Boost Sales and Margins With a Referral Program
Use this strategy to lower your acquisition costs
Hello to 5,474 marketers and entrepreneurs reading today.
As you probably know, the startup ecosystem shifted focus in 2022 from growth first to profitability due to the economic downturn.
As a result, it's never been more important to maximize your profit margins.
Today we're going to talk about a way to increase your margins with little ongoing work: the always-on, automated referral program.
Referral programs aren't new or sexy. But they increase LTVs and lower CACs.
We'll hear his insights into which companies should consider referral programs and what elements create an effective program.
We'll also break down how Airtable uses a credit system to drive new user acquisition efficiently.
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What is a Referral Program?
A referral program is simply an incentives system to encourage existing customers to refer new customers. A typical referral program includes either one-sided or two-sided rewards. One-sided rewards are incentives for either the referrer or the person being referred (but not both). Two-sided rewards give a benefit to both the existing customer and the new customers they refer to your business.
A good referral program acts as an accelerant or rising tide for all marketing channels by providing a conversion lift and improving unit economics across the board.
[unicorn word-of-mouth referral]
Characteristics of Referral Programs that Scale
Good referral programs tap into positive customer sentiment that already exists. No one is going to recommend their friends to a company they don't value. A person making a recommendation is putting their reputational equity on the line.
If your company has high Net Promoter Scores (NPS), raving reviews and some amount of organic word-of-mouth sales already, that's a good indicator that your business may be ripe for a bona-fide referral program.
Secondly, you'll want to have marketing automations and a CRM in place. If you're on Shopify, for example, it's easy to plug a referral software app into your Shopify store.
While many referral software companies focus on ecommerce, there are referral platforms for SaaS, newsletters and many more. Referral Rock, for example, offers integrations with Hubspot and Salesforce.
Lastly, it's important to model out the potential financial benefit before investing time in a referral program. If your company has low sales volume and low LTVs, it's unlikely that a referral program will have a significant financial impact.
Referral programs work best when either the volume of sales or the value per transaction makes a 5-10% referral rate meaningful.
Companies like Referral Rock can work with you to assess whether a referral program is right for your business. They've seen the spectrum of good vs bad outcomes and can advise you during the sales process / onboarding as to whether you're a good fit.
Referral Program Statistics
How to Run an Effective Referral Program
- Identify and target happy customers at peak happiness times
- Offer two-sided rewards (referrer and referee both rewarded)
- Incorporate referral opportunities into all consumer touchpoints (onboarding, purchases, CRM engagement etc.)
- Use incentives with an obvious benefit that's aligned with the product
- Make it as easy as possible to invite referrals
- Make it easy to view referral status. Offer a scoreboard with real-time updates
Designing Referral Program Incentives
In Josh's experience, the best referral incentives do the following:
- Disrupt patterns: for example, injecting a dollar sign ($) into the user flow can make most people stop and pay attention immediately
- Align with your brand's values: for example, a pet supplies brand making a donation on your behalf to an animal shelter when you refer a friend
Referral Program Mistakes
Josh cites only 50% of intended referral programs ever launch (if they don't get external help/assistance), meaning 1/2 of initiatives fail without ever being tested.
Referral programs often fail for the following reasons:
- Lack of sufficient sales volume or transaction sizes to warrant the effort and investment
- Lack of an internal champion to implement and make it successful
- Viewing referral promotions as a one-time activity rather than an always-on marketing mechanism embedded in customer automations (don't just do a one-time email blast)
- Complex rewards and contests whose benefits can't be understood quickly
Common Referral Program Misconceptions
- Referral programs are typically associated with B2C businesses, especially ecommerce. But that doesn't have to be the case. Referral programs can work well for B2B services as well.
- Many people assume that referral programs only attract low quality customers. While customers are motivated by the reward incentives, by targeting your highest quality customers, you're enhancing the customer experience of an existing set of valuable users, and enhancing the brand experience.
- Companies often underestimate the work required to set up a referral program. In reality, you'll need someone with the bandwidth to research referral platforms, implement the customer touchpoints and monitor the results. It's helpful to have someone keep an eye on it to test incentives and improve their effectiveness over time.
- Don't view a referral program as a one-time effort. The best referral programs are embedded organically into customer touchpoints and operate in an always-on, largely automated fashion.
How Airtable Uses a Referral Program as a Growth Strategy
Airtable's referral program is based on system credits. Referrers get $10 in Airtable credits for each referred user who signs up.
Airtable's referrals center provides all key features in a single view:
- Easy access to your referral link
- Enables social shares
- Easily invite users via email
- Shows status updates for all invites
- Summarizes rewards earned
Airtable's one-sided incentive is effective for several reasons:
- Enticing to the referrer because they'll save money on their Airtable usage
- Credits are more brand-aligned than just giving out money
- Because it gets more collaborators on platform, it strengthens the value of the product for the person making referrals
- Easy-to-understand dashboard with referral / credit status updates
Should You Launch a Referral Program?
Your company will have a higher likelihood of success with a referral program if it meets these criteria:
- There's already an existing word-of-mouth component driving sales. This signals that customers are willing to put their relationship equity on the line to endorse your brand.
- Your company has automated CRM touchpoints in place, into which it can simply inject referral opportunities
- Your company has bandwidth to implement the program (a program champion is helpful)
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