Setting a referral program without taking steps to analyze its outcome will be a waste of your money and effort. By consulting industry benchmarks,...
A Game of Choice: Referral Program Software vs In-House Referral Programs
Making a choice can be tough. “Why should I buy your referral solution if I can build it myself?” Well, you aren’t the only one wondering!
“Why should I buy your referral solution if I can build it myself?” Well, you aren’t the only one wondering!
We have enough martech startups offering new solutions, which aim to dramatically boost your business, make your life easier, and make the world fall in love with you. You’re already equipped with many of their tools, from email marketing solutions to SEO optimization. Why would you need more things like that for referral marketing? Doubts are violent, break the confidence — Do I really need to buy yet another martech tool, or would it just be better to build a referral program in-house?
With this, we could start to see what’s what.
Cost of developing an in-house referral solution
Before answering this question, it makes sense to figure out your costs so you can come up with spending plans. The exact cost of starting your own referral program depends on the size of your company, your budget, the size of your customer base, and your traffic loads. There is also an actual investigation about a series of costs that can be more easily forecasted.
Factor #1: Copy.
Your words will express the main message of a campaign. Having quality copy is key to making customers willing to buy something from your store and spread the word about your products. You’ll want to hire someone who’s able to write just the right words in your emails, banners, and ads that will make people want to open their wallets.
Factor #2: Design.
Think of not how long it takes to craft a visual part of a campaign but of how strongly it attracts new and old customers. Images influence our subconsciousness — and, not only that but can show your product in a beautiful way. Since everything exists side by side, you will need to hire a designer or allocate an existing design recourse, who will be responsible for beautifying your campaigns.
Factor #3: A/B testing.
Even small changes like button size and color can dramatically improve your referral campaign’s performance. You may come up with an idea that you think is a winner but in fact, turns out to be a failure. This is why we have A/B testing: to better understand our audience, their needs, their tastes, and — even more importantly — what they don’t like. This kind of testing requires accuracy and skill, which needs to be maintained and guaranteed by a specialist or software provider which supports an A/B testing feature.
Factor #4: Discounts costs
Your discounts cannot just be random; the amount of money your can spend on discounts depends on your company’s budget. We note, however, that the ‘20 for 20’ principle usually works great for setting referral rewards. With this, a customer who shares a 20% discount gets $20 for their next purchase.
Factor #5: Developers.
Customizing a referral program to match with your website, email, and/or pop-up sizing requires precise coding. Otherwise, your page will look distorted and might not work right. Moreover, the stages need to be streamlined with each other in a logical way so that your customers don’t get confused. This task falls on the shoulders of your developers who are responsible for setting up and monitoring the program.
These things add up to significant spending, as well as time and worry. However, there are referral programs, which are already able to meet eCommerce requirements, so let’s look at how much it will cost for you to buy one of these solutions.
Things to consider before developing an in-house solution
We at Talkable have had dozens of developers working on referral marketing for seven years. It’s all we do.
The creators of our referral marketing software, for instance, have worked through all the challenges of building great referral programs and banked up years of experience. You could theoretically do this all on your own, but would it be worth the time and money involved?
Suppose you decide to build a referral program in-house. This means that you will have to go out and hire the right people to run your program. It turns out that even skilled programmers and marketing people don’t have much expertise in referral marketing specifically. Moreover, figuring out which combination of offers, share channels, copy, and other program inputs will work best is going to be a matter of guesswork for you. If you build something into your site from scratch, you may see some results, but you won’t know what the optimal inputs are until you test and adjust your program.
The cost of a referral platform
The prices are the prices, and they are low as well as they are high. They cover a wide range, from $50 to $10000/month, depending on the level of service, customization, integration complexity, etc. Shane Barker, a digital marketer, has done analytical research comparing 11 referral programs on everything from their features to their prices. You can check out his findings here.
If you need a rough estimate, a simple referral program for a midsize online store will cost between $1000 and $2000.
Pricey as this may seem, you can expect a higher ROI with referral campaigns than other marketing channels: Talkable clients see an average 10X ROI.
Benefits of using a referral program provider
Naturally, referral programs have their benefits and drawbacks. What is good for one kind of business could be bad for another one. Let’s look into the perks you can expect from implementing referral marketing software in your marketing strategy.
When targeting goes intuitive
When your referral program works on-site, you are able to calibrate your campaign to align with your store’s website and create a seamless customer experience. You also have the option to create campaigns, which target customers at different stages of their journey on-site, from the moment they visit your homepage to the moment of first purchase.
The key advantage, or, let’s say, “the secret weapon”, here is the ability to personalize your referral program so accurately that it can optimize itself based on your customers’ on-site behaviors and data, including geo-location, purchase history, the device used, traffic source, and most frequent category pages.
The power of data
Things like reporting and analytics are welcome rays of sunlight for eCommerce businesses, which need to know the details about customer behavior not only in words but numbers. Luckily, referral programs are powered by these features and provide data, which allows you to enhance your campaign by making minor or major adjustments. Having a clear picture of how your conversion funnel looks helps you figure out how well your campaign is going and helps you to set future goals.
Detected: cheating aims
It’s important to remember that the urge to save is contagious! The enthusiasm of customers to get a product for a lower price, and by an atour, a gift or a discount for a friend shall never cease.
The period between Q2 2018 and Q2 2019 showed a 12% fraud increase. Generally, around 40%-45% of referrals turn out to be customers trying to refer themselves.
Reviewing each user individually would take forever. That has to be tracked by a referral tracking system. It’s better to do this sooner rather than later! Talkable’s fraud algorithm has already blocked more than 5 million fraudulent referral attempts. This has saved customers over $110 million.
The convenience of technical support
If to take a gamble on the cost to license software and the cost to build, deploy, and support referral tools in-house, the second option far outweighs.
The moment you buy referral marketing software, you get a team of campaign and implementation managers, who you can contact with questions. Whether your issue regards fixing bugs, running your program, or just getting advice, your referral platform’s team is always ready to help you.
The platform’s tech team also makes sure that your referral program integrates seamlessly with an existing tech stack.
Improvements, improvements, and more improvements
Referral software, just like its techy “brothers and sisters”, other software, gets updated throughout the life cycle of the company, that has created it.
When you license the program, part of the cost goes towards studying, examining, testing, continual improvements. You never know what type of offer, share channels, or copy will turn out to be a game-changer. For this particular reason, the team behind your referral provider will do A/B testing to optimize your conversions.
Drawbacks? — Yes, they are
#1 Less control over the code
Despite your efforts to thwart fraud attempts, some tricksters can slip through the cracks. This isn’t necessarily a question of good or bad technology, but rather a question of your program’s code which you have to integrate into your product. Frankly speaking, this issue is the same with all other martech tools, so you just have to make sure that your provider’s security level works for you.
Your provider will have access to customer data in addition to you. You will share some sensitive customer’s data like purchases, AOV, revenue, client activity, and other statistics. It’s hard to say whether this is a disadvantage or not — it just depends on your attitude regarding privacy.
#3 Program restrictions
Even with a super-customizable referral program, you may encounter another stumbling block: some of your campaign design ideas may not work within the settings of your program as a result of some restrictions regarding integrations, design, and campaign logic. Some companies can work around the issues to implement your designs for an extra fee. What you need to do is to find a provider who can tailor the program exactly to your needs.
Remember the part where you’re supposed to tick the “I agree” box at the end? You still should sign up the virtual contract, pay a certain sum and honor partnership obligation (like with other third-party tools).
With all that said
In theory, it seems possible to create and deploy a referral program in-house, but in practice, it’s a serious marketing challenge that requires patience, expertise, and a budget.
Are you familiar with the snowball effect? It’s the same thing, only worse. There’s also a risk that recurring problems will end up requiring too much money and time to sufficiently fix.
Referral program providers have already dealt with a great number of those problems and are able to prevent a whole lot of bugs. Thus, despite the few minor drawbacks in using a third-party referral solution, there’s a whole lot more to be gained from it — namely increased revenues and larger numbers of more valuable customers.