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Supercharge Acquisition Through Customer Advocacy

How to build a referral strategy that promotes trust and accelerates growth

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Josh Enzer
Josh Enzer
CEO and Co-founder of Swell

Josh Enzer is the CEO and Co-founder of Swell (A Yotpo Company). Swell provides data-driven incentive marketing solutions to brands of all sizes, including MVMT, ThirdLove, and UNTUCKit, helping them boost loyalty, customer lifetime value, and relevant reach with highly customizable rewards and referral programs.

Building on Human Behavior

While smart brands these days are expanding their reach with incentivized referral links — for example, offering 25% off for customers who share a link with friends on social — the original referral marketing is a basic part of human interaction.

When people feel passionately enough about a brand — when they feel strongly connected to a brand and the product they’re buying really has enough of an impact on their lives — they’re going to bring it up with friends and family.

In fact, the other night, our team went out for drinks, and somehow people started talking about natural deodorant. Apparently the significant majority of the Swell office has now switched to natural deodorant, and they were talking about the deodorant brand that works the best. So that’s the perfect example of a very organic type of conversation (no pun intended!), where people feel strongly about a product and share it. It’s harder to control, harder to predict, and harder to measure — but it does happen.

With incentivized referrals, brands are really building off that natural tendency to share in a way that benefits existing customers and new prospects. The extra discount or reward helps spark these conversations online, where we’ve seen them become increasingly effective as the digital shopping space grows.

Referrals as a Cheaper Acquisition alternative

A lot of the traditional customer acquisition mechanisms are becoming much more expensive. Because of this, brands are looking to some of the more innovative channels, like referrals, which are not only a net-new source of acquisition, but they also tend to be a lower-cost channel compared to a lot of the more traditional avenues.

We typically guide brands to keep their referral cost to about 50% of what they would spend on Facebook ad acquisition. If, for example, it costs you $25 to acquire a customer via Facebook, it should cost somewhere between $10 and $15 for that customer to get acquired via referral.

So, one side of the cost for referrals is for “the friend,” or the person who receives an email from a customer, clicks on the link, and hopefully, makes a purchase. We recommend offering a percentage discount for this person, because then they actually have to buy something to redeem it. You’ll also want to give a percentage that’s meaningful: if you give a 5% off coupon, and they know that they can sign up for your email newsletter and get a 50% off coupon, you’re going to run into some issues.

The other side is an incentive back to the original customer for referring. The question here is, “How do I decide whether I should pay my customer $5 per referral, or $25?” And the answer is that it really should all come back to how much it costs you to acquire through other channels. This should be a cheaper acquisition alternative.

Building Trust and Retention With Referrals

Beyond customer acquisition cost, we really focus on the customer acquisition cost to customer lifetime value ratio. The customers that you bring in as part of a referral program are going to be more likely to spend more in the long-term because they’re coming into the experience with established trust — they’re not coming in cold.

Someone that comes to your store from a Google search is less likely to trust your store than someone that comes in because their friend said, “Hey, I bought from this brand before, and they’re great.” Actually, we’ve found that the LTV of a referred customer tends to be higher than that of an average shopper by as much as 3x. Just going in, they feel a bit more connected to that brand because there’s a sort of community mentality right off the bat.

This is extremely effective for smaller brands, too. You will have to spend to acquire that first handful of customers, but then if you work to make them really, really happy, they’ll naturally share with and refer friends. Actually, startup D2C businesses have an unfair advantage when it comes to making those first few customers their evangelists because they don’t have to do customer service at scale just yet. They can really wow those initial customers, and a customer that is wowed and feels great about the brand is going to be that much more likely to refer.

Focusing on these brand loyalists is really the way to build trust among new customers, since it’s less than 5% of your customer base that will make up 80% of the referral volume. In other words, it’s going to be this core group of very dedicated evangelists that are going to drive this disproportionate amount of the referral volume, so really keeping them happy and connected with your brand is incredibly important.

Prioritize a Personal Touch

I can’t overemphasize the importance of encouraging one-to-one referrals. Getting a customer to share their referral link with a friend on a one-off basis will always be more effective than having them share as a status on social, for example. So, that can be an email saying, “Hey, thought you might like this, here’s the link to that natural deodorant we talked about last night,” or the same thing on Facebook Messenger.

A personal link through Facebook Messenger or email actually works up to 15x better than just posting that link on Facebook or another social platform. One-to-one sharing gives shoppers a personal touch. I believe there’s a psychological phenomena that underpins that: people want to feel connected to one another, and you get that only when the interaction feels more tailored for the individual. Personalization is an important theme in eCommerce today, and there are great opportunities for referral programs to reflect that.

When you display your referral program on site, there are things you can do from a UI perspective to encourage them to share one-to-one. For example, you can make the “enter a friend’s email” field larger and more prominent than the social share buttons. Get creative when it comes to incentivizing direct shares, since these are the referrals that will bring you the most business.

Conclusion

  • Look at referrals as a new acquisition channel – As CAC continues to rise, referrals are a new, cost-effective channel you can use to bring new, relevant customers to your brand with a pre-established level of trust.
  • Keep costs down – Referral acquisition should cost about 50% of what you would spend to acquire a customer on Facebook.
  • Encourage personal referrals – Get your customers to send one-to-one referral links by email or Messenger to get up to 15x better results.

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