ReferralCandy: The ROI of Referrals can go up to 300%, or even more

Referral marketing is one of the most powerful ways to generate new customers for eCommerce or any other business.

According to ReferralCandy, our newest integration partner, the ROI of referral marketing can go up to 300%, or even more.

To dig deeper into this customer acquisition strategy today we have decided to speak with Visa, the Blog editor of ReferralCandy.

Here’s what we asked him:

Can you first tell me why you think referrals are a great way to generate new customers for eCommerce?

VISAKAN:

Many studies show that referral marketing has one of the highest ROIs of all marketing activities. There are a couple of reasons for this. First of all, referred customers are friends of business advocates. Happy customers, or advocates, refer their friends. Because of that, customers who have been referred tend to be very good fits for the business.

For example, let’s say we’re selling t-shirts. The people who refer our business to their friends will choose the best possible customers for us. These customers tend to order more, and they tend to be retained longer. Referrals give you some of the highest quality customers.

Another reason is that you don’t have to spend money on referrals that you don’t get. You’re only paying for referred sales. Right?

Whether you choose a cash payment or a discount coupon as an incentive, you only have to pay when you’ve made a successful referral sale.

Not only does this allow for a high ROI, but it also gives you value for money. You’re not spending money blindly on sales that you don’t get. You only pay for the sales that you do get.

Together, those two things make referrals a very strong source of new customers.

What benefits do referral programs have to subscription-based eCommerce businesses?

VISAKAN:

The great thing about subscription services is that customers are going to be receiving your product every month or at regular intervals. This means that your product is always going to be at the top of your customer’s minds. They won’t forget about you because they receive a new order or new supply each month.

When that happens, they will be primed to make referrals. You could even put a note in the box of products saying, “Hey, if you enjoy this product, refer it and get next your month free,” or, “Get next month at a discount for referring a friend.” That’s an advantage that subscription services have over regular ecommerce sales.

For example, if you’re selling mattresses or a product that people only buy every once in awhile, the customer might not remember to make the referral six months or a year down the line.

However, with a subscription service, people continue to receive the product every month. Each month, you can remind them to make a referral. They can immediately save money by making a referral. That’s an advantage that subscription services have.

When it comes to eCommerce business, what do you think of the return of investment of a referral campaign?

VISAKAN:

It depends on how successful the business is to begin with.

Referrals can’t create new customers if you don’t already have existing customers.

Referrals are more of a strategy for businesses that are already successful. If you’re just starting out, you probably shouldn’t use that strategy yet unless you know that you have a very strong buy-in or have a very good network of customers.

With ReferralCandy, our most expensive commission is 7.5%. It can go all the way down to around 2 percent. The medium commission is 3.95%.

To give an example, let’s assume it’s 4%. If it’s 4%, you only need to pay $4 for every $100 worth of sales that you bring in. You can do the math. It depends on your margins.

Let’s say you’re selling a subscription service for $30 per month. If your customers are paying $30 per month, and you are charged 4% on referral sales from ReferralCandy, that is $1.20. Let’s say you give your customers a referral commission of $10 off. Overall, it will cost you $11-$12 for a new customer. The lifetime value of your customers is probably going to be one to two years. Let’s say two years. $30 x 24 months is $720. So you’re paying less than $20 for $720 worth of revenue. That’s over 200% ROI.

It can go up to 300%, or even more. It just depends on how much people retain using your service. If you have a good service, people are already going to be referring their friends at their own pace. This just kicks it up a notch and makes it more powerful.

How do you think referrals compare to other types of traffic acquisition channels?

VISAKAN:

I think referrals should be a part of your overall marketing strategy. However, referrals shouldn’t be the only strategy you use for marketing. You should also be using strategies such as Google AdWords and retargeting cart abandonment. It doesn’t need to be either-or. Referrals can complement your other strategies.

Every eCommerce business should have an email marketing strategy. You should be sending out a regular newsletter. You can include your referral links within your email marketing strategy. It’s synergistic. You get more than just the value of your email marketing. You get to combine it with referrals.

