Here’s a fair question: “What kind of return can I expect from a referral marketing (aka refer-a-friend) program if I invest my time and energy?” As with any marketing channel, you’ll evaluate everything you test and cut budget on anything that doesn’t yield sufficient results. I think you’ll agree, after reading this post, that referral program are well worth an investment.
Before we dive in, you must know, every business is different. Free, freemium, daily deals, SaaS, full-priced, apparel, charitable giving, subscription and so on have their own unique metrics, but all are capable of meaningful ROI via customer referrals.
Given the disparity among business models and industry verticals, thankfully there are averages worth exploring. Below are benchmark ranges for each step of the referral marketing funnel and suggestions for optimizing each regardless of the business you’re in.
Note: Benchmark studies tend to provide single, absolute figures. We thought you’d appreciate ranges so we’ve spread the performance numbers/percentages below so you can identify how you’re doing in a broader sense.
THE REFERRAL MARKETING FUNNEL
The referral conversion funnel is an interdependent sequence of events, just like any marketing funnel.
User Participation Rate
This is the percentage of people you reach that share with their friends and create the raw potential to drive new customers to your business. These are people who visit your website, follow you on social media and even those who fit none of the preceding criteria but for whom you have an email address (newsletter subscribers, etc.)
How you can improve user participation rate
- Enable sharing in more places on your website (homepage, order confirmation page, user account pages, product pages, a stand-alone referral page, etc.)
- Promote your referral program to your email list and social followers (email blast, post on Facebook, Tweet)
- Promote your referral program in newsletters, transactional emails and more…
This is the percentage of people who share when presented with an opportunity to do so via a referral widget (overlay or embed).
- 7% – meh
- 15% – solid
- 30% – you’ve nailed it
- Some of Friendbuy’s customers have exceeded a 50% sharing rate, a notable optimization goal for everyone
Please Note: Performance will vary by placement (homepage, user account pages, order confirmation page, etc.) so getting as many widget placements as possible is highly encouraged.
How you can improve sharing rate
- A/B test offers (store credit, free gift, etc.)
- A/B test the content (copy, images, etc.)
The number of friends who see shared content on Facebook, Twitter or an email message and click to visit your website. The tricky part here is that Facebook and Twitter don’t report impressions, sort of busting a normal marketing calculation. While email reporting does include opens and unique opens, the best way to approach this — in aggregate and normalized across all channels — is to measure the number of visits per share. That levels the playing field.
- 1 visit per share – meh
- 2 visits per share – solid
- More than 5 visits per share – you’ve nailed it
How you can improve referral visits
- A/B test offers
- A/B test copy, images, etc. – shared images on Facebook are quite prominent in the friend’s news feed and deserve special attention
Referral conversion rate
The percentage of referred visitors (friends) that convert when they get to your site.
- Less than 4% – meh
- 10% – solid
- More than 15% - you’ve nailed it
How you can improve referral conversion rate
- A/B test offers
- Build and A/B test a dedicated referral landing page (much better than driving referred visitors to your home page)
REFERRAL MARKETING RESULTS
This is where the rubber meets the road, the very thing that determines if your time and effort has been worth it. Two key metrics summarize it all, your lift on revenue and cost per acquisition.
Lift on Revenue
- Less than 5% – meh
- 5 to 15 % – solid
- 30% – you’ve nailed it
Cost per acquisition (CPA)
Referral programs average ‘single digit CPAs.’ That is to say, you should see your cost per acquisition no more than $10 per new customer.
Compared to display advertising ($20 to $40 CPAs), Pay Per Click ($30) and display retargeting ($10), referral programs are extremely efficient.
- $10 CPA – meh
- $5 CPA – solid
- $2 CPA – you’ve nailed it