What the Data Says: How Referral Marketing Drives Repeat Purchases and Increases Customer LTV

by Friendbuy

March 9, 2021

Acquiring new customers and increasing brand awareness are often the primary drivers for investing in referral marketing, but this kind of marketing can also help you make the most of your existing customer base. It is well known that the lowest cost per sale comes from current customers, so why wouldn’t you allocate a portion of your marketing budget to generating repeat sales?

When it comes to how referral marketing contributes to driving repeat purchases and increasing customer lifetime value (LTV), the data speaks for itself.

Referral Marketing Can Deliver 5X LTV Compared to Other Marketing Channels

The lifetime value of a customer is an important metric because the higher the LTV, the better your ROI when you acquire new customers. No matter what your cost per acquisition is, you want to maximize revenue from every customer you have earned. It just makes sense to invest in the channel that will deliver the highest LTV.

When you gain new customers from referral marketing, they can have five times the lifetime value of customers you acquire from other marketing channels. One reason for this is that referred customers are more highly qualified than other customers and there is already a certain level of trust established. They’re also more likely to become repeat buyers because they were referred by a trusted friend or family member.

Acquiring new customers is just the first step; you must also convert them into repeat buyers to generate a higher LTV. Referral programs help you do this by rewarding customers for promoting your brand. The more they share, the more rewards they get and the more likely they are to make another purchase, ultimately leading to a higher LTV.

Cultivating Advocates Increases the LTV of Your Overall Customer Base

The lifetime value of a referred customer is significantly higher than other channels, largely due to two factors: the low cost of customer acquisition coupled with established brand equity among advocates. Friends are more inclined to purchase when referred by an advocate they know and trust. Beyond that, they stay longer with your brand because the advocate referred them for a reason: They knew the referred friend would like it. Similarly, advocates are likely to keep referring so they continue to reap the rewards of the program, and they stay longer as they continue to earn rewards. 

Of course, generating repeat sales and retention requires some ongoing marketing effort. One way to do this is by promoting your referral campaigns in all of your communications to existing customers, not just on the website. For example, premium scrubs brand FIGS sends a series of customer lifecycle emails to welcome a new customer after they make a purchase. By incorporating the referral program into these emails, FIGS encourages new customers to share their brand experience (and $20) with friends to generate their own $20 reward. The company also sends customer anniversary emails with a similar offer, sparking renewed interest in the brand and maintaining loyalty among customers.

Why does FIGS take all these steps to put its referral program in front of existing customers? The company’s data shows that the LTV of advocates is higher than that of customers who don’t participate in the referral program. FIGS has proven that investing in advocates generates measurable returns and a higher LTV across their entire customer base. 

Redeemable Rewards Spark Higher LTV

According to referral marketing statistics, 64 percent of consumers say that rewards play a role in how much they spend. If you want to generate repeat sales and increase LTV, sweeten the deal for advocates with rewards that are both compelling and easy to redeem. The easier it is for customers to use their rewards, the more purchases they will make.

Undergarment brand Thinx integrates rewards directly into the checkout process so that returning customers will have a seamless experience. When returning customers make a purchase, their account credit is clearly visible and accessible. Customers even have the option to use only a portion of their account credit, so they have total freedom to use rewards their way. Of course, customers also see the post-purchase overlay after their transaction is complete, reminding them to share referral incentives with friends immediately after using their rewards to continue the cycle.

Boost LTV by Engaging When Customers Are Happy

There are several moments in the customer journey when people feel extra motivated to share your brand with friends. Immediately after making a purchase is a perfect opportunity, which is why a post-purchase overlay is one of our recommended best practices. 

You can intentionally add more of these moments to encourage sharing and increase the lifetime value of advocates. For example, floral brand The Bouqs Company sends surveys to gather product and customer experience feedback and learn from its audience. When a customer leaves positive feedback and they’re feeling good about the brand in the moment, The Bouqs Company provides an opportunity for that customer to refer a friend and includes a customized referral link that they can easily share with their friends. Our integration with survey company Delighted makes this a seamless experience for both the customer and the e-commerce company.

Get the Benefits of Referral Marketing with Friendbuy

Strategically incorporating your referral program throughout the customer experience makes it easy to drive repeat referral behavior—and, in turn, repeat purchase behavior—from advocates who receive referral rewards. The key is to set up a referral program that integrates seamlessly with your brand at every customer interaction, from the moment they first learn about your products to the moment they’re ready to become loyal brand ambassadors. 

When you work with Friendbuy, you don’t just get a referral platform; you get a partner. Our team is here to help you not only with the technical aspects of executing your referral program but also with the strategy behind it. You can use our deep experience with referral marketing to your advantage when creating campaigns, offers, rewards, and promotion strategies. 

We’ll work closely with you to outline your referral marketing goals and create a strategy that supports them. A well-rounded strategy focuses not just on new customer acquisition but also on cultivating existing customers to generate repeat business and maximize ROI. With built-in reporting tools and metrics, Friendbuy allows you to easily track progress toward your goals and identify the areas that need more attention. 

If you’re interested in learning more about how to integrate referral marketing into your brand strategy to acquire new customers and get the most value from your existing customer base, download The 2021 Referral Marketing Blueprint for E-Commerce today.

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