The ROI of Referral Marketing: 5 Metrics for E-Commerce Teams to Know

by Friendbuy

October 13, 2020

E-commerce teams can use referral programs to quickly grow their customer base, drive sales, and achieve positive ROI shortly after the program’s launch.

But don’t take our word for it. Here are five metrics you should know that showcase the ROI of referral marketing. 

1. Businesses can drive at least 5-15 percent of total revenues through a referral marketing program.

Customers achieve these results by implementing Friendbuy’s referral marketing best practices and effectively promoting the referral program to their email list and social media followers.

Friendbuy’s top-performing customers have achieved up to 30 percent of revenues by A/B testing referral offers and optimizing the creative elements of their referral programs. These customers have also used Friendbuy to implement targeting and segmentation to further enhance referral marketing performance.

[Customer Story] See how Tonal uses Friendbuy to drive up to 7% of online  revenue. >>

2. Customers referred by a friend convert 5 times faster.

Referred friends are highly qualified because they’ve been introduced to your brand by someone they trust. As a result, referred friends convert much faster—5x faster—than those acquired through other channels.

Faster conversions means fewer dollars spent hitting your customer acquisition goals, which allows you to put newly freed-up funds toward other acquisition initiatives or to invest in other areas of your business.

3. Referral marketing should be one of your most efficient channels in terms of cost per acquisition (CPA). 

Leveraging existing customers to refer new customers is a highly efficient method of acquisition relative to paid channels. By increasing conversion rates and accelerating time to conversion, referral marketing can consistently deliver your business’s best CPA.

By category, here are the CPAs that Friendbuy’s customers are achieving:

  • Apparel and Accessories: $1-10
  • Essentials: $1-9
  • Health and Beauty: $1-6
  • Subscription: $1-11
  • High Consideration: $1-14

4. Referral marketing achieves a 5x greater lifetime value (LTV) than other channels. 

Referred customers are much more highly qualified than other customers, which itself achieves a significantly higher LTV. But acquiring a new customer is just the first step in building your brand. To achieve sustainable growth, you need to turn your new customers into repeat buyers. Referral programs facilitate strong customer relationships by rewarding your existing customers to promote your brand to their friends, which results in repeat purchases from these existing customers and higher lifetime values.

5. Referral marketing can offer a 25x return on spend.

Investing in a best-in-class referral marketing platform and services vendor allows your marketing team to own the referral channel without requiring additional resources across your organization from engineering, finance, and product management. 

Take a look at some of the average ROI seen across different verticals:

  • Apparel and Accessories, CPG/Essentials: 25x
  • Health and Beauty: 22x
  • Subscription: 18x
  • High Consideration/Luxury: 47x

A top-performing referral program can deliver unmatched value for your brand.

Demand More from Your Marketing Investments

Eighty-three percent of consumers trust recommendations from their friends, and 80 percent of consumers are likely to purchase an item based on friends' suggestions. If your current marketing strategy can benefit from the value achieved by referral marketing, it’s time to invest in the technology and tools—and a referral marketing partner—that offers these new efficiencies and unparalleled value as you grow your brand.

Find out more about what it takes to build a successful referral program—download Referral Marketing: The Essential Guide today.

Maximize word of mouth at scale