Customer Referral Value Adalah

Look at the average referral value

The third way to calculate customer referral value is by determining the average referral value. Start by determining the average order value of referred customers and multiplying it by the average number of years referred customers stay loyal. Subtract the average cost of the referral incentive. The following is an illustration of the formula:

Average Referral Value = [Average Order Value of Referred Customers x Average # Years Referred Customers Stay Loyal] – Average Cost of Referral Incentive

Invite previous customers to join the program

Loyal customers make the best referrers because they are already familiar with your brand and its reputation. Invite them to join your referral program using email marketing.

Start by sending a broadcast to announce your new program and any incentives. Most referral marketing tools have an email feature to send a customer’s unique referral code or link without participating in a signup process.

A best practice is to continue promoting your referral program by mentioning it in your purchase confirmation emails—when customer excitement is fresh. Consider using the footer of the email to invite new customers to join your referral program.

Choose the right referral program for your business

Now that you know a referral program's value, it’s time to move forward and create your own. Understand what your target customer looks like (and explain that to referrers), choose an incentive, and make it easy for happy customers to recommend you.

The best part? With Shopify POS integrations, you can create an omnichannel loyalty program that rewards customers shopping in-store and online.

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Use strategic rewards

It’s more effective to increase customer referral value by rewarding referrers as well as the referred leads.  This is known as a double-sided reward structure.

For example, you could give gift certificates or cash awards to referrers. But for the referred leads, a reward related to your brand is more appropriate. It could be a discount, free products, or credit to encourage referred customers to purchase your products.

Then, once referred customers refer their own peers, they can earn further referral rewards which encourages them to be repeat advocates themselves.

Focus on social media referrals

Encourage customers with a great experience with your brand to tell others about it on social media. This method is effective in reaching many potential customers at once, as people naturally share with many friends at once on social. Promoting your referral program on social media can help you to generate increased revenue from new purchases.

Be sure to track the impact of their actions using suitable referral software. Referral Rock software makes it easy for customers to send trackable referrals on social media, and get rewarded.

Compare customer lifetime values

One way to calculate the customer referral value is to find the average lifetime value of all your referred customers:

Here’s what this customer lifetime value calculation looks like in formulas:

Average Customer Value = [Average Purchase Value x Average Purchase Frequency] – Average Customer Acquisition Cost

Customer Lifetime Value = Average Customer Value x Average Number of Years Customers Stay

For example, if a business has an average purchase value of $10,000, an annual purchasing frequency of  3, and an average customer acquisition cost of $5,000, the customer lifetime value is [10,000 x 3] – 5,000 = 30,000 – 5,000 = $25,000.

The resulting figure is the average customer value. Multiply that by the average number of years individuals remain customers. That should give you the referral customer lifetime value.

For non-referred customers, the formula above is also applicable. Calculate the average purchase value and multiply it by the customers’ average purchase frequency. Subtract the average customer acquisition cost and multiply the resulting value by the average number of years a customer remains loyal.

Compare this figure with the referral customer lifetime value to see which is better. The same formula is also useful in calculating the overall customer lifetime value before and after starting the referral program.

How does a referral program work?

A referral program reaches out to loyal customers to let them know about incentives they can earn based on how many personal referrals they send to the company. Marketing outreach may start as an email exchange, SMS message, or pop-up on your website. The customer can opt into the referral program and then send their link or code to others to use; the referred customer may also receive some type of reward or discount.

Determine the incentives

Incentivizing customers to make a referral can be an effective tactic to get more people using your program. Make a plan to determine which customers receive rewards and clearly state the details on your website.

Some companies give both the referrer and the new customer an incentive for joining. This is a win-win: New customers are incentivized to purchase through a referral link. When they do, the person who referred them is also rewarded.

Dollar credits are among the most popular referral rewards. Percentage discounts are also commonly offered as rewards. Other reward options include free products, free month subscriptions, and points to redeem on future purchases.

Regardless of which incentive you chose, a solid understanding of your customer lifetime value (CLV) is key. You want the cost of acquiring each referred customer (i.e., the cost of the incentive) to be less than the total revenue brought in by the customer.

Ways to increase customer referral value

Given the many benefits of referrals, businesses must take steps to increase the referral rate. That essentially means increasing the revenue brought into the business by referred customers. And the way to achieve that is by increasing successful referrals. Here’s how you can go about it:

Access qualified leads

Referrals often have some sort of commonality with the referrers—your target customers.

It’s an effective way to reach your ideal audience. In fact, referred customers make more purchases than customers from other channels—and they also refer about 30%–57% more new customers. There’s an undeniable snowball effect.