How well do you think referral strategies are incorporated into eCommerce these days?

VISAKAN:

Surprisingly, it’s still a little new. It hasn’t yet caught on as thoroughly as it should. There’s a quote by William Gibson that says, “The future is already here — it’s just not very evenly distributed.”

It’s like that. While referrals have been proven to have a high ROI, not everybody uses it. The reason is quite simple.

Setting up a referral program can be quite tedious, especially if you’re doing it by yourself, instead of using a service.

You need to figure out the incentive for the advocate that will be making the referral, the incentive that they will be giving their friends, how to validate successful referrals, how to think about fraud and how to think about your messaging.

There are so many moving parts inside of a referral program. A lot of retailers are very busy and don’t have time to think about setting this up. They might think, “Oh, I would like a referral program, but setting it up is too difficult. It takes up too much time.” They have thousands of things to worry about every day.

Referral marketing as an adoption strategy is probably at less than 10 percent in popular eCommerce practices.

That’s why at ReferralCandy, we are trying to make the setup process as easy and as painless as possible for retailers.

Can you tell us more about ReferralCandy and how you help ecommerce implement referral programs? How does it work?

VISAKAN:

The good thing about ReferralCandy is that it plugs in and connects with whatever shopping cart software you might be using. Whether you are using Shopify, Bigcommerce, WooCommerce or any of the major platforms.

Even if you’re setting up your own personalized shopping cart software, you can still integrate it with ReferralCandy. You’ll just have to do a bit more on the development side of things.

ReferralCandy makes it easier for both eCommerce retailers and subscription box retailers. We do all of the thinking for them.

We suggest what kind of incentives they should be using. We have an email template editor that allows them to set up their emails easily without having to fuss about how the variables will play out.

Nobody does email marketing by themselves. They use a tool. They might use MailChimp, Barrel or any of the major tools. Those tools take away all of the grunt and technical work so that the focus can be on emphasizing the brand logo, copy, messaging and all of the things that the retailers are already very good at.

At ReferralCandy, we take out all of the mechanical work.

For example, we handle reward fulfillment. If you have a referral review period because of exchange policies, we allow those to be factored in. Once the referral is triggered as valid by the system and passes the referral review or exchange period, it will automatically pay out the rewards item.

For example, this could happen via PayPal if the reward is cash or by email if the reward is a discount coupon. ReferralCandy takes care of all the grunt work that you would have to handle by yourself if you were doing your own referral program. You can just look at the dashboard to see data such as where the referrals are going and who the top referrals are in case you want to reward them yourself.

What do you need to do in order to integrate ReferralCandy with the store? Is it a plugin, or what is it?

VISAKAN:

If you’re using Shopify, it’s very easy. If you go to the app store and click on ReferralCandy, it will seamlessly integrate with the Shopify store. Once you click ReferralCandy in the app store, you just follow the instructions and it automatically integrates into Shopify. It’s very easy.

What are your best tips for actually creating a referral marketing campaign? What suggestions do you have for people that want to get the maximum results?

VISAKAN:

There are so many things. Here’s how I think about it.

You know how you have a customer acquisition funnel? You also have a referral funnel. At the top of the funnel is the number of people who become your advocates.

After that, you have the percentage of advocates who share, or the number of referral links that advocates share. Then you have the number of referral links that get clicked through, which means the friends of your advocates clicked through the links.

These are the three variables you want to optimize. Each can be optimized in many ways.

The first way is by getting as many people as possible to be your advocates. The more advocates you have, the more potential referrals you’ll have. Having a clear placement of your referral call to action is one way to do this. Many of our retailers actually put this in the navigation bar on the homepage of their ecommerce site itself. For example, there might be a button that says, “Get $20 off.” If a customer clicks on that, it will say, “Refer a friend to get $20 off.” That’s one way to get more people to become advocates.

Another way is by including a referral call to action in your emails and social media platforms. You can post these links to Facebook and Twitter. The image you use along with the message can be customized to look like your brand.

Sending emails to existing customers is another way that successful retailers can immediately get referrals.

These are ways to get as many advocates into your program as possible.

After you’ve gotten as many advocates as possible, you want your percentage of advocates who share to be as high as possible. The incentives that you use and the messaging of your referral emails affect this.

Before you create the email, make sure that your incentives are aligned with what your customers want.

For example, in the case of subscription boxes, you know that people will be paying every month. All of your existing customers will be repeat customers.

If you’re selling mattresses, for example, people are not going to buy a second or third mattress. You don’t want to give them a discount because they will have a discount link that they might not use.

Subscriptions don’t have this problem at all. If I get a free month every time I successfully refer a friend, it can be quite fun to keep referring friends. If I refer 12, I’ll have a free subscription for an entire year. Just having the incentive of a discount or a free month can be fun for your customers. It makes them likely to share.

The other half of what makes people share isn’t the incentives themselves, but how those referrals are massaged and framed.

You need to tap into your copywriting and discover what it is about your business that makes people want to participate. Let’s say you’re selling a monthly subscription for nutritional supplements. You will want to emphasize the benefits to the friend of the advocate. If it’s a health product, you could say, “It will help your friends become healthier.” Framing in that way makes it easier for your advocates to identify a referral opportunity.

To recap, increasing the percentage of your advocates who share involves picking a good incentive and having good messaging.

Finally, after you’ve gotten a lot of advocates and have successfully used your messaging strategies to cause those advocates to share, you want to make sure that your referral links are enticing enough that people will want to click-through them.

The default sharing message and the Twitter and Facebook card images are the main things that affect this. What the default sharing message should focus on depends on the business. You might want the default sharing message to emphasize the benefits of the product.

However, some businesses will find that it’s better to talk about product facts rather than only emphasizing the benefits. You want to make sure that you pick messaging that is consistent with what your customers already like and already respond well to.

If you’ve been doing Facebook ads or Google AdWords, you’ll find that some copy might work better than other copy for your business. Every business is different.

Once you’ve figured out what copy works well for your business, the same message should go in your referrals. If your customers prefer product facts in your ads, they will also like it in your referral links. You can use the same thing. When you do that, you’ll have a good referral link click-through rate, which then leads to referred sales. That is what you want.

Can you give us examples of good referral campaigns for ecommerce stores?

VISAKAN:

Julep delivers beauty boxes with products like makeup and skin cream. They give advocates $15 credit. When you refer your friend, you get $15 credit and your friend gets one free box. The boxes cost about $40. You don’t get a free box when you give a referral, but you get $15 credit. You get a pretty good discount, and your friends get a free box with cosmetics and beauty products. That’s one example.

Violet Box also sells beauty boxes. They give hair and nail products. They use a point system that is equivalent to a $5 discount. I think the product is worth about $20. Whenever you refer a friend, you get a $5 discount on your next monthly delivery. Your friends get the same as well.

BirchBox doesn’t use ReferralCandy, but I know they also have a referral program. They use a point system as well. They give 50 points, which is the same as a $5 discount off of your purchase.

PopSugar, a fashion company, does something slightly different. Their process is more complex. When you refer 10 friends, you get six free boxes. That’s a pretty big incentive. They have a tiered referral system. When you refer two friends, you get one month free. When you refer five friends, you get another two months free. When you refer ten friends, you get another three months free. The most people you refer, the more free months you get.

When you use ReferralCandy, you can’t calibrate the system to do what PopSugar does.

However, because all of that information is right there in your dashboard, you can choose to personally reward your top advocates.

I would recommend making sure that there is at least a reward for a single referral. If you make it so that people need to refer five friends before getting their first reward, then they might not think it’s worth the trouble.

Love With Food is another example. They deliver junk-free snacks right to your house. They give advocates $5 credit for each referral while their friends receive a 40 percent discount on their first snack box.

The referrals given and the incentives for those referrals are up to the company to decide. There’s a whole range of incentives that could work.

Can you tell us more about the integration with ReCharge apps?

VISAKAN:

ReCharge makes it easy for retailers to bill their customers at regular intervals. ReferralCandy allows them to also pay out the referral rewards. It makes the payment systems automated and easier for both sides.

Once a subscription business is using both ReCharge and ReferralCandy, ReCharge takes care of the customer billing. When customers refer their friends, the incentive payments are taken care of by ReferralCandy. It creates a nice, seamless experience for the end-user, or the customers of our retailers.

For our retailers themselves, they don’t need to go through the hassle of figuring out each and every referral. ReCharge takes care of the complications in the recurring payments, and ReferralCandy takes care of the complications in the referral reward payments.

If you’re only using one or the other, it could become complicated to manage all of the payments. If you’re using both, then in a sense, you can just set it and forget it.

What can you tell us about the pricing options that you have for retailers?

VISAKAN:

We have four tiers of pricing. There is a minimum usage fee and a commission fee, but you don’t have to pay both. You only pay the higher one.

If you’re getting a lot of referrals, then you will only need to pay the commission rate. If you’re not getting any referrals, then you will only need to pay the monthly fee.

For example, our smallest pricing plan is just a $35 monthly fee or 7.5% commission. If you’re selling a $20 subscription box and have made five referral sales, that’s $100. So 7.5% of that $100 is $7.50. In that case, you would be paying the monthly fee.

If you use the small plan, you would need to make at least $330 in referral sales in order to not have to pay the monthly fee. If you’re selling boxes at $30 each, that would be about 10 boxes. If you have 10 referred sales at $30 each, then ReferralCandy’s minimum pricing is worth it for you. Does that make sense?

If you’re making even more referred sales, then you might want to graduate to the next plan. We email you with our recommendations for upgrading your plan. Once your referral sales get to a point where be cheaper for you to use the next plan, then we would recommend that you do that.

One final thought. Why do you think ReCharge should try ReferralCandy?

VISAKAN:

Why should they try it? eCommerce does well with referrals, and subscription does even better with referrals.

I wouldn’t say that you should definitely use ReferralCandy if you’re using ReCharge.

First, you need to make sure that your business is validated and that you are getting a good response rate from your existing marketing efforts.

If you haven’t done this yet, introducing a referral campaign probably won’t be very useful you. You want to make sure that you get your initial marketing efforts correct.

If you search for your own company on Twitter and find that people are already sharing your business, then you should definitely consider trying a referral program. If people are already sharing your business without any incentives, then you would get even more shares from introducing a referral program.

Once you know that you’re receiving unsolicited referrals on Twitter, then you know that it’s worth trying a referral program. You will probably see a good response.

Do you think there’s anything that I should have asked you but didn’t?

VISAKAN:

I think one thing worth remembering is that people don’t always make referrals immediately.

As retailers, I sell t-shirts on my own as well, we always hope people will immediately start sharing when a new campaign is launched.

Often, people prefer to share the link with people that they know will benefit from the product. As I mentioned, if you’re selling supplements, then people will want to refer friends they know will benefit from it. This means that you often have to wait a while for your referrals to ramp up. You’ll need to remind people that referrals are an option.

You shouldn’t use referrals as a way to quickly meet a sales target. It’s more of a medium to long term process than a short one. Again, subscription services have a regular, monthly reminder that ecommerce businesses don’t have. In that regard, subscription services are structured to better benefit from a referral program.

I would advise retailers to do their research and reading. You have to do your homework and make sure that your copy and other fundamental elements are solid. Sometimes you have to wait a while for it to work. It can be unfortunate when people sign up hoping to get a lot of immediate sales. If they don’t already have solid fundamentals, then it doesn’t pan out the way they want it to.

Remember to focus on your fundamentals. Referrals amplify your word-of-mouth. Zero times 1.5 is still zero. You want to have 10 times 1.5, and then you get 15.