Effective referral programs include two things: a defined goal and a way to track whether or not those goals are met.
When you're clear on your goals, it's easier to track how well a program is doing and make adjustments that encourage advocates to share and referrals to participate.
To help you get started, we've laid out how to determine your marketing and sales goals for your referral program, how to use data to figure out whether you're meeting your goals, and how to make adjustments once you see results.
By the end, you'll be able to create a referral program that resonates with your customers and helps you meet your marketing and sales goals.
Set goals to light the path forward
You can start by giving your goals long- and short-term focus and adjust your referral program over time. For your short-term focus, pick goals that your referral program can affect immediately. Here are a few ways to figure out what goals to focus on:
Ask yourself what you want the referral program to achieve. Do you want to reach more customers? Do you want to reach customers in new markets, or do you want to grow your current advocate base? Whatever the goal, be clear and specific. For example, if you want to reach more customers, decide how many more, and then determine a deadline for achieving that goal.
Look at what current customers are saying. One of the best places to find out is on social media. Check the comments on your page and in niche groups. Also, ask customer support for feedback on what customers are asking about, and check the comments on your blog. If there's a recurring theme—like appreciation for a popular premium feature—incorporate it into your referral program.
Talk to sales and marketing teams for insights. They are on the ground and have insight into what potential customers are asking for. They can, for example, tell you if there are specific products your referral program should drive referrals to. So if one of your goals is to increase sales by 20 percent month over month, your referral program should be set up to encourage the purchase of specific products shortly after someone signs up.
Use the results of these tactics to narrow down your goals and then build a referral program that caters to them. For example, if you want to reach new markets, create a referral program that incorporates customer testimonials to build trust.
The customized message field is a good place to put a one-line testimonial from the advocate.
Some ideas for marketing goals include boosting retention, improving new customer conversion, or improving acquisition. Once you decide on your goals, build your referral program in a way that helps you meet them. For example, if you want to boost retention, your referral program should focus on the rewards that advocates get for sharing.
Your metrics should help you meet your goals
Once you have established your goals, the next step is to make sure that the metrics you use help you stay on track. If you want to acquire new customers, focusing on retention rate won't tell you how close you are to meeting that goal.
Here's an example of how to match goals to metrics:
If, for example, you want to reduce your acquisition costs and get advocates to do more referring, you'd measure customer acquisition rate (CAC). It's calculated by dividing the cost of acquiring new customers by the number of customers acquired in a period. So if in one month you spend $200 one on marketing and advertising and you onboard 30 new customers, your CAC is almost $7.
If your CAC is high to begin with, track it for a few months to see whether it drops. The lower it is, the better—that means the referral program is working and advocates are driving new customers to you.
If your CAC stays high, it means that there's a breakdown between attracting new customers and converting them. You'll need to adjust your referral program and keep tracking CAC to see whether the changes had any effect on your goal.
If your chosen metric shows you that your referral program isn't effective, look at your program to see what's wrong. Ask yourself questions such as the following:
- Is the message unclear?
- Is the reward not enticing?
- Does the program match new users' interests? Are you offering them something they want?
Keep in mind that if you aren't meeting your goals, despite making changes to the program, chances are you've chosen the wrong metric to track progress. You're not meeting your goals because you're basing your decisions on the wrong information.
Use A/B testing to meet your goals
When you make changes to your referral program based on whether or not you're meeting your goals, you need a way to track these changes. By tracking changes, you can confirm that you've found and fixed the issues.
One option is to do A/B testing. If your goal is to increase sales of a new product, test different versions of the reward to see what happens. For example, let's say your program rewards advocates every time a referral spends a certain amount. Two versions of the test could look something like this:
Version 1: Advocates get $30 every time a referral spends $50 or more.
Version 2: Advocates get $40 every time a referral spends $50 or more.
Notice that only the advocate's reward changes in this example. You can run another experiment in which the referral's required spend changes. To test whether the changes impact sales, ask yourself questions, such as the following:
- How many more customers bought something after these changes?
- How much did sales increase for each version of the test?
- Did any customers churn?
- Did customers provide feedback on what stopped them from buying? What made them want to buy?
Use the results of your tests and the answers to questions like these to make changes to your program. When you find a combination that results in more conversions and higher sales, you can build a program that positively affects marketing and sales goals.
The point is to track how these variations perform and whether they help you reach your goals. If something isn't working, revisit your goals. It's possible there's a mismatch between goals and what you should be doing for customers. Once you've figured out the issue, make changes to the program or change the goals.
Making it work for you
When you follow the process of defining your marketing and sales goals and then tailor your referral program to help, you set your program up for long-term success. Be specific about the metrics you'll track so that you know whether the program's working.
If your referral program doesn't have an impact on your goals, rework it until you see the results you want.