8 Must-Track Metrics to Make Your Referral Program Successful
Referral programs are all the rage these days. Wondered why? From boosting brand awareness to driving sales, referral programs have become a cornerstone of effective marketing strategies.
But hold on a second! Launching a referral program is just the beginning. Many marketers put too much emphasis on sales as a key metric without examining the other aspects of their campaigns. To truly harness its power, it's important to dive into the nitty-gritty of tracking and analyzing key metrics. After all, how else will you know if your referral program is hitting the mark or missing it by a mile?
Let's delve into the 8 important marketing metrics to track to make your referral program successful.
Measure your referral program with these 8 key metrics
1.Participant share rate
Share rate is a crucial metric that tracks the number of people who took action to share your referral program and recommend your brand to their circle in a given period.
Why is it important?
It shows if the referral program is on the right track by measuring your customers' engagement with the campaign. The higher the sharing rate, the higher the number of quality leads generated will be.
How to calculate it?
Sharing rate = Number of customer sharing referrals x100
Total number of customers
How to improve it?
Make sharing as easy as possible with just a few simple steps.
Try a gamified reward structure or a milestone challenge to increase engagement.
Develop enticing rewards and leverage diverse channels to effectively promote referral campaign ideas.
2. Referral Click Rate
The referral click rate is a conversion metric that estimates the number of people who click on your Advocate’s referral link.
Why is it important?
The referral codes/links are usually shared through multiple channels like Twitter, Emails, and WhatsApp. Calculating the click rate identifies the most popular platform and becomes key to improvement. It also lets you know how well your incentives are working and if your offer or messaging is strong enough to compel a new user to click.
How to calculate it?
Referral Click Rate = total number of clicks from referred friends on the referral links
How to improve it?
Make your invitations feel like a warm communication from a friend rather than a marketing message.
Craft compelling and clear CTAs that encourage clicks.
Communicate the benefits of clicking the referral link, such as discounts, exclusive access, or rewards, to incentivize action.
3. Conversion rate
The conversion rate shows the percentage of referred leads who took the desired action and/or ended up purchasing your product or service. The desired action could refer to actions other than sales, like the number of emails collected or newsletter registrations. This is also important as it helps in building qualified leads.
Why is it important?
Conversion rates track how successfully your referral programs are driving purchases. This reveals the success or failure of your referral campaign. A low conversion rate could mean the referred customers are not making purchases. This means there is a need for change in the referral strategy, including incentives, messaging, or user experience on the site.
How to calculate it?
The referral conversion rate is the percentage of conversions to the overall referral shares and clicks.
Referral Conversion Rate = Number of conversions from referred customers x 100
Total number of referral shares
How to improve it?
Optimize referral messaging by tailoring it to resonate with different segments of your audience to increase relevance and engagement.
Offer incentives for both referrers and referees.
Ensure your referral offers are more alluring than other promotional offers on the website.
4. Referral Revenue and Referral ROI
Referral revenue is the total amount of revenue generated from a particular referral campaign. Meanwhile, Referral ROI is the amount of revenue earned from the campaign minus the cost of running the campaign. This can be calculated quarterly, monthly, annually, or overall for the program's lifetime.
Why is it important?
These metrics show how much money your referral campaigns generate and if they are truly profitable. This will determine whether you have a well-performing campaign strategy and make adjustments wherever necessary.
How to calculate it?
A positive ROI means the campaign has generated higher returns than the investments made.
Referral ROI = (Total revenue - Total cost of marketing) x 100
Total cost of marketing
Referral Revenue = Total Revenue Generated from Referrals - Cost of Acquiring Referrals
How to improve it?
Use double-sworded rewards to motivate referrers and encourage referees to participate.
Monitor and refine referral programs, incentives, and rewards, and implement A/B testing to identify the ones that work
Delight customers from the initial purchase to post-sale support to increase their likelihood of becoming advocates for your brand.
5. Customer lifetime value (CLV)
CLV is the total net profit a company can earn from a customer, especially referred customers, throughout their relationship with the company. It includes the customer’s initial purchase, purchase frequency, and the average duration of their relationship with the company.
Why is it important?
This metric determines the overall success of your referral campaign, showing how much revenue was generated by each referred customer over time and how long that customer is typically loyal to your brand. CLV helps you refine your referral campaign’s strategy, giving you all the details on acquisition strategy, customer retention, customer support, and even the quality of your products and services.
How to calculate it?
Customer Lifetime Value = Customer Value x Average Customer Lifespan
Customer Value = Average Purchase Value x Average Number of Purchases
The greater the CLV, the less you would be required to spend on CAC. Also, Comparing the CLV of referrals to that of non-referred customers shows the impact of your referral programs.
How to improve it?
Promote your program on several platforms and create compelling messages that build trust.
Reward loyal customers, who become your brand advocates, by offering freebies.
Create loyalty programs for referred customers and encourage repeat purchases by offering some discounts or rewards.
6. Customer Acquisition Cost (CAC)
CAC is the cost incurred in acquiring a new customer through the referral program. Customer referrals are the most cost-efficient way to acquire new customers than other forms of marketing and advertising.
Why is it important?
The CAC is important as it helps evaluate the referral program’s return on investment (ROI) and plan budgets and resources accordingly.
How to calculate it?
A high CAC implies that a new customer is acquired at a relatively high cost and may need a re-evaluation to reduce the costs.
CAC = Referral program expenses to acquire new customers
Total number of new customers acquired
Comparing CLV to the CAC is a great way to see if your company is positioned to maximize growth.
CLV/CAC = CLV: CAC
How to improve it?
Review the data regularly and target high-value customers that are more likely to generate the most revenue.
Analyze the performance of different marketing channels to identify those that provide the highest ROI.
7. Net promoter Score
A net promoter score is a metric that measures the satisfaction rate of your customers, which shows how likely they are to recommend your brand or products to others.
Why is it important?
A high NPS shows that the customers are highly satisfied with your products or services. They are more likely to refer to others. Companies can identify areas for improvement and tailor the design of the referral program with the NPS. This, therefore, increases customer satisfaction and total referrals.
How to calculate it?
Customers are asked to rate their level of satisfaction ranging from 0 to 10, with 10 being the highest score.
Then, NPS is calculated by subtracting the percentage of detractors from the percentage of promoters.
NPS = % of promoters — % of detractors
How to improve it?
Actively seek feedback from the customers and address their concerns promptly.
Focus on delivering exceptional customer service throughout the customer journey.
Reward loyal customers who consistently promote your brand, further strengthening their loyalty and driving higher NPS scores.
8. Customer Retention Rate from Referrals (CRR)
Customer retention rate is the percentage of users that have stayed with you for a while, the ones acquired via referrals. CRR data can be calculated weekly, monthly, or yearly.
Why is it important?
Acquiring new customers typically costs more than retaining existing ones. Also, they tend to spend more over their lifetime with your business compared to new customers. In fact, 80% of your company’s revenue comes from just 20% of your existing customers. Also, Retained customers are more likely to bring in new customers by referring them, which also helps reduce customer acquisition costs.
How to calculate it?
Retention Rate = (Customers at the end of a period – New customers added) x 100
Customers at the start of the period
How to improve it?
Offer exclusive rewards for loyal customers who refer others.
Provide exceptional customer service to encourage retention and advocacy.
Continuously engage customers with personalized communications and incentives to participate in referral programs.
Make Every Referral Count
Leveraging data-driven insights is the golden ticket to unlocking the full potential of your referral program. By regularly monitoring and analyzing these 8 key metrics, you can fine-tune your approach, identify areas for improvement, and ultimately supercharge the ROI of your referral initiatives.
