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Referral Marketing: How to Get New Customers with Low Cost

Referral Marketing

The average cost for getting a new customer varies greatly by business, ranging from roughly $395 for software companies to around $10 for retailers, and the prices are rising as online shopping extends the purchase cycle. What if you could decrease your customer acquisition costs by getting current customers to refer new business to you? You can.

Referral Marketing is a word-of-mouth marketing strategy that motivates happy customers to advocate for your company in exchange for gifts or other incentives. Referral Marketing, often known as refer-a-friend programs, is growing as a popular strategy for ecommerce businesses scheduled to increase sales while lowering cost per action.

This method benefits both you and your present customers, and research shows that customer recommendations are considerably more powerful than traditional advertising in terms of building trust and brand recognition.

Not only is referral marketing extremely inexpensive (your major expenses are incentives and the cost of highlighting referral marketing campaigns), but new customers obtained through referrals have a greater customer retention rate than those acquired through other sources. They have a higher lifetime value (LTV) than non-referred customers.

Why is Referral Marketing So Powerful?

Referral Marketing

With previous generations, Millennials and Generation Z are not required to believe advertisements. They can compare prices online, ask for recommendations, visit review sites or forums, or seek guidance from an influencer on various social media channels. As a result, companies and startups struggle to establish credibility.

Trusted friends and family referrals are significantly more convincing than any advertising claim. Take PayPal, which reached one million members just two years after its start in 1998 by offering new customers $10 for joining up and another $10 for each friend they referred.

According to ReferralCandy, the fintech startup, founded by Elon Musk, reportedly spent $60 million on referral marketing incentives and now has over 400 million customers. The best thing about referral marketing is that you only pay for successful referrals that lead to conversions.

Precise Aiming

Referrers are more likely to refer your company to people who value their opinions and may already have a purchase intent. They also understand how to convince this person to purchase your goods better than you do because they have a personal relationship with that potential customer.

The Trust Element

According to Nielsen’s research, people are four times more likely to buy when referred by a friend. 46% of buyers check with family and friends before making a purchase. When a friend or family member recommends a product or service, it suggests they had a good experience with that business.

Reach and Speed

Referral Marketing allows you to generate leads that would not otherwise be reached through traditional advertising. Referrals also increase brand recognition and social proof. Dropbox’s referral program increased conversion rates by 3900% in 15 months. What’s the formula? Dropbox gave referrers additional storage space in exchange for urging their friends to try Dropbox.

How Do You Implement Referral Marketing?

Implement Referral Marketing

Plan your referral program strategically. Select an incentive that the customers will value, define what defines a “successful” recommendation, and create goals for your referral program.

If your competitors have Referral Marketing, find out what incentives they provide and aim to outperform them in value. This does not necessarily imply spending more money. Giving a personalized item or experience can help customers feel unique. Provide referrers with a unique tracking link so they can share the offer with their friends and earn credit for successful referrals.

Choose an Incentive

Most referral schemes use two-sided incentives: if the referrer receives a gift or discount, so does their buddy, using the principle of reciprocity. Offer multiple levels of incentives based on how many referrals your customers make. This includes a gamification component that motivates customers to create more referrals to optimize their incentives.

Cash

Cash awards can be fixed or based on a percentage of the referee’s purchase value. This form of reward is repeatable, and it doesn’t take much money to push people to $5 or $10 will nudge them to act.

Remember that cash does not incentivize buyers to make repeat purchases at your business following a successful referral, however, a gift card or store credit to your ecommerce store can. However, cash is preferable if your product has a long purchasing cycle or is a one-time payment.

Points

If you currently have a points-based customer loyalty program, you can reward customers for introducing new customers. Points can be used for discounts, prizes, or experiences.

Discounts

A frequent referral incentive is to provide two-sided discounts. If Customer A refers to Customer B, Customer B will earn $X off their first purchase, and Customer A will receive the same discount on their next purchase. Discount offers encourage customers to check out quickly because their friends must depend on their purchase to earn their discount.

Free Gift

Gifts can include samples of new products or things that your customer has not yet tried. Samples introduce people to new products that they can purchase in the future. If the free product is unique or rare enough, the customer will tell their friends about it as well.

