What is referral marketing and how do you start your first campaign? A complete guide by Talkable — the leading referral software on the market.
What are referrals? They are probably the best and easiest way to break down the barriers of the unknown that keep your target audience from becoming your customers. What has once been the most ancient type of marketing (word of mouth), has evolved into a manageable and scalable user acquisition tactic, with one of the highest conversion rates among all the channels available to digital-marketers.
Sounds too good to be true? We plan to prove it’s not, while teaching you how to launch your first referral campaigns in this 20-minute read!
Referral marketing is a way to advertise your product, by providing your existing customer base with an incentive to invite their friends. This results in them trying out the service or product you’re offering.
In other words, a typical referral program is when you ask a client, one who has already completed your goal action (registered, subscribed or made a purchase), to share their personal referral code or a link with their friends or social media followers. Something is promised in return, in the case that their friends becomes your customer as well. Successful referral marketing campaigns, in most cases, also offer a welcome bonus to anyone who comes through using a referral link.
Although the answer to why running referral marketing campaigns is beneficial for businesses seems to be very obvious — after all, you’re giving money away, who wouldn’t love that — there are many other factors that make this marketing strategy even better.
Reasons why referrals work so well:
Referral and affiliate marketing may seem somewhat similar, but they’re not. What’s common between the two, is that in both cases, you will be offering an incentive in exchange for getting a new customer or a prospect. Other than that, they are very different.
Starting a referral program is only one part of
a successful WOM strategy.
Most people think that referral programs = word of mouth marketing, but in reality, it’s just a tool that makes it easier for your loyal customers to share about the positive experience they had with you.
Here are a few things you should keep in mind before starting a referral campaign:
Apart from that, you have to take care of branding, customer satisfaction, and emotional triggers. They will all play a part in your clients’ decisions, when it comes to the question of whether they want to advocate for your product or not.
It’s no longer a secret - before you do anything in terms of marketing, you have to ask yourself who you are doing it for. If you don’t have a clear understanding of who your customers are, and what’s important to them, then it’s time to start asking those questions.
First of all, it’s best to define what target audience you want to address. There are a few standard options to target:
Although you have to define and acknowledge the differences between those audience segments, it doesn’t necessarily mean that you have to choose only one. What you have to keep in mind is that, often, referral campaigns are not designed to be one-size-fits-all. The best practice is to separate the campaigns and deliver the unique value at the right time for each customer segment.
Almost every marketer in the world has done customer profile research at least once. If you have, you know that creating a resemblant customer portrait is impossible without asking yourself and your target audience the following questions:
Does it matter to us where they’re from? Can we still provide products or services to people if they are from a different region than most of our customer base? Will their behaviors or needs change depending on where they are in the world? Are there any specifics to the region where they’re from?
What are their attitudes and beliefs towards life, what’s their personality like, what communities do they belong to, and which attributes do they choose to promote their lifestyle?
What makes you relatable to them on an emotional level? Is it the message you send out, or the feeling they get when they make a purchase from you? Do they associate themselves with your brand and what makes them feel that way?
Is our product made specifically for people of a certain race, gender, ethnicity, or background?
What’s the average income of our customers, how do they tend to distribute their household budget, and how does their education or current occupation affect their consumer behavior?
What benefits can you provide that would be valuable and meaningful to them? What are the rational reasons they’d choose your company over any other?
Once you find answers to all those questions, it should be easy for you to picture a person who represents your perfect customer and is the essence of what your target audience is. A great tactic that helps not only you, but also future generations of marketers who will be working for your brand, to visualize customers and understand what kind of people they are.
A few things that an awesome buyer’s persona should have:
While referral programs show incredible results for pretty much any digital business out there, the brands who have the easiest time starting with their first campaigns are the ones whose customers show the highest levels of customer satisfaction and loyalty.
What helps a lot is knowing where you are at the moment on those KPIs. The approaches that can help you learn about the true state of affairs can be either passive or pro-active.
For instance, we understand the passive approach as analyzing the data you already have, without taking any additional steps. The metrics you can rely on in this case would be:
All of these metrics can show you whether it is a good idea to start a referral program at this point, or if you should work on improving your business frameworks first.
The pro-active approach, on the contrary, means that you have to ask for feedback on the specific parts of your operations that you are not so sure about. After that, you’ll want to do some in-depth customer interviews with open questions about everything that may be a concern for you.
There are pros and cons to both methods of gathering and processing data on customer satisfaction and loyalty. For example, if you only rely on numbers and data analytics, you may not learn about the exact things that serve as dealbreakers for your existing customers and leads. When it comes to personal interviews, you might fall into the arms of false assumptions and focus on things that don’t matter on a bigger scale, while ignoring the real weak spots.
Of course, the logical solution would be to stick to both hard data and personal interviews. They give you a chance to hear what your actual living and breathing customers have to say, without disregarding the analytics.
Brand advocates are the people who are loyal to your product or service and feel confident about recommending it to a friend.
On average, only 10% of your most loyal customers will become active brand advocates, ready to spread the word, even if you don’t offer incentives. They are your most valuable players, and here are some stats that will make you truly believe this statement:
Naturally, you have to understand that in order to keep your most active brand ambassadors motivated and excited, you have to show them a little appreciation. That’s why, in the long run, it’s best to set up full-fledged loyalty programs instead of simple referral campaigns.
This approach also opens up an opportunity to spice up your referral game, using leaderboard campaigns and profile dashboards, where the engaged advocates can keep score of their shares, referrals, earned bonuses, and ratings.
You already know that referral programs will work best for business that take care of customer loyalty and satisfaction. Similarly, WOM will not be as effective if you do a lousy job designing referral campaigns. Luckily for you, after over 9 years of experience building, customizing, and improving referral programs for our clients, we at Talkable have narrowed down the ingredients of successful referral marketing to just a few simple steps. The results will provide killer campaigns, and we will guide you through the entire process!
There are a few different types of incentives you can choose from:
Pro tip: Double-sided rewards
Double-sided rewards offer incentives for both brand advocates, and their friends that join the referral program. Most businesses are well-aware of these rewards and actively take advantage of them, as they lead to an increase in conversions. What is much less known is that offering bigger friend rewards actually raises the advocacy rate.
It should be easy to understand the conditions of your referral program. It’s best to keep copy short, but if you find it reasonable to write a longer passage explaining the conditions of participation — go for it! Anyone who’s been in digital marketing long enough would tell you that there isn’t one single solution that works well in all cases.
You already know what we’re about to say next, don’t you? You guessed it:
To get you started here are the 5 most popular headlines for referral programs:
Spreading the message about your new or ongoing referral program shouldn’t be limited to outbound traffic sources. The most effective ways to engage with your customers is to use on-site resources. Just think about it - referral revenue might increase by 100% just by adding more placements for your referral offer.
A few sweet spots to place your referral campaign banners can be these:
Here are a few ideas on which media you can use:
As you might have noticed, these are all the traditional channels. What’s unique about spreading the message about referral programs, is that it’s wise to use the placements that aren’t available to any other advertisers but you - your own website or app.
Your referral program has to be easy to understand, but it should also be easy to use with no extra steps required. Referral software like Talkable makes recommendations to friends effortless for customers, and it's easy for your team to implement and maintain.
An alternative to using an existing software solution would be developing the referral program modules from scratch. However, even in the long term, a decision like this is questionable. This is due to the significant challenges that businesses face when deciding to develop a referral program in-house:
To understand the real effect of your referral program, it’s best to set benchmarks on some of the basic marketing and user acquisition KPIs.
Of course, you’ll always be able to make side by side comparisons of CAC, ROI, conversion rates, and all the other metrics for different channels (e.g. Referral vs Organic or Referral vs PPC). What you might discover is that starting a referral program will affect your overall user acquisition and marketing performance across different channels, due to the growing viral coefficient.ё
Just like any other traditional marketing channel, a referral campaign’s analysis and management can be visualized through a funnel. Let’s take a closer look at a typical referral funnel and average referral program metrics that you should be aiming for with your own campaigns:
Advocacy is a percentage of customers who have decided to share the offer after viewing it.
The average Advocacy level is 8-10%.
Advocacy is considered to be the top of the funnel in referral marketing campaigns, and a few ways to fix weak advocacy are:
A Share rate is the number of times your advocates share the offer. Meaning, if an advocate has shared an offer with 2 email addresses, or shared their link on Facebook and sent it in a text, their share rate will be equal. Note that sharing a link on social media still counts as a single share, even if the number of friends who’ve clicked on it and joined the program was higher.
Average share rate is 1.2 shares per advocate.
There are two practices that we use at Talkable to increase a client’s share rate:
Clicks are the percentage of links that have been clicked on after they were shared by an advocate. This also may be referred to as CTR, or click-through-rate.
The average CTR for referral campaigns is 35-40%, but it varies based on traffic channels as well. Usually, the referral program benchmarks have the following multipliers based on the platforms used:
|Share Channel||Benchmark CTR|
|Facebook (Wall Post)||10x|
The best way to increase the CTR for a referral campaign is to, first of all, test the incentives offered to join the program. By increasing the offer, you will get the main question out of the way.
- if people don’t opt in, is it because they are not motivated enough?
Once you find the perfect incentive that gets you the most referrals for the least amount of money, other ways to increase the CTR are: A/B test copy, design and CTAs of promotional materials, referral campaign messages, and emails that people get when they’ve recommended your product.
Typically, when a user clicks on the referral link shared by an advocate, they will get to the claim page, where they'll have to get through an email gate, in order to claim their coupon and enter your website. Therefore, the number of visits is the percentage of people who made it to your website after they clicked on a link.
On average, the visits percentage is between 30-35%.
To increase visits, you should minimize the friction that users face once they click on the link. This can be done by removing any gates on the claim page. One way to do this is to only show a notification welcome-message that says a coupon will be automatically applied to the person’s order. Here’s an example of how one of our clients, Native, executed a page like this:
Conversion is the share of visitors who have made a purchase from you.
On top of the typical conversion optimization tactics, you get a few other techniques that may help you increase the conversion rate with referral traffic.
First of all, you should once again try adjusting the friend offer. For example, you can try offering your leads a discount percentage, instead of a monetary amount, lower a minimum required order, or emphasize the time limit for which the offer will remain active.
Another way to increase conversions and referral revenue is to add a widget or a pop-up with a reminder to claim the offer and complete their first purchase. If you acquired their email address during earlier stages, you can send such reminders via email as well.
Referral programs that are built without keeping the possibility of fraud in mind, risk becoming a target. The most typical scams that involve referral programs are:
Sharing referral links through public channels, instead of personal ones, and choosing platforms that are not approved by the business that initiated the campaign.
Using referral programs for personal financial gains.
Often seen among subscription services, this type of fraud implies that accounts get canceled as soon as the offer runs out, and they never come back to make a purchase.
The most common type of fraud for referral campaigns involves advocates, who create fake accounts to take advantage of the offer incentive, without actually sharing the links with anyone else.
There are many ways to distinguish and prevent fraud using technology that will save you money. While it’s possible to execute them with the help of your in-house developers, we recommend finding a software solution for referral programs that would be capable of fraud-prevention. Talkable is the perfect solution, since it’s often a faster and more financially efficient way to fight fraudsters.
Here is a diagram of the most common indicators Talkable uses to identify and prevent fraud:
There are many factors that impact the cost of starting a referral program. The cost of starting and running your own referral marketing campaigns depends on the size of your company, how big your customer base is, what traffic loads you have, and whether you decide to develop your own solution or use an available software.
To help you calculate the budget needed to launch, here’s a list of things you have to account for:
The question that worries every marketer and business owner the most is, of course - what do we get out of it?
The same goes for referral marketing, despite all the magical abilities we told you about. We get it! That’s why we created the referral revenue calculator to help you with approximate estimations. Want to know how much money you can make off referrals?