REFERRAL MARKETING STRATEGY

How to Analyze (and Improve) Referral Program Metrics

by Friendbuy

February 2, 2021


For high-growth brands, a referral program can drive 5 - 15% of all new customer acquisition. 

And if you’re paying attention to the right referral program benchmarks on your metrics dashboard, you can quickly tell whether or not your referral program is effective and where you can make improvements.

In this post, we’ll help you focus on the critical metrics that you can optimize for your referral program to get the highest ROI possible (at Friendbuy, we’ve already done so for these brands). 

Let’s look at the different metrics that reflect the health of your referral program and how you can use them to increase ROI.

Analyze Your Referral Program By Tracking These Key Metrics 

While launching a referral program can be straightforward with the right platform, understanding what’s working and what isn’t takes more consideration. When you break down your program by key metrics, you can more easily identify the gaps in your campaign’s presence and take steps to customize the referral funnel with event tracking and optimize your referral program with A/B testing

Metric

Ideal range

Suggestions if you’re below the ideal range

Share rate

5% - 9% 

If your share rate is low, that means your Advocates aren’t motivated to refer. Try increasing or A/B testing your Advocate incentive to motivate more referrals. 

Clicks per share

1.8 - 2.8 

A low click per share rate indicates that the friends and family of your Advocates aren’t motivated to click. Try increasing or A/B testing your Friend incentive, and give your Advocates enticing Share messages to help improve click rates. Also, consider testing copy for your referral program email and SMS messages.

Conversion rate

2-3x your ecommerce conversion rate

To improve your conversion rates, try increasing or A/B testing your Friend incentives. Ensure your referral offer is more enticing than other offers and promotions on your site. Also consider using a dedicated Friend landing page so that Friends are focused just on the offer in front of them. 

 

The above table shows the four key metrics you should track to ensure your referral program is performing well. The ranges provided come from some of the top performing brands using Friendbuy, across different verticals and brand sizes. Of course, your numbers may vary based on your site traffic and the size of your customer base. This table is meant to give you a high-level idea of what to aim for, and how to adjust your program if you aren’t seeing success.

This article provides a deeper dive into each of these metrics below, and how they differ based on each audience. Generally speaking, there are three components of your referral program  for which you will want tot examine your metrics: Advocate Metrics, Friend Metrics, and Channel Metrics. 

 

Advocate Metrics

An advocate is someone who is willing to recommend your product to their friends and family. You'll want to look at your advocate metrics to know how to optimize your referral program when you launch, or  refresh an existing one based on how engaged your advocates are. 

It’s important to understand these metrics because understanding how engaged your target audience is and what motivates them to refer will help you acquire more customers.

Here are the top advocate metrics you need to track to ensure you meet and exceed your referral marketing goals. 

 

Referral Program Impressions

Also known as campaign impressions, this metric measures the overall exposure of your referrals. It lets you know who is viewing your referral program, where they see it, and whether or not your CTA button designs are doing their job. 

This is a key metric because the more visibility your referral program has, the more impulse referrals your program will get. It’s so important that it’s the very first factor in Friendbuy’s formula for a successful referral program:

Awareness + Accessibility + Ease of Use = Impulse Referrals

In the Friendbuy dashboard, you can use widget impressions (views) to see how many referrals are generated from a specific location.

For instance, skincare company Neutrogena uses an embedded referral widget to drive program awareness through email blasts. This accounts for 30% of their referral revenue.

 

Something as simple as a quick email to your customer base once a quarter can boost revenue significantly.

Understanding where your referral program shares, and therefore impressions, are coming from inside the Friendbuy dashboard.

Understanding where your referral program shares, and therefore impressions, are coming from inside the Friendbuy dashboard.

By knowing where your impressions and conversions are coming from, you can double down on the promotion types that work and improve other areas that are lagging behind.

Improve this metric by taking steps to promote your referral program on social media, email marketing campaigns, and other places where existing users will see it. 

You can also improve campaign impressions by including a referral widget in these places: 

Any steps you take towards promoting your referral program will help improve your impressions and improve your campaign’s ROI.

 

Share Rate

Share rate is an important metric to track because It tells you the percentages of Advocates who took action and shared your referral program.

If your share rate is low, it may indicate that you need to improve your Advocate incentive or rewards. 

On the other hand, a high share rate tells you that you’re on the right track with your referral program rewards. 

For example, this referral program dashboard shows a 10% share rate among Advocates.  

Reviewing referral program performance on the Friendbuy dashboard.

Having a high share rate is an indication of how engaged your Advocates are, which ultimately impacts how much revenue your referral program drives.  

And if you can improve that metric by increasing the incentive to share your referral program? Then your referral revenue only goes up from there.

You can optimize the referral funnel with A/B testing to see which rewards motivate your existing users to convert their friends and family into paying customers.

For example, OLAPLEX, a hair care company, offers a free shampoo for each friend they refer through their unique referral link. This measure is a great way to boost the referral program’s participation rate because it motivates existing customers to find new users to earn more products. 

You could also take a page from nail polish company Olive & June by offering referred customers rewards when they use referral codes with their order. This is a great way to encourage active users to raise brand awareness with a perk for all participants. 

