The referral program is a marketing technique that provides what your subscription company needs i.e., generate more revenue from your existing customers.
Referral Marketing versus Lead Generation
Many people often compare referral marketing programs to lead generation, which is more of playing with concepts. While lead generation brings you contacts that take time to nurture as customers, referral programs generate leads and consistent customers through the existing ones. As the most trusted advertising source, referral marketing uses your pre-existing customers to not only promote your business brand but also have their friends as your new customers.
How Referral Program Works
Assuming you bought a referral program platform that worth $2,500 per month and your campaign generates 100 new customers in the first month, then your cost per customer will be $25. If after that, you optimize your campaign in the following month and gain 500 referred customers. Consequently, your cost per customer will reduce to $5. You can visit Talkable blog here to read more.
Pre-Existing Customers For Referral Marketing
Using customers as brand educators is an effective marketing strategy if you have built a trusting relationship with them. This is supported by Nielsen's report, which shows 84% of the people examined claimed they trust personal recommendations.
Furthermore, the probability that a customer will make a referral in a given week increases with their current usage intensity and decreases with their experience level as well as the length of their inactive periods. In evaluating 52 weeks of customer referral data, the NYU Stern Professors, Mazime Cohen and Anindya Ghose discovered that customer's experience is closely related to the quality of referrals. Hence, the bigger the experience of customers sharing the offer, the higher the quality of referrals.
Customers remain the driving force of a subscription company. For these businesses to improve and achieve success, they need to focus on practical ways to acquire and retain customers. E-commerce stores, for instance, can apply pricing strategies even though it is one of the most underestimated areas of online shopping. This is going to be a topic for another post!
Why Do Referrals Get The Best Subscribers?
Referred Customers are Less Likely to Turnover
Customer retention and loyalty are two imperatives that help customers stick to a brand. For subscription services, loyal and active customers are vital to your present and future success.
According to the State of Referral Marketing, 78% of surveyed respondents said customers acquired through referral programs tend to be more loyal to brands more quickly than customers gotten from other different marketing channels. Another study conducted by the Wharton School also showed that rewarded referrals had a much lower turnover than unrewarded referrals. Their churn rate was also found to be 18% lower compared to other customer types. In fact, referred customers had an 82% chance of still being active customers after 33 months.
To expand your subscription business and boost your revenue, you must be able to retain your customers by lowering subscriber's turnover rate. Not only will the referred customer retention be higher, but it will also be more resilient. With that said, referral marketing has the ability