Experiences

Gifting experiences not only give your company content to publish on social media, but it also increases the likelihood that the referral will do the same. Make sure the experience is relevant to your core product offering but not something people can buy on their own.

For example, if you own a spa, you could provide a customized pampering session that differs from your other spa packages. Alternatively, you can use this method to promote a new experience that is about to be launched.

Customers who enjoy an experience are more likely to purchase it again or refer you.

Account Upgrade

Give the customer a free trial to a higher membership tier, or temporarily upgrade their account. This incentive is especially suitable for enterprises that provide software products and is nearly free.

Custom

Don’t be uncertain to test out new ideas or a variety of rewards as long as they appeal to your customers. If you know anything particular about the customer, such as that they are expecting a baby, and can tailor a product or service just for them, you can attract your referrers and turn them into loyal customers.

If you’re stuck for ideas, survey your audience to find out what types of rewards inspire them.

Determine When to Introduce Your Incentive Program

The timing and incentive structure of your referral program determines its success. According to Texas Tech’s marketing survey, 83% of customers are willing to recommend products and services to others, yet just 29% do so. Customers may be ignorant of how to refer individuals or the rewards available for each referral, or your reward levels may be too high.

If your products have a short buying cycle, you can launch your referral program immediately after a consumer purchase to encourage them to receive rewards on their next purchase. Consider providing your referral program to potential customers who have expressed interest in your products but have yet to click the ‘Buy’ button.

This not only motivates customers to buy but also to refer your company to their friends and family. Finally, remember to promote your referral marketing program across all of your marketing channels. Email marketing and campaigns are some of the most effective ways to promote a referral program because they are direct, personal, and customizable.

Track Your Results

Track Your Results

Monitor your data to measure the effectiveness of your program. Are customers sluggish to adapt? Are some incentives failing to generate referrals? Make sure you’re tracking referrals correctly, which includes collecting data on all actions taken within your referral program to ensure customers receive credit.

You can manually track referrals with spreadsheets or automated referral marketing software. Here are some vital indicators for evaluating the health of your referral program:

Customer Participation Rate

The average number of monthly customers participating in your referral program. Remember that not all referrals result in conversions.

Referral Rate

Total number of referrals made by each participant.

Impression Rate

The number of views on your referral landing page.

Response Rate

The number of visitors that visited the referral page and took action, such as signing up for a trial or entering contact information, but did not complete the purchase.

Conversion

The number of persons that made a purchase using a friend’s referral link.

Website Referral Traffic

The number of visitors who came to your Ecommerce site after receiving a referral link.

Average Order Value

The average dollar amount for a single order.

Total Sales

Determine the influence of your referral program on your company’s overall sales.

Using Referral Marketing Tools

Referral marketing solutions allow businesses to build and manage referral programs, track activity, personalize messages, and automate tasks such as enrollment and incentive disbursement. This tool might also be useful for marketing the introduction of your program.

More importantly, Referral Marketing solutions improve the user experience for your referrers by allowing them to track which of their friends have signed up, how many referral rewards they’ve earned, and when they can expect to be compensated. Referrers can sync their email contacts and simply select which friends to invite.

The software allows you to easily establish a branded landing page for your Ecommerce business referral program and deliver unique tracking links to each referrer. You can even set up prefabricated email templates for referrers to send to their friends, as well as email alerts when a friend signs up and when their gift arrives.

Better, include a pop-up referral widget on your website so that customers may join your referral program with no further work on your part.

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The Final Thought

Referral Marketing stands out as a powerful and cost-effective technique for acquiring new customers. Businesses can organically extend their customer base with minimum cost by using their existing customers’ trust and happiness. This technique not only increases brand loyalty but also uses the persuasive effect of word-of-mouth, making marketing efforts more authentic and impactful.

Businesses may cultivate a network of brand champions that drive sustainable development and success by providing the correct incentives, clear communication, and an easy-to-use Referral Marketing procedure. In summary, referral marketing is about more than just getting new customers; it’s about creating a loyal, engaged, and growing customer base.