Referral rewards offered in return for your customers spreading the word about your brand are as simple as growing your business gets. Knowing what and how much to reward them with, is just as simple. For the best advice on calculating the value of a referral reward and what reward works best, keep reading for a Q and A interview with Kirsty Sharman – founder of Referral Factory.
A serial entrepreneur obsessed with finding new ways for businesses to grow. Kirsty has spent over a decade exploring emerging consumer trends and finding new ways to meet changing customer needs. Who better than to ask about the value of a referral reward and which rewards work best than this tech and marketing mastermind?
Describe A Referral Program In The Simplest Way Possible.
The most straightforward answer that best describes a referral program is a marketing channel that makes it easy for customers to tell their friends about your business. But the key to differentiating this word-of-mouth marketing channel is the element of reward and incentive that comes with customer referrals. Customers that refer their friends are rewarded for spreading the word about the brand. Friends that are referred may also be rewarded which can help motivate or incentivize them to sign up or try out the brand.
Are Referral Programs Expensive And Very Technical?
No, not anymore. In the past, building, managing, and tracking a referral program was a costly and technical exercise. But a process that used to need help from a developer and manpower to manage the manual administration of a referral program has since become a lot easier. With referral software like Referral Factory, automating word-of-mouth referrals has become the go-to growth solution for startups, scale-ups, and SMEs looking to get more customers. Our no-code – no developers referral software makes it easy for anyone to build, style, launch, and manage a referral program in minutes.
Where Do I Get Started With My Referral Program?
Nobody starts anything new without proactively researching the topic, task, or technology they are looking to try. So that you have asked this question means you are off to a great start. A good understanding of referrals, rewards, and your customer data will help you model your referral program, what your reward should be and what value would be given.
Choose referral software that makes building launching and managing your referral program as easy as possible. Opt for a no-code, no-developer solution and one that allows you to build and style your referral program to look and feel just like your brand. Referral software that also offers seamless integration with your CRM is really useful in helping to manage and track your referrals while keeping your workload to a minimum. And, once your referral program is live make sure to spread the word about it to as many people as possible. For more tips on how to do this see 30 ways to get users referring fast.
How Can Customer Data Help?
Today’s modern marketer must be data-driven. And with so much data available, calculating the value of your customer and how much it costs to get those customers is really not as complicated as it sounds. Using the value of your customer and the cost of your customer acquisition will make it that much easier to work out what the value of your referral reward should be.
How Do I Calculate The Value Of My Customer?
While this sounds very technical it really isn’t and again important to note that the value doesn’t have to be perfect. Working with pretty close estimation of the value of your customer or the lifetime value of your customer will still help you get close to the ideal value of your referral reward.
To work out the value of your customer you use their average purchase value multiplied by the average number of purchases.
Customer Value = Average Purchase Value * Average Number of Purchases
And once you have your customer value, you can dive a little deeper into working out your customer’s lifetime value by using the customer value multiplied by the average customer lifespan.
Customer Lifetime Value = Customer Value * Average Customer Lifespan
As a marketer, you will know that these basic customer calculations are key to everything that you do, from planning new campaigns to working out the return on investment. Referral marketing is no different.
How Do I Calculate The Value Of My Referral Reward?
Not so much of a science but more just commercial sense. Working out the value of your referral reward becomes a bit of an a-ha! the moment once you have figured out the lifetime value of your customer. It’s really as simple as understanding that the value of your referral reward should not be more than the lifetime value of your customer. I’ll say that again but in a different way. The value that you reward your customer with, should not be more than the revenue you make from them. Or, the cost of your customer acquisition should not be more than your customer’s lifetime value.
Your referral program should be profitable, and the value of your reward should make sound commercial sense to your business. But at the same time understand that a referral reward that is too low in value can be as ineffective as one that is too high. This is why finding the ideal middle ground typically through trial and error is the only way to reach the right balance.
What Are The Best Referral Rewards?
Referral programs that drive the most growth are those that reward customers in such a way that it rewards your business. And while there is no right or wrong answer, a reward in your own currency that drives customer acquisition and retention is what often makes the most sense. Think about what reward or incentive will increase customer acquisition, but also drive customer retention, and return purchases and help to increase the lifetime value of your existing customers. The best referral reward or incentive is the one that best suits your business, but here are some insights into the most common rewards used by referral factors customers.
How Do Rewards And Incentives Differ?
Where a reward is given as a “gift” to thank users for completing the desired action, an incentive motivates users to act in the desired way. And while rewards and incentives can be almost anything you can think of, rewards that work best are those that drive the maximum adoption of people to use your referral program.
Single or Double-Sided Referral Programs, What’s Best?
There are two ways a referral program can be built either as a single-sided or double-sided referral program. A single-sided referral program offers one user a reward or incentive, and a double-sided referral program is where both the referrer and the person referred will get a reward or incentive.
What’s One Thing Everyone Should Know About Referral Programs?
There is no right or wrong referral reward, value, or program to choose from only that you should try. And that if you are thinking about launching a referral program, there is no better time to start than right now.
To add to this and possibly one of the biggest lessons I’ve learned from running hundreds of referral campaigns is that people are driven by giving more than they are by getting. The referral programs that I have seen perform the best are those driven by a great incentive, rather than a great reward. People feel more comfortable receiving when someone else is getting something too. So splitting a referral reward as an equal value exchange where everyone gets something, will drive more people to join your referral program.
Offering your business so much more than just customer acquisition, referral programs help to strengthen customer relationships. Great referral rewards encourage return purchases from customers that haven’t shopped from you in a while. And are also effective in increasing customer retention and the lifetime value of existing customers. Increasing customer trust by getting people to spread the word about your business, there aren’t any other questions left to ask about referral programs except when will you launch yours.