We know from countless articles, surveys and polls that customer referral programs are, by far, the most cost effective and highest customer acquisition gaining tool available. What’s more cost effective than your current customers telling their family and friends about your business? What accelerates a customer referral is when a customer has an amazing customer experience with your business and they get excited to tell others, such as family and friends, about your business. My personal belief is that a product is successful when a customer has success using it. No ad campaigns, radio spots or FB ads are needed when it comes to referrals. Referrals are a self-driven engine that runs on word of mouth. Offering the best possible customer experience is the best way to get folks to go out of their way to promote your business. An informal referral program is better than no program at all but if you get organized and offer a formal system that allows customers to share and they can see and share your referral reward offers, that’s when things can start to take off when it comes to bringing in more business.
Let’s take a few moment to consider what you need to know when it comes to offering a formalized customer referral program and why those inputs are important to understanding the true cost of acquiring a new customer. Here are the primary factors to calculating customer acquisition costs when offering a referral reward program: Typical Customer Lifetime, Avg monthly spend of your customer, Gross Profit Margin, your referral reward discount offer (% off or dollar discount), who receives the referral and the cost of your referral reward program software (if using a online program). With all of the aforementioned factors, you can calculate the RROI (Referral Return on Investment) and the LTV:CAC Ratio (Customer Lifetime Value to Customer Acquisition Cost Ratio). Industry benchmarks state that a LTV:CAC above 3 is ideal. The higher the ratio the better. Obviously the RROI that is higher is preferred.
It makes sense to understand what your cost structure will be and the overall return on your investment if you decide to offer a formal customer referral program that includes a reward system such as a percent or dollar discount for new referrals. Technology allows for information to be shared much faster and efficiently if your customers and target customers are sharing information on their mobile devices. Industry statistics state that consumers spend an average of 5 hours a day on their mobile devices and found that 46% of decision makers are now aged between 18 and 34 years old (up from 27% in 2012), which coincidentally, is the largest social media user demographic. It is critical to know and understand who your audience is and how they search for the things that they desire. If you haven’t thought about all of the aforementioned things discussed in this blog, you should take the time to research how effective tech-based referral programs can be. Social media connected with commerce (Social Commerce) is truly the wave of the future. As consumers use technology more and more to accomplish daily tasks, the more options you offer them to promote your business when they have a great customer experience, the more customer referrals you will receive and the faster your business will grow.
Dealium was created to offer the small business owner a centralized tool to offer customer referral programs without having to have a large marketing budget, expertise or time commitment to running a program.
Dealium is a SaaS B2B Referral Marketing Technology Platform that directly connects small businesses with new customers through our proprietary algorithm-based referral code sharing technology incorporated with the customer’s SMS, Email & Social Media.
Dealium creates brand awareness, brand exposure & new customer acquisition opportunities for our business subscribers while allowing their customers to save time, money & oftentimes frustration searching for reputable local small businesses.
Stay tuned as we prepare to launch the Dealium SaaS Referral Marketing Technology in the coming months!
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