Everyone has heard stories about companies such as Uber and AirBNB driving huge amounts of traffic to their sites with expertly crafted referral programs. While these programs were excellently designed, with huge amounts of strategizing, testing and refinement, this level of sophistication is not required in order to grow a business using referrals.
Ultimately, a referral program needs to offer an excellent incentive that is contextually relevant to the recipient (and ideally, the referrer). Next, referring a friend needs to be easy to do, with complete accessibility over a range of devices.
Additionally, ensuring referral campaigns are highly personalized is beneficial. AirBNB is famous for their referral emails which include a friend’s picture and feel like a personal invite rather than a cold marketing email (AirBNB grew their sign ups and bookings by over 300% per day using these tactics).
Finally, the product or service being referred to needs to be of high value to the people being invited – otherwise even the best optimized referral campaign will never be successful.
In order for all of these aspects of a referral campaign to work perfectly, refinement is usually required, and these modifications need to rely on hard, empirical data. Seeking to improve a referral campaign without looking at key metrics is like flying blind – you’ll never know where you’re going wrong.
Many marketers put too much emphasis on referral sales as a key metric, without examining the other aspects of their referral campaigns. Here are the 5 marketing metrics that matter most to a referral marketing campaign.
1. Number of Active Users Sharing Invites
As a first step to optimizing your referral program, it’s important to determine exactly how many of your active users have referred a friend. This metric is usually measured within a specific time frame, such as the last 2 months.
If you want to improve this metric, there are some facets of your campaign I’d recommend testing. For instance, the CTA on your site which encourages people to participate in referrals could be modified or placed in a different location. The wording of the incentive can also be changed – or perhaps even the incentive itself.
Every company that’s famous for growing its customer base using referrals has performed extensive A/B testing in order to improve this key metric.
If you want a greater understanding of how your existing customers interact with your site, tracking the total number of invites per customer is also a good idea. This will hopefully provide insights into why some users engage in the referral program and others don’t – helping you to focus on the latter.
2. Referral Page Hits
If you know how many referral invites have been sent, you can cross reference this metric with the total number of referral page hits. This helps you to determine why more people aren’t participating in the program once they arrive at your referral page.
If you’re satisfied with the amount of people reaching your referral page but wish to improve conversions, you may need to A/B test the accessibility and implementation of the referral program. Ensure that sending out referrals is as easy as humanly impossible, and ensure there aren’t problems which pertain to mobile devices.
Again, the actual incentive of the referral problem could also require A/B testing.
3. Recipient Clickthrough Rate
This metric is essential for improving the effectiveness of your email invitations. As discovered by AirBNB, personalizing the invite is incredibly important if you want to improve your recipient clickthrough rate.
You may wish to include a photo of the referrer in the invitation, and have the message come from the from the referrer rather than from the company. You can also allow your customers to customize their referral codes so they resemble a name (rather than a generic combination of letters and numbers).
The more you can tailor your invitation to feel like a warm communication from a friend instead of a cold marketing email, the more your recipient clickthrough rate will improve.
4. Recipient Conversion Rate
Once the recipient has clicked through to your referral program, the next metric to measure is the recipient conversion rate (how many recipients actually sign up once they reach your landing page).
The first thing this metric allows you to test is the CTA on your landing page. Perhaps the location or wording could be improved, or the signup form could be easier to use.
Another common mistake is having too much confusing information on your landing page.
Once a recipient reaches your site from a referral email, your only objective should be for them to sign up to your service. Additional menu items, separate offerings and superfluous information distract from this goal.
I suggest using analytic tools such as CrazyEgg to assess your landing page. CrazyEgg will show you exactly where your visitors are clicking on the page, and also how far they’re scrolling before abandoning the page without signing up. You can then make improvements to these problematic areas.
5. Churn Rate
Research indicates that referred customers have a 25% higher retention rate than customers who were acquired by other means, over a 3 year period.
That being said, it’s still important to measure your churn rate (the amount of paying customers who break ties with company within a designated time period). With this data, you can ensure your referred customers have a higher CLV (customer lifetime value) than CPA (cost per acquisition).
If you have a high churn rate for referred customers, this could indicate that there is a mismatch between what they expect from the service (based on your referral invitation), and what is actually delivered.
A high churn rate could also indicate that the benefits of the original incentive far outweigh the benefits of remaining as a longtime customer – hence why people are prepared to join but not stay.
Conclusion
Diligently measuring these 5 metrics will give you a huge advantage over your competition. However, if you want to improve your analysis and create a superb referral program, you should also track: loyal customer value, total referral sales, invites and sign ups by device, and cost per acquisition.
Can you think of any other marketing metrics worth tracking that will help to make your referral campaign more successful? Let me know in the comments below: