So you want to offer a formal customer referral campaign for your business but don’t know how much it will benefit your business, how to set one up, where to go for the referral marketing tools. This blog will briefly discuss all of the aforementioned and why having a customer referral is so beneficial. There are countless statistics on why customer referrals are so valuable. As a reminder, here are a few:
- 65% of new business opportunities come from referrals and recommendations.
- 91% of people in the US would share exclusive offers and good deals with friends and family.
- Referred customers can increase your profit margin by 25%.
- A referral program with an incentive/reward can incite more than 50% of people to refer new customers to your business.
- Customers referred by other customers have a 37% higher retention rate
- Consumers are 4X times more likely to purchase or engage a business when referred by a friend.
- 92% of Small Businesses in the U.S. regularly rely on customer referrals for new business.
So with that said, listed below are the data inputs needed in order to determine if a customer referral program is worth the investment of your time and financial resources. Here are the things you need to know in order to determine your ROI on a customer referral program:
- Typical Customer Lifetime (in Months)
- Avg Monthly Spend by your Customer
- Gross Profit Margin on the Product or Service you are offering
- The above 3 items equal your Customer Lifetime Value (LTV)
Next:
- Referral Reward Discount % or dollar amount being offered
- Non-Discounted Price of Customer Purchase that will receive the discount you are offering
- How many people in the referral transaction that will get a referral reward (1 or both referrer & referee)
- = Reward Value (to acquire 1 customer)
Next:
- Cost of any referral marketing technology platform being used (monthly subscription costs for referral marketing technology solution)
- Number of New customers typically acquired per month
Next:
- All of the above items can help you determine your:
- Customer Acquisition Cost (CAC)
- ROI
- Lifetime Value : CAC Ratio (ideally, a ratio of 3:1 or higher is consider desirable)
If you would like to calculate the ROI of a customer referral program, please use the free Customer Referral Campaign ROI tool on the Dealium website.
Dealium is horizontal SaaS B2B Referral Marketing Technology 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 small business subscribers while allowing their customers to save time, money & oftentimes frustration searching for reputable local small businesses.
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