Referred customers are cheaper to acquire, more loyal, and have a higher lifetime value. Overall, referred customers are 25% more valuable than...
How to Set Up a Referral Program that Works in 9 Steps
Customer referral program has a more personal touch than other channels and creates strong brand advocates. The average lifetime value of a referred customer is at least 16% higher than that of a non-referred customer.
Customer referral marketing has a more personal touch than other channels and creates strong brand advocates. The statistics prove it — the average lifetime value of a referred customer is at least 16% higher than that of a non-referred customer with similar demographics and time of acquisition.
Using customer recommendations is a great marketing strategy. However, for referral marketing activity, in order to achieve your business results, it needs to be done properly.
Here are 9 steps on how to set up a referral program that ensures its success.
Set Your Marketing Goals
Before creating a referral program, determine what your team needs to accomplish to help your business. Do you want to acquire new customers, increase revenue, generate brand awareness, decrease CPA, or grow email subscribers?
When you’re creating your objective, focus on making measurable goals. Your objective will define your campaign placement, offers, and sharing channels. For example, if you are an online clothing retailer, you may want to use referral marketing to acquire new customers, because on average, they spend 25% more on their first purchase and the repeat purchase rate is high. If growing your database is in your business success metrics, keep in mind that 75% of referred customers choose to be added to a brand’s email database.
Once you have the primary marketing goal in mind, you can move on to creating referral campaigns that will help you reach your objective.
Select Your Target Audience
Marketing works best when you communicate with the right people, the right message, at the right time. By defining your audience, you can customize your referral program’s messages. For example, will your campaign target only be paying customers or advocates who have not made a purchase yet?
When you know who you want to target, the next thing is to determine how and where to reach them. What type of messaging do they respond to and what channels are they most active on?
In terms of purchases, the most effective sharing channels are sending an email to a friend and direct links. Using email is safer and less fraudulent.
Determine Your Incentive Types
A compelling incentive can increase your referral campaign’s success, so think carefully about what offer would convince your target audience to share. Ask yourself a question
– What referral reward will actually motivate your customers to refer their friends?
However, make sure to balance your offer with what is financially sound for your business.
Referral campaigns generally offer both advocates and their friends’ rewards. Campaigns can offer rewards to only advocates or friends. However, here at Talkable, we have found that advocates are less likely to share campaigns that offer friends worse rewards. Thus, offering double-sided rewards works best because they reward advocates and new customers equally.
An example of a double-sided reward campaign
Interesting incentives don’t have to be cash rewards only. For instance, the most popular non-cash reward is offering a percentage discount. In fact, The University of Chicago found that using non-cash incentives are 24% more effective at increasing performance, in comparison to cash rewards.
Here are five different types of rewards you can use:
- Discounts aka Percentage off
- Cashback aka Dollar amount reduced
- Merchandise aka free gifts
- Gift cards
- Loyalty points
Do referral program A/B testing
Picking a reward type can be stressful since there are so many options to choose from. However, you can always A/B test your offers to learn which reward types work best for your target audience.
You can also perform A/B testing of the referral page layout to determine which version is more appealing for advocates to click through.
An A/B test of the sharing page copy can result in a 15-20% increase of the sharing rate
Updating copy can dramatically help to improve the number of customers who click on the offer and decide to sign up. Talkable recommends to include the advocate offer in the CTA such as “Get $10” as we find that this encourages advocates to sign up and share.
Define Campaign Placements
For generating awareness, the best campaign placement, according to our research, is a floating widget. Campaigns with the floating widget placements can generate from 40% to 70% of referral sales. Other campaigns, such as the gleam (fixed bar on your site with a reminder), are great at helping increase transactions.
So, the more campaign placements your business utilizes, the more your customers will know about your campaign.
Talkable offers six different campaign placements:
- Floating Widget: sits on the corner of each of your pages and displays a call to action message
- Post Purchase: a pop-up at the checkout stage of their purchase
- Standalone: allows you to drive traffic to a specific link, rather than appear on your website
- Gleam: a fixed bar on your site that helps convert advocates and friends by reminding them they have a reward to redeem
- Leaderboard: a competition between advocates to accrue the greatest amount of successful referrals.
- Tiered Rewards: offers different rewards for when advocates share with multiple friends, which encourages advocates to increase their share rates.
Promote Your Program
The next step is to make sure customers know about your new program. Promote it to maximize impressions. You can introduce it on your owned channels — via email, social media, or your website. We saw that the higher the number of campaign placements, the better sales results for 85% of customers. Add more CTAs to your site: use a header, navigation bar, banner, footer, product pages, or a hamburger menu.
Don’t forget about other ways to inform your existing clients. Use additional channels like printed ads or other sorts of emails — marketing, lifecycle, or transactional.
People are always going to find ways to make the most of the system and use your program to their advantage. You should have the tools to prevent referral marketing fraud from occurring and block self-referrals. Firstly, find out from your referral marketing software provider what options they have available.
Blocking fraudsters can be based on cookie tracking when someone tries to access your referral multiple times from the same source, location, and browser. It can be based on the same or similar email address match.
Talkable, for instance, provides end-to-end fraud prevention and quality control engine. You can define the rules to catch and prevent fraudulent behavior.
Pair Your Referral Program with Influencers
Influencers love referral and loyalty programs — especially with a great product they can relate to. According to our data, top 10 advocates bring, on average, 10-25% of all referral program sales.
Engage influencers that support your business in a loyalty program by providing points, levels, leaderboards, and stackable coupons. Reward them for referring friends and keep them engaged with your brand.
Make your top referrers feel valued through special offers such as VIP access, early access to product launches, and reaching out with a gift on their birthday. This is the next phase of a loyalty program.
We recommend that you diligently track the key metrics of your referral program. This will help make changes to the program while it runs. Perhaps the location or wording of your campaign placements can be improved, or maybe even the incentive itself. If anything, you can measure campaign performance and compare it with average results.
Such metrics include:
- Advocate impressions — what’s the number of advocates referring a friend over a specific time frame?
- Share rate — how many of your advocates share an offer and what’s the number of shares?
- Click per offer — how many of the recipients clicked on the offer and visited your referral page?
- Visits rate — how many of the referred friends visit your landing page?
- Conversion rate — how many referred friends, who have been on your , actually become your customers (on average — 25% according to our observations)?
Follow these 9 steps while setting up your own referral campaign to maximize its effectiveness for your business. In case you need a hand with something — we are here to help.