Do you ever recommend products you love to your family and friends? Would you do it even more if you were rewarded for it? Would your customers share your product with their friends and family if you offered them an incentive to do so?
That’s the gist of referral marketing and it can be a really powerful channel for eCommerce businesses. In fact, it just may be one the most cost-effective ways to acquire new customers AND retain your existing ones.
On this week’s episode, I’m talking to Raúl Galera, the Chief Advocate at ReferralCandy, an app that allows ecommerce brands to set up and run customer referral programs and some tips and tricks on how to create a kick-ass program that keeps your customers spreading the word.
What You’ll Learn
- The difference between referral marketing and other forms of marketing
- When you should consider referral marketing for your business
- Why your customers are your best sales people
Read the Full Episode Transcript
Raúl Galera is the Chief Advocate at ReferralCandy, an app that allows eCommerce brands to set up and run customer referral programs. ReferralCandy is the leading platform in terms of referral marketing for eCommerce brands.
Founded over 10 years ago, ReferralCandy has helped over 30,000 brands leverage the power of word-of-mouth and turn their customer base into their marketing team. Referral marketing is a blend of organic content, community marketing, and influencer marketing. Word-of-mouth is a powerful channel for both successful global names as well as new, niche brands. Referral marketing blends perfectly with brands that have a clear customer-centric approach, making it affordable for companies of any size to attract new customers while retaining existing ones.
Raúl has been leading ReferralCandy’s partnership efforts for the past five years, working alongside marketing agencies, media, and tech companies.
What’s the difference between referral marketing and affiliate marketing?
Referral marketing is one of the most cost-efficient ways to acquire new customers and retain your existing ones.
Affiliate marketing typically puts all the emphasis on rewarding one side of the deal, which is the person who makes the recommendation, but not the new customer that’s being introduced to the brand.
There’s usually a sales commission or kickback for referring to a business, but not necessarily anything for that new customer to actually join.
In referral marketing, both sides are really important. The person who’s making the recommendation and the new customer both get something out of the deal. Think: give a $5 discount and get a $5 discount.
Something that makes referral marketing special is the relationship between the parties. People often refer their friends and family, so it’s a very close connection. Those recommendations actually matter a lot because somebody that you trust is referring a new product to you, which means they truly think that the product is going to be good for you.
Even if they’re getting something out of it, nobody would recommend the product or even a bad experience to somebody they love just because they’re getting something out of it. That trust makes referral marketing special. That’s the big difference between that and affiliate marketing.
It’s really just a digital form of word-of-mouth marketing or a way for us to actually quantify how word of mouth is contributing to our business, which is really important. There’s a big misconception that word-of-mouth marketing is dead. And it’s definitely not.
When should a business consider implementing a referral marketing program? Who is this good for? And what can they expect to get started?
That’s the million-dollar question. There’s no bad time to start a referral program. But the timing is going to affect how quickly it’s going to show results. If you are a startup, it’s going to take a little longer for you to see results from your referral program than if you’re an established brand.
An established brand will probably see results within the first few weeks or months, but a startup will take much longer. It can be a long-term strategy.
The main reason for that is because our business works with your existing audience. ReferralCandy automatically invites customers to join the referral program, so we need to have an initial pool of customers to play with.
In terms of when to be ready to launch the program, you need to make sure that you have certain things in place in order to launch a successful referral program. A good product, a good purchase experience, a good support team. Basically, your customers need to be happy that they’re buying from you. Because when they’re happy that they bought something from you, they’re going to refer you to their friends and family organically.
A lot of brands that work with us mention the fact that they launched a referral program because customer support chats revealed that people have been referred by their friends. If you don’t have a referral program in place, it’s really hard for you to track who’s coming from referrals.
If you’re getting those early signs that people are actually going out and referring their friends, then that’s definitely the sign to launch the program.
You need to have the infrastructure to support whatever you’re doing to increase your business. I would never tell anyone to just start running ads if you don’t have the systems to get the product out the door. Otherwise, you’re just going to end up with a bunch of unhappy customers. The same would be true for a referral program as well.
What is the benchmark before doing referral marketing?
In order to have some sort of results a few months down the line, the bare minimum would be 100 orders per month. If you have 1000 orders a month, you’re definitely in a good place to start and you should get positive ROI fairly soon.
What reward should you offer?
It really depends on your brand. As the referral program evolves, it’s important to try different things like optimizing the copy.
Adjust the rewards to their customers’ purchasing behavior. If you’re selling a product that customers can buy regularly, offer discounts as an incentive for them to go out and refer their friends. If you’re on a subscription model, that’s even better because that way the discounts get automatically applied to the subscription.
On the other hand, if you’re selling a product that your customers will not buy again soon, maybe offer cash or offer a gift card or offer some sort of free product just so your customers are not stuck with a discount that they will not use soon.
When looking at different percentages, obviously the higher the better. Look at your own margins and see what you can afford to give. Make sure it’s a truly unique discount and doesn’t overlap with other incentives that you might have in your store. If you have the classic 10% newsletter subscription offer, maybe offer something a bit different, like a fixed dollar amount instead.
Make sure that you are giving your customers a reward that they can actually achieve. A lot of referral programs make it really difficult for advocates to get a reward. It’s better to offer something small but that can be achieved, rather than making them wait for that big reward, which can create a bit of frustration for some customers.
How do you promote a referral program?
There are several things that you can do. Whenever you have a new customer buying something from you, make sure that they’re hearing about the referral program.
You can either reach out to them right after making the purchase while you still have their attention and let them know about the program. Or you can email them several days after they’ve received the product so they have a more formed opinion about your product. I’ve seen both ways work out, so I wouldn’t recommend one over the other.
A good setup is to have a post-purchase pop up about the referral program after they hit the thank you page. The pop up tells them about the referral program and then an email 10 days after they’ve received the product so they can get both sides of the customer journey.
Once you’ve set up the referral program, it’s all about promotion. Share on social media. Include it in your newsletter. Include a call to action on your website.
There are different strategies that brands can put into practice. Some brands have the referral program private just for customers, others decide to have it open. Once again, I’ve seen both of them work, so it’s really a matter of your own marketing decision.
When you’re deciding what that reward is, it is really important to think about the customer’s buying habits. If you’re selling mattresses, then a discount on their next purchase when they refer to a friend is irrelevant. Cashback is probably the better option.
If you’re selling jewelry, or you’re a clothing boutique, and you’ve got people shopping every month, then yeah, a discount is going to be a great incentive.
How do you decide how much to give away? Are there any benchmarks for this?
Most referral programs use 20% off. Once again, just make sure that it doesn’t clash with all the promotions that you might have on your website.
If your referral program offers 10% off purchase at the store but they can get 20% off if they sign up to receive your emails, people will probably go with the higher percentage off. Be really intentional about what you’re giving away.
Make sure that you’re thinking about the lifetime value of your customer. We get hung up on spending money on ads to acquire a new customer, or giving discounts or giving away referral money and things like that. But if the lifetime value of your customer is $500, how much are you willing to spend to get them in?
It’s likely that you can do it cheaper on referral marketing than you can with paid Facebook ads. Look at the whole journey and look at all of those numbers before you decide.
Referral marketing is cost-effective when compared to other channels for one very simple reason: you’re paying based on performance. The cost of acquiring customer is that discount that you’re offering to the existing customer that made the recommendation and then the friends so you don’t have to budget anything, it’s all based on the actual revenue and actual performance that you’re generating from the program.
How much contribution to overall business or increased sales can someone expect?
On our web center pricing page, we have an ROI calculator that calculates what we assume is the minimum you get from your referral program. It’s not a guarantee because every merchant is different. The minimum we typically see on referral programs is a 2% increase in referral sales.
We have case studies of merchants who have been able to get to 10%, 20% and up to 30% of their sales coming from referrals.
It really comes down to promotion. Your customers need to know about the program through several channels. Make it fun, gamify it.
Some merchants offer coupon codes or free products when you refer a couple of friends. Or every time you refer friends, you get a different product, so at some point you can end up getting the entire collection.
Offering free products might be a good way to move through inventory as well, if you have some items that you are sitting on. That doesn’t mean you give them all of your crap. We still want to create a great experience that keeps them coming back.
It’s a really smart way to support the customer while also meeting your business goals.
With all the platforms out there now, why Referral Candy ?
We were one of the first referral marketing platforms on the Shopify ecosystem. We turned 10 last year and the main reason we’re still in business is because we were so dedicated to referral marketing itself.
The reality is we’ve remained a very niche platform, in terms of what we do, which is focused 100% on referrals and our obsession is to build the most solid referral marketing platform that’s available for eCommerce merchants.
We also have a dedicated fraud center, which highlights suspicious activity, but we still want the merchant to make the last call. We highlight activity that has passed through our filters, but we still think it might be suspicious. One very easy example is if we have a customer that suddenly they’re making hundreds of referrals, per week or per month or even per day, and it leads us to believe that they might have shared the coupon code on a coupon sharing site.
What does integration with Klaviyo look like?
We allow merchants to take the email promotion into Klaviyo instead of the built in emails that we have inside of Referral Candy . If you want to use Referral Candy , by default, you can do that. We have a set of automated email templates you can modify. Obviously Klaviyo offers a much richer email environment that we can provide, which is why we built this integration with them.
You can insert referral program variables into your different Klaviyo flows. Whether it’s post purchase or if it’s on your newsletter, or even if you have like an email about new arrivals, you can still add the referral link into the email so when the customer opens the email they will be able to see the referral link directly.
How much does referral marketing cost?
We mostly base our pricing on performance. We make money when the merchant makes money. Our pricing has two components, a fixed monthly fee of $49 a month, and a commission on referral sales. We base this on the revenue that you’ve generated in that month from your referral program, not total revenue.
The referral fee actually decreases as your referral sales grow. So we charge 5% on the first $1,000, then = 3.5% on the next 10k, then it’s 1.5% on the next $100,000. And then everything above that it’s 0.25%.
Let’s say you generate $4,000 in referral sales in one month, you would roughly pay about $200 to Referral Candy .
Have you seen a shift since the world entered this pandemic? What’s coming for referral marketing?
There’s so much competition in the space and brands have realized how important customer retention is. A lot of brands used to have a growth at all costs mentality to acquire new users and they were putting customer retention on the back burner.
We’ve definitely seen an increase in brands looking for ways to retain customers and thankfully referral marketing is something that can help with that. It helps brands stay top of mind for customers, even after they’ve left and even after they make the purchase. It’s an easy way for you to occupy a little bit of their mental space and make them remember you, especially when they’re talking to their friends and family about a product they acquire from your brand.
If your primary source of new customers is purely based on Facebook and Instagram ads, if there is any change there, it’s really going to affect how you run your business, which is pretty scary. We’ve seen a lot of brands trying to figure out creative ways to keep those customers around for longer.
What’s the #1 thing to take away from this episode?
Your customers are your best salespeople for multiple reasons:
- They trust your product and they trust it so much because they will spend money on it.
- They’re selling your product to their friends and family. They know their friend would not recommend a product just because they’re getting something out of it.
- They don’t sound like sales people. The way your customers sell your products definitely feels a lot more personal, so you should definitely leverage that.