Your First Referral Marketing Campaign: Everything You Need to Know

Those new to the field of marketing might not be familiar with the process, but referral marketing is an excellent tactic for growing business. Let’s take a look at what referral marketing is, why it’s effective, and how to get your first referral marketing campaign off the ground.

Congratulations! It’s time to start on the journey towards your first referral marketing campaign. This is an exciting time for any business because growth and development are just around the corner. 

How does referral marketing work?

Referral marketing is an incredibly effective way to bring in new business to your company. It is so effective because, after the initial setup, the vast majority of the marketing efforts are conducted by your own customers and those taking part in the referral program. Participants in a referral program, often called referrers, recommend your business by making referrals in exchange for some sort of incentive.

Most referral programs include incentives to encourage participants to make as many referrals as possible. The most effective style includes a two-sided incentive, where the referrer and the referral each get a reward.

For example, for every person that the referrer signs up, they get a month of free subscription. In turn, when someone signs up through a referral they receive their first month free.

These campaigns work well because everyone involved in the program receives some form of benefit. The active participants receive their rewards, and the company receives new business.

The key to an efficient and effective campaign is in the setup phase. It is not unusual for there to be some high initial costs, which can scare people off, but once it is up and running the majority of programs go on to be excellent revenue-generating options for businesses.

Benefits of Launching a Referral Program

The obvious benefit to launching a referral program is that your business will begin to bring in new customers. That increase in revenue keeps everyone happy, especially those in finance, but there are myriad more benefits beyond straight-up revenue.

Build Brand Awareness

The more people talking about your business, the greater the number of people that are going to become aware of your brand.

The maths adds up. When your business is running a referral marketing program that has many active participants, there are more people engaging in conversations about your business. Meaning, awareness grows.

The great thing about this method of building brand awareness is that it isn’t necessarily a flash in the pan, viral-style system of marketing. The number of people actively spreading brand awareness is ever-growing. In fact, when people become customers through a referral program, they are more likely to participate in the process themselves following their initial sign-up or purchase. They have already seen the benefits first hand.

Lower Customer Acquisition Cost (CAC)

Customer acquisition cost, or CAC, is exactly as it sounds. It’s the price of a new customer. It is the measure of how much it will cost for your business to turn that prospect into a customer. The lower your CAC, the better, as it means that your business is spending less to get the customer through the door.

Referral marketing is, after the initial setup, incredibly low cost in terms of acquisition. Typically you are only missing out on a relatively small amount of revenue — like 1-2 months of a subscription — per referral. When you take into consideration the lifetime value of that customer, the acquisition cost pales into comparison.

Increase your conversion rates

The words that every sales department wants to hear — “there’s been an increase in conversion rates.” Increasing conversion rates means that a higher proportion of your prospects are turning into active customers. The higher the better. 

When customers are referred to your business through their close acquaintances, they are far more likely to become converted customers. This is because some of the trust between the business and the consumer has been inherited from their friend’s previous transaction. Plus, being able to see how the process worked for them goes a long way towards a conversion.

Lower your churn rate

Many SaaS and subscription companies track their churn rate. This metric is based on the number or percentage of users who stop subscribing in any given period. A high churn rate means customers aren’t being retained and could indicate that customers aren’t entirely happy with the service or product that they are receiving. 

When Deloitte conducted a study into the retention rate of customers, they found that customers who subscribe to a business following a referral have a 37% higher retention rate than those who join on their own.

Increase Customer Lifetime Value (LTV)

Linked to the previous point, a customer who joins through a referral program often brings with them a higher customer lifetime value. Furthermore, because customers are actively participating in the referral process, they are more likely to repeat purchases themselves. Longer subscriptions or repeat purchases mean that the overall average lifetime value of the customer base increases. 

The lifetime value metric is at its most useful when investigated alongside CAC. The goal for any business should be to have a low CAC with high LTV. When the opposite is true, issues arise.

It makes perfect sense but there are a large number of businesses spending thousands of dollars acquiring customers (through paid advertising methods) who then go on to only subscribe or purchase once. Having a robust and rewarding referral program counters these issues perfectly.

How to Set Up Your First Referral Campaign

The benefits are clear, the metrics are ready to be calculated and measured. It is now time to launch the first referral campaign. But first, there is some setup that needs to be done in order to ensure that the campaign runs smoothly and, importantly, delivers a positive customer experience.

Set Goals

The first step is to set up targets for your campaign. What do you actually want to achieve from the referral marketing campaign? The obvious would be more customers, more sales, more subscriptions. But it is worth looking deeper into what could be achieved and considering the larger goals on a more granular scale. 

You might want to drive more sign-ups within a certain customer segment. You might aim to sell a specific product to those who are referred. There are many different goals that could be set.

The key is to set them from the start, reflect on them and evaluate them as the campaign goes on. There is no harm in adding or editing your goals as you move forward, as long as you don’t move the goalposts so that you can achieve them more easily.

Don’t forget to set measurable data-driven goals so that you can benchmark progress against your goals. Examples include clickthrough rate, conversion rate, participation rates, and more. 

Choose Referral Incentives

This should be approached on two different levels — what rewards you will be offering as an incentive, and who will be receiving them. 

First, the type of reward your business offers will usually be linked to the service or product that you are offering. For example, if you’re selling a subscription-based platform, many referral programs will include free months of subscription or a discount from a monthly subscription. Platforms such as monthly food boxes often go down this route.

There are many other types of rewards that can be offered, but the most common tend to be gift cards (either internally or for external companies), cash, or credits. Lesser used but still effective rewards include upgrades to subscriptions (even if on a temporary basis) and cashback rewards.

Deciding who gets the reward is equally important. There are 3 usual setups — no incentive, one-sided incentive, and two-sided incentive. Referral marketing strategies tend to be more effective depending on the number of rewards and incentives offered.

  • No Incentive: No incentive offers nobody any reward for offering referrals. Many companies are acting in this way already if they don’t have a referral program in place. If your business is in a position where you are receiving referrals without offering any incentives, then you might question why you should bother with it. But, a better question would be to ask how many more referrals you would be getting if those making referrals were rewarded.
  • One-sided incentive: The next step is to offer only one person an incentive. This could be the referrer or the referral themselves. An example would be where an existing customer receives a free month of subscription for anyone they refer to the company. This is quite similar to affiliate marketing but with a focus on their own personal network rather than a wide, unknown audience.
  • Two-sided incentive: Two-sided incentives are the most common form of referral marketing. Everyone gets something out of the process. Uber made use of the two-sided incentive when they launched by offering credit to the referrer, and a free first ride to those being referred. 

Reach Out to Existing Customers

A great way to start your referral program is by reaching out to existing customers. In the initial setup and planning stage, you could ask them what they think would be a good incentive for them, or what they would like to see offered to potential customers. 

Later in the process, you will need to make all of your customers aware that the referral program is open and ready for them to participate in.

You should anticipate that your existing customers and potential participants will need a little encouragement to participate. Crafting the perfect referral email will take planning but it is worth every piece of effort. Done right, you’ll see your referral program get off to a great start.

Choosing Distribution Channels to Promote

Now it’s time to consider the actual logistics of the referral process. How will you get your offer out in front of your customers, and how will they use these items to promote your referral program?

A great place to start is to consider which avenues are working for you at the moment. There’s no point embarking on a social media campaign if you’ve had little luck with it in the past.

The process should be taken into consideration the same way you would with any other marketing campaign. It should be planned, structured, and then actioned. The best method would be to keep things simple. The more steps a participant has to follow the less likely they will be to participate fully.

Automate with Referral Software

The hardest part of the setup process is completed. Now, it’s time to make the referral campaign smooth and easy with automation. Platforms like GrowSurf keep everything simple and managed in one place — allowing you to effectively track your campaigns, make adjustments as necessary, and watch your business grow.

It is also worth noting that integrations with payment gateways like Stripe can make all of the difference. These integrations aren’t always available out of the box but the best referral marketing platforms will have them ready to go for a simple, plug-and-play setup.

Wrap up

As with all things in business, preparation and planning will pay dividends in the end. Once you have prepared to launch your referral program, and the automation is in place, there is little that needs to be actively managed, but myriad benefits to be had.

  • Put yourself in the customer and participants’ shoes and ask what they want from a referral program.
  • Track your metrics to see how the referral campaign is improving your business.
  • Use automation to make the management of your referral program far easier.

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