 

It’s not rocket science: the more visible the rewards are, the more likely customers will jump on the chance to promote your business. 

Remember our winning formula:

Awareness + Accessibility + Ease of Use = Impulse Referrals

Always promote your referral materials clearly on your website and in promotional emails and make it as seamless as possible to share with others. 

 

Conversions and Conversion Rate

A conversion can be defined as when new users take the desired action on your website. A conversion rate is the percentage of conversions in relation to overall clicks and views. 

Success rates refer to conversions other than direct sales, like the number of emails and phone numbers being collected, or newsletter registrations. These conversions matter because they help build a base of qualified leads. 

As one Friendbuy customer put it: “emails collected from our referral program are gold”. 

It’s where you will promote your referral program as well as your products and grow your revenue exponentially.

A solid referral program can help you grow your email list as well as your revenue.

You can build email capture into your referral widget with Friendbuy

 

The first step is to identify what a “conversion” means to you and your business. The next step is to see which conversions are killing it and which could improve.

The main conversion rate to keep your eye on is the purchase rate. This metric allows you to see how many purchases were made compared to the number of Shares. 

You can easily keep tabs on your purchase rate by tracking referral revenue driven. Since Advocates are referring friends with their personal links, you can quickly see how much revenue can be attributed to your referral program. 

Wherever you have low conversion rates—whether in shares, referral clicks, or referral purchases—you can take steps to improve this area of your referral program, which will ultimately improve your overall purchase rate.

 

Referral Revenue

Revenue is the number of sales your referral marketing campaign earns.

It’s important to periodically review this metric and tweak your campaign based on how much revenue it’s earning. For instance, you may notice a specific campaign is super niche, so the share rate may be low. However, the referral perk generates a lot of revenue, so it’s worth maintaining this specific referral model. 

 

Top Performing Advocates

It’s a good idea to offer incentives to your top-performing advocates, AKA, the customers who generate the most referrals for your brand. You can appoint these top-referrers as lead advocates and give them special incentives for their efforts. 

Identify your top-performing advocates by checking your referral program dashboard and seeing which Advocates have driven the most revenue. Notify your top referring customers by sending out an email template triggered by your referral platform to let them know their ranking in your referral program. 

Offer tangible rewards that are worth their time and effort to drive engagement. For instance, online yoga platform Sky Ting TV offered a cash payout for their Advocates. 

 

You could also provide full-sized products, company swag, or even gift cards to motivate your top Advocates to keep going.  

This isn’t for everyone though and isn’t a one-size-fits-all kind of campaign. This is where choosing an incentive structure that requires a high average order value (AOV) can help ensure that your top-referrers are incentivized to keep referring, while maintaining your low CPA.

 

Friend Metrics

In the referral marketing funnel, Advocate metrics are just the tip of the iceberg. You need to focus on all the right metrics to get the complete picture of your referral campaign’s health.  

Friend metrics focus on the friends and family of your advocates and their journey through your referral campaigns to becoming referred clients or customers. 

 

Click Rate

The click rate metric shows the percentage of people who click on your Advocate’s referral link. It can let you know how well your incentives are working and if your offer is strong enough to compel a new user to click. 

Your campaign’s click rate is also an excellent signal for whether the calls to action you’ve crafted are effective. Consider trying A/B testing with different colors, images, and language to see what works best. 

For instance, Toggle, a customizable renter’s insurance company, uses engaging copy, appeals to the new user, and offers a clear, inviting CTA button. This is a great way to encourage clicks on their referral email and coax them into the referral funnel. 

 

Walmart does something similar with their referral incentive widget. The widget clearly states what the friend will receive and then has a clear call-to-action that includes the reward right in the button text: “Get my $20 off”

 

Conversion Rate

The conversion rate of a campaign tells you the average number of Friends who purchase after clicking on the offer proposed by Advocates. 

It’s a great metric to compare referral visits from paid marketing channels and zero in on which incentives are inviting enough to prompt referred friends to make their very first purchase with your brand. 

Your share channels hold the key to which conversion rates are the highest. Will it be your email campaign or perhaps social media shares? 

Test different destination URLs to determine what type of copy and images work best to entice more purchases. Instead of directing the new user to your home page, craft a compelling referral page that outlines all the perks they will receive by converting. 

For example, furniture company Burrow brings friends directly to a page that displays their friend’s offer because it’s a more successful conversion event than having the friend land on the home page. Additionally, they use images and page copy that engages the reader and inspires them to enter their details that will help them claim the reward. 

 

 

Channel Metrics

Channel metrics are specific indicators of the success of each referral platform channel. They let you know where your efforts are working overtime and where they may need some extra attention. 

 

Email & Reminder Email Metrics

Your email marketing campaign is essential to your business because it adds another layer to your referral marketing strategy. 

For example, your open rate measures how many recipients have opened your email, while the recipients per email share refers to the number of people your Advocates sent emails to. Depending on your industry, you want your open rate to fall between 17% and 28%

Another metric to check out is your click-through rate versus your purchase rate. Track how many people click on your referral email links and compare it to how many are converting. Look for a CTR that sits around 2% to 5%

For example, the below dashboard shows a Friendbuy customer that regularly sends email blasts to promote their referral program.

Having a clear view of this data in a single dashboard allows you to find the email campaigns that work well and those that fall flat.

You can boost these metrics by designing an email marketing campaign with interactive media, like videos, social posts, or e-Commerce blocks. Our referral program email templates will help you get started with high-converting designs and language.

 

SMS

SMS marketing allows you to connect with your advocates and their friends through their phones. Many customers open their SMS messages within the first three minutes of receipt. So which metrics let you know your SMS campaign is flourishing? 

Check out your campaign’s delivery rate, the number of texts that made it to a subscriber’s phone divided by how many texts were sent in the SMS push. Also, check out your interaction rate, which is the number of subscribers who took action after receiving your message. 

To optimize your SMS referral campaign, look for trends in the data. Are there certain times when your texts are performing better than others? Do some A/B testing to find the right mix for your branding. 

 

PURL 

A personalized URL or PURL is a unique link for your Advocates that tracks when their referred friends convert. 

You can send your advocates their PURL through email, SMS and push notifications so that they always have it on hand. In order to capitalize on impulse referrals, it should take your Advocates no more than ten seconds to find or generate their PURL. 

 

Broad Metrics

Broad metrics help companies determine the overall health of their referral campaign. 

They are great for identifying the effectiveness of the collection of your different channels and allow you to calculate whether or not your referral program is doing well.  

 

Referral Program ROI

Your referral program’s ROI is the amount of money you’ve earned from the campaign minus the money you spend on referral marketing. It helps you identify which referral programs are helping you make more than you spend on them. 

High-growth brands using Friendbuy typically see a 25X ROI on a referral program investment. For instance, Tonal, a home gym and trainer system, increased its ROI by 7% monthly by implementing a referral program. 

 

Remember, ROI on referral marketing is in a different category than ROI on ad spend. You typically spend less on a referral program since advocates do much of the promotional work for you. So keep an eye on the program’s ROI to ensure it’s working.

One way to check in on ROI? Take a look at the cost per acquisition (CPA). 

By industry type, these are the CPAs for Friendbuy’s customers compared to average CPAs in advertising:

 

Vertical

Friendbuy CPA

Advertising CPA

Apparel and Accessories 

$1-10

$4.44

Essentials

$1-9

$9.65

Health and Beauty

$1-6

$15.40

Data Source: 2021 Benchmarks Report

 

What’s more, Friendbuy customers have an average 25x return on spend whereas the retail average return on ad spend (ROAS) is 13.76x, nearly half that of referral marketing. 

If your ROI is not 14x, that’s an indicator that you can be better optimizing your program.

 

Customer Lifetime Value

The next metric, customer lifetime value, is the overall worth of a specific customer to the business throughout the entire relationship. It’s related to the overall referral campaign success because it shows you how much revenue was generated by a specific advocate. 

You can measure this metric by multiplying the amount this customer has brought in by the amount of sales related to them. 

You can improve the customer lifetime value by creating incentives that encourage  Advocates to promote your business. This may include improved rewards or reminder emails to advertise what you have to offer. 

 

Customer Acquisition Cost (CAC) Of Referrals

Customer acquisition cost, or CAC, lets you know how much it costs to obtain referrals through a specific campaign. It’s the amount of money spent to get new users to convert. 

 

You can improve this metric by 

  • Reviewing data regularly and investing in the referral channels that give you the best ROI. 
  • Diverting funds from programs that don’t appear as lucrative to get the biggest bang for your buck
  • Using A/B testing to improve conversion rates where the acquisition costs are high.

 

Customer Retention Rate From Referrals

This key metric communicates how many referred users become new clients while keeping existing customers in your ecosystem. 

This is a powerful metric because 80% of revenue can be attributed to just 20% of existing customers, which is made especially easy with referral marketing. In fact, if you can increase your retention rates by just 5%, then your overall profits can increase up to 95%.

Get Back was able to increase revenue by a whopping 700% with Friendbuy’s easy-to-use referral marketing software and A/B testing capabilities. 

You can identify this rate by looking at your overall referral rate and dividing it by the number of new customers in a specific period. 

You can enhance this metric by ensuring that your referral program is intuitive and engaging from start to finish. 

Bringing us back to our winning formula:

Awareness + Accessibility + Ease of Use = Impulse Referrals

Evaluate your referral funnel to see if there are any bottleneck points and create incentives that will keep customers coming back for more. 

 

Make An Impact With The Right Metrics 

As you analyze the backend of the referral funnel, identify where your campaign is performing well and use that information to pinpoint opportunities that will optimize the front end of the funnel. 

Use the built-in live A/B testing function in our referral marketing software to self-correct any gaps in your referral program. Always follow referral marketing best practices to ensure your referral program is on the right track. Remember, no matter what discovery you make, the more data you analyze, your approach will be more refined.

To learn more about how to optimize your referral program, read Referral Marketing: The Essential Guide.

Maximize word of mouth at scale