Referral-Case-Study

Startups are focused on growth. Whether or not you believe that “Startup=Growth“, it is definitely an important metric.

If your startup is not experiencing significant growth (or failing fast), you run the risk of turning into a zombie startup.

Referral marketing has driven significant growth for many tech companies, including: PayPal, Dropbox and Airbnb. Daily deal sites have also successfully used referral marketing tactics, along with more questionable paid acquisition strategies (and interesting accounting practices).

Dropbox’s two-sided incentive program that offered additional storage space to the current customer, and the people they recommended, famously helped the company increase signups by more than 60%.

Airbnb created a referral program to offer travel credit to existing customers for each friend that booked a trip or posted their own place and received a booking. The program launched in a private beta to 2,161 existing members and brought in 2,107 new members, nearly achieving a viral growth factor of 1.

So how do you implement a referral marketing program for your startup?

Messaging and Mechanics

The first and most important step in creating a successful referral program is to create compelling offers that are unique and targeted to your customers.

Hopefully I don’t have to tell you that in order to do this you must know your customers. Get out of the building, pick up the phone, check your analytics, do a survey, send some emails, talk to your customer service people.

Just make sure that you understand your customers enough to know what would compel them to refer your product/service?

Seven Quick Tips

  • Develop a clear and compelling call to action for your referral campaign
  • Promote your referral program across all of your brand owned assets
  • Emphasize exclusivity of offers through referrals
  • Target key customer touch points: customers are more likely to share when they feel “closer” to your brand (after transactions and purchases)
  • Personalize all messages to build trust and engagement (personalize URLs, custom “friend” landing pages)
  • Make it easy for your customers to share
  • Provide default, pre-populated messages and easy access to sharing through multiple channels

Outreach

Outreach

Email

Despite what you may have been reading for the past five years, email is definitely not dead. Email is still the most popular sharing channel in many referral programs. Conversion rates tend to be the highest through email because it is a personalized message that is coming from a trusted source. It is the signal cutting through the noise. Create default email messaging that reads like a story with a personal touch.

Social Media

The one to many nature of social media can dramatically amplify your message, but you’ll likely have a lower batting average than you will with email. Your default message should sound like your advocate is speaking in their own voice and include a rationale for sharing.

Your Website

Share the referral program in targeted areas of your own site to frequently remind current customers without being obnoxious.

  • On your homepage
  • Order/Transactional confirmation pages
  • Profile pages
  • In a dedicated referral section that is linked from your main menu
  • Use a Hello Bar or similar software to constantly promote your program on every page
  • Through personalized URLs that customers can provide to their friends

Post Purchase

Customers are most likely to refer their friends (and share content) when they feel connected with your brand. This happens immediately after purchases and transactions, making post purchase interactions a key customer touch point for any outreach effort.

Post purchase interaction can occur on order confirmation pages, through emails, pop-ups and banner ads (retargeting).

Gamification

Developing a gamified system is another excellent way to encourage referrals and build a successful program.

Create a rewards dashboard for each of your customers that appears in their profile section and keeps track of how many referrals they have made through different channel. Track how many of their referrals have converted.

Build leader boards, badges and rankings into the gamified referral program. Offer additional tangible bonuses for your best advocates.

Tracking

Six Metrics for Tracking Your Referral Marketing Program

Measure the results of your referral marketing program using a marketing funnel and six simple metrics

  • Participation: number of people sharing
  • Sharing Rate: shares per advocate
  • Total Number of Shares
  • Clicks per Share
  • Total Clicks
  • Conversion Rate

Measures-of-Success

Measures of Success

I would define the success of your referral program based on three factors: Viral Growth Factor, Viral Cycle Time and CPA (cost per acquisition).

Viral Growth Factor

Your goal here it to generate a viral growth factor > 1 which leads to exponential organic user acquisition. Essentially each one of your existing customers is referring more than one new user. This is very good.

Viral Cycle Time

Basically you want the length of time required to acquire a new customer to be sufficiently low enough to maintain targeted growth rates that you have set for your company. Long cycle times = slow growth.

Cost per Acquisition (CPA)

Referral programs are not free, so it is important to measure the cost of incentives/discounts in your referral program relative to the LTV of customers that you are acquiring. A good rule of thumb is that your CPA should be < 1/3 of customer LTV.

If you need help let me know.

Hat tip to extole and their excellent Ultimate Guide to Referral Marketing Programs and Dave McClure’s Startup Metrics for Pirates which helped inspire this post.