Referral marketing is one of the most effective forms of marketing. It is the primary factor behind 20 to 50 percent of all purchases. Referrals also generate more than twice as many sales as paid advertising. Referral marketing increases the effectiveness of marketing efforts by 54%, according to Marketshare.
Referred customers are often more valuable over time to a company. The lifetime value (LTV) of a referred customer is 16% higher compared to non-referred customers.
“One customer, well taken care of, could be more valuable than $10,000 worth of advertising.” – Jim Rohn, Motivational Speaker
“In sales, a referral is the key to the door of resistance.” – Bo Bennett, Author of Year To Success
People tend to trust their friends and family’s recommendations much more than a paid advertisement. Therefore, customers who are acquired through referral marketing have a tendency to spend two times more than the other customers and refer twice as many people.
It is like the infamous Facebook CEO, Mark Zuckerberg said, “People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral influences people more than the best broadcast message. A trusted referral is the Holy Grail of advertising.” [source] Your friends and family will definitely influence you, especially when it comes to purchases.
When people make purchases, they also tend to look for social proof. They want to know that other people are buying the product. They Google reviews of the product. In fact, BrightLocal found in a consumer study that 88% of consumers read online customer reviews to determine if a local business is good.
Let’s look at some examples of companies that effectively used referral marketing to grow their business.
Dropbox’s Referral Program
Dropbox has grown their business through referral marketing. Their famous referral program gives you and your friends 500MB additional free storage space. This incentive has encouraged customers to refer their friends. Dropbox’s referral program increased signups by 60%, with users directing 2.8 million referral invites by April 2010.
Reasons for Dropbox’s Success:
Before the referral program, Dropbox was using SEM and affiliate marketing. Unfortunately, their CPA was $288-$388 and their product was only $99/year. Therefore, they needed to rework their marketing efforts before they went bankrupt.
Dropbox was inspired by Paypal. They added a double-sided referral program, which rewarded both the referrer and the friend. The double-sided reward sign-ups create lots of social proof through social media. It generates a lot of publicity for the business.
Dropbox used extra storage space for their referral reward. This was something that would be useful to the consumer. The results were great.
In Sept 2008 the service had 100,000 registered users
In Jan 2010 (15 mos.) the service had 4,000,000
35% of daily sign-ups are via the referral program
PayPal’s Referral Program
Paypal knows that people make decisions with their pocketbooks! They incentivized their customers by literally giving their users cash. This is probably only a good incentive for payment platforms.
PayPal’s referral program is one of the more lucrative referral program examples. Referrals fueled PayPal’s 7-10% daily growth, which launched their user base to over 100 million members.
PayPal used to literally pay people to invite their friends to use the platform, according to David Sacks, original COO of PayPal.
As it turned out, rewarding customers had a better yield than traditional marketing channels. Once PayPal achieved a solid base of early adopters, they dropped the Refer-A-Friend bonus. When they reached their target numbers, they dropped the referral bonus for merchants.
Amazon Prime’s Referral Program
Amazon leveraged social proof when it designed its Amazon Prime referral program. When you receive an invitation to join Amazon Prime, they mention who invited you to join. Seeing a friend’s name associated with it makes it worth checking out.
Amazon Prime encourages repeat business. It rewards Amazon customers with free shipping on their purchases. The more they purchase from Amazon, the bigger bang they get for their membership fee.
With Amazon Prime’s referral program, only the advocate gets rewarded. For more established brands, such as Amazon, a double-sided referral program tends to work better.
What makes Amazon’s referral program effective:
Evocative header image.
Social proof to makes referred friends feel more comfortable.
Clear calls-to-action which encourage visitors to quickly take the next step.
Wide reach– the referral program is open even to non-Prime users.
Starting Your Referral Program
Customers will naturally refer their friends and family members when they experience a store with great customer service and wonderful products. However, you want to ensure that your store is top of their mind and that your customers get the word out to their friends. A formal referral program can help encourage that.
More than 50% of people are likely to give a referral if offered a direct incentive, social recognition or access to an exclusive loyalty program. – Software Advice
The first step towards getting a successful referral program together for your business is to identify the customers that you want to refer their friends. Think about what motivates these customers. Consider the best way to communicate the program with them. Do they respond well to social media? Email? What are the best times to reach your customers via email? Should you post your program on social media? What are the problems that your business solves for the customer?
Identify a low-cost item that would motivate your target customers. Make sure that it is something that would be useful to them, but also not break the bank. It could be as simple as a discount on their next purchase. If you follow the Dropbox example, you should offer a dual reward – one for the referrer and one for the friend. This will help to generate new business and stimulate repeat business.
Create a referral rewards system. Do you want your target customer to earn a reward for each referral or will the referral rewards be tallied in loyalty points that can be accumulated through a variety of methods for a number of products that you sell? How will you track the referrals?
Change up the referral rewards to get customers excited to come back to your store and discover new things. You can reward customers with a seasonal item. A Christmas keychain or some Valentine’s Day chocolates. There are tons of seasonal items that can motivate customers to refer their friends. Try to make your incentives special and unique. People tend to forget about the referral program, so routinely changing up the reward will give you a reason to notify customers and get them interested in participating again.
About the writer:
Melinda Curle. Melinda is a blogger at ReferralCandy and CandyBar. She loves learning about internet marketing and maintaining her own fitness blog. She enjoys running, swimming, dancing and Pilates.
Here are four critical parts of a well-tuned email marketing system:
1. “Pre-purchase” Nurture Flow
Let’s talk about how you need to treat your digital customers just like real people.
Nobody buys a product from a stranger.
They buy from someone they know and trust.
Say you convert 3 to 5% of your site traffic.
That means that over 95% of your visitors are not coming back to buy.
You need to acquire as many of these as you can so you can nurture them into customers.
Remember: Build a relationship first. Then sell.
Once you collect email addresses, you need to have an expertly structured and sequenced automated email flow that will:
A. Cultivate a relationship.
Indoctrinate potential customers to your brand with well-crafted emails that truly speak to them and their interests or needs.
B. Gradually move to selling.
Your sales sequence should sell from three different, proven psychological angles. (Book a free strategy session and we can help you with that and more.)
C. Close the deal.
If you can’t close the deal, what’s the point?
You want to gradually increase the urgency and make sure potential buyers realize they need your product because it is going to improve or simplify their life.
2. Abandonment Flows
A stunning 70% of ecommerce shoppers abandon their carts.
Maybe they got interrupted, maybe they didn’t have their credit card with them, or maybe they want to shop around a bit before committing.
Whatever the reason, in most cases it’s not because they don’t want your product.
That’s right. They still want your product.
So why are you letting them get away so easily?
If a shopper puts an item in their cart and then disappears, your email system should be ready to fire off an automated email flow that entices them to come back and complete their purchase.
And you’ll want this email flow to be in sync with the customer.
For example, first-time customers and repeat buyers will probably respond differently to certain discounts and incentives – so you need to be smart about your messaging.
3. Manual Campaigns
These are the traditional monthly or weekly emails that most businesses send to try to spark interest and lure customers back to their site.
If nothing else, you probably already do this.
Unfortunately, if you’re like most of the companies I see, you are botching it up with bad sequencing and unrefined segmentation.
Manual campaigns should be artfully layered on top of your automated flows and used for more seasonal, or time-specific campaigns.
Think product launches, Black Friday and Father’s Day sales.
[NOTE: When done right, your automated flows should be adding an additional 10-20% in revenue per month. Half of your email revenue should come from automated flows and the other half from manual campaigns. Watch a quick breakdown of how this should work here.]
To make sure you are sending the right message to the right customer, your email tool should let you build customer segments based on things like total purchase volume, specific products purchased, and past engagement with earlier emails.
For example, maybe you just want to email customers who have spent more than $500 on your site in the past year or those who live in a certain geographic area.
Don’t treat your email campaigns as one-size-fits-all because rarely, if ever, will that work.
Build case-specific messaging that is personalized and people will buy.
4. Post-Purchase Flows
These are the real moneymaker when it comes to customer emails.
And yet, for some reason, everyone gets them wrong.
The key is once again properly segmenting your customers and tailoring messaging that resonates with them.
Some popular and smart ways to segment out your buyers:
By what product they purchased
By lifecycle stage (First purchase, second purchase, etc.)
By engagement (How often do they open the emails you send them? What offers made them “click” and shop?)
Not all customers are the same and they shouldn’t be treated the same.
Know who your most and least engaged customers are, and market to them accordingly.
Think your email system setup is the best you can do?
I’m positive it’s not and you could be converting more site visitors into buyers by properly leveraging a tool like Klaviyo.
At Blue Stout, we have clients that see close to 50% of their total (multi-million dollar) revenues come solely from smart email outreach.
And 25% of that total revenue is coming from automated — yes, that’s right, AUTOMATED — flows.
If you’re not there yet, it’s time to do better.
We can help you maximize the value of an email system like Klaviyo and boost your revenue quickly. Book a free strategy session with us today so we can discuss the correct configuration of email flows for your brand, customers and market.
Every day I talk to ecommerce entrepreneurs who are ready to scale their business.
Most have a great product, a pretty website and an eagerness to grow.
Unfortunately, they also have terrible systems in place that are blocking growth and sabotaging their whole venture.
For example, I’ve seen too many entrepreneurs focused solely on driving traffic to their site.
In their defense, it makes sense, right? More traffic = more sales, right?
Not so fast.
Traffic is important, of course. But traffic alone will not help you scale your business.
If you don’t take the time to build effective “purchase funnel” systems and infrastructure, all the traffic in the world won’t matter.
In fact, too many businesses struggle to effectively sell to their customers and essentially position themselves to fail from the start.
So what systems are critical to scaling your business?
Here’s three big ones you’ll need to have in place to create game-changing growth:
1. Pre-Purchase Acquisition
Even if your site converts well — say 3 to 5% — that still means over 95% of your traffic (traffic you are PAYING for) will leave and most likely never come back.
You need a bulletproof strategy to acquire these visitors and then nurture them into a sale.
Pre-purchase acquisition is either capturing visitors’ email addresses before they buy or convincing them to follow you on social media.
Ideally, you’ll convince 10 percent of your not-buying-today visitors to share their email address or follow you on Twitter, Instagram, etc.
Now you might be thinking: “Great, we already have this one covered! We have an onsite pop-up that immediately offers visitors a discount for a shared email address.”
Sorry, that’s not going to cut it.
Consider it like a customer visiting a bricks-and-mortar store. Would you race up to someone and throw a coupon in their face right away?
Of course not.
You’d want your salespeople to first greet the customer, ask how they are, ask if they need help finding something, etc., before selling a product.
Pre-purchase acquisition is just the first step in your relationship with a customer.
After that, you must nurture your relationship with them through automated email campaigns and your social platforms before you start the hard sell.
Sequence, timing and messaging really matter here.
But once done right, this combination of acquisition and nurture can literally add a full 1% to your current conversion rate. That’s a lot of extra sales.
2. A compelling “Message to Market”
What’s the #1 most important factor for a successful ecommerce company?
Product or marketing?
Most say product.
And they would be very wrong.
The market is littered with brands who had the best product in the world, but still failed.
Why? Because they didn’t know how to SELL it.
We call this your “message to market.”
It’s half-art and half-science. And there’s three main components:
Determining who your target market is (at a granular level)
Understanding what’s unique, compelling and powerful about your brand
Explaining to your target market why they should care (and buy)
You need to show that you care about what your target customer cares about — whether it’s making sure they find a great deal on a hotel room, get a pair of running shoes that still feel great after 300 miles on pavement, etc.
And don’t get bogged down in gimmicks, technical facts or unique qualities unless it will really wow your target audience.
Taft offers a quality product + free shipping, free returns and free exchanges in the US.
For example, say you develop a baking dish that withstands temperatures up to 2,000 degrees F.
That might be an engineering feat, but will this help you sell it to people who will be using it in an oven that maxes out at 500 degrees F?
Ultimately, when people visit your site and read your messaging they should have an “A-ha!” moment.
They should be thinking: “These are my kind of people. I’m in the right place.”
Now maybe you’re not convinced your existing branding and marketing message is holding you back.
I’m telling you right now that it is.
Last summer, we had a client who grew their conversion rate over 250% in 8 weeks by simply adjusting their message to market.
It’s that powerful.
3. A way to increase the average order value and repeat purchase rate
A sale is great. But upselling and repeat purchases are where you make the real money.
This is the #1 most overlooked area for most merchants.
It also happens to be the #1 fastest way to increase your profit margins.
You’ve already paid for this customer, so any additional merchandise they buy goes straight to the bottom line.
There are two definitive ways to upsell and lure former shoppers to buy again.
And if you aren’t doing these, well, you’re doing it wrong.
First, you need compelling upsell offers on your site, as they shop.
Second, you need to send past buyers well-crafted emails that will drive them back to buy more (ideally using automated flows in Klaviyo that fire automatically for you).
For example, do your customers love free gifts with a purchase?
J.L. Hufford is giving away $50 in j-Money with the purchase of a New Vitamix Blender.
Purelei is giving away a free ‘Thank You’ gift with purchase.
The perfume and cosmetic industry has created excitement and moved tons of product over the years by offering free gift sets with certain purchases.
Maybe your customers would respond to special sales based on thresholds, such as amount spent or number of items purchased.
At Blue Stout, we have a proven formula for how to do this all successfully (I’d like to say it takes finesse, but it doesn’t. It just takes knowing the answer – and we do).
Every day I talk to smart people with great products who are making incredible mistakes when it comes to selling.
They tell me about their growing site traffic and think this means their revenue will jump too.
In the meantime, they neglect key processes or do them so badly they might as well be throwing money out the window.
Remember – building a successful business is about more than having a great product and tons of traffic flowing to your site.
You need to be able to sell shoppers on why they need your product (or convince them it’s ok to indulge in their desire for it) and then have the infrastructure to make it simple for them to keep buying.
The systems above — when well-designed and efficient — can replace the stagnant, linear growth your company is seeing and turn it into stunning, hockey-stick growth.
Are you an ecommerce merchant who wants to hit 7 and 8 figures in revenue?
Sign up for our free, online training webinar. We’ll cover a bulletproof method for adding a full percentage point to your current conversion rate, share our Blue Stout “product page formula” that leverages consumer psychology so visitors sell themselves on your product, and discuss the fastest way to scale your ecommerce brand from 6 and 7 figures to 8 figures in revenue (without taking on outside investment), plus more.