents said that referred customers are more loyal than any other customers acquired from different marketing channels.

  • Referred Customers have a Lower Customer Acquisition Cost (CAC)

Referral marketing creates high-quality customers at a lower cost. CAC is defined as how much money it takes to obtain a new customer. Unlike digital channels that charge you based on the number of impressions, clicks, or conversions, referral marketing costs are fixed.

Vitality Extracts Facebook ad

Paid advertising helps your brand gain awareness while the simplest referral program minimizes CAC cost, which is an ongoing mission for any big or small business, and maximizes ROI, which allows businesses to move ahead faster. That can be explained by a simple mechanism: happy customers bring new customers. The cost of these new customers is usually low. 

Referral marketing program spending is generally tied to your customer referral technology, reward costs, and your employee headcount dedicated to the referral channel. With Talkable, however, you have the option to work with our Customer Success Team who can create, test, optimize, and manage your referral campaigns.

Thus, the better the performance of your referral program, the lower your CAC will be. Suppose, for example, that you buy a referral platform that costs $2,500 per month. If your campaign generates 100 customers in the first month, your cost per customer is $25. The next month, however, you optimize your campaign and gain 500 referred customers. As a result, your cost per customer decreases to $5.

  • Referred Customers Have a Higher Customer Lifetime Value (CLV)

Referral consumers have a 16% higher lifetime value. Referred customers are highly valuable to subscription services due to their low cost, high engagement, and many repeat purchases. Referral marketing works because your current customers are vetting your future customers. When your customers share your brand, they’re thinking about who they know that will like your product or service. As a result, your company generates better-quality leads.

SwimOutlet campaign on site

Ultimately, referral marketing greatly helps your subscription business. Referred customers are cheaper to acquire, more loyal, have a higher lifetime value, and, with only 30% or companies utilizing it, provide a strategic advantage in growth marketing. 

If you’re interested in starting your own subscription referral program, tell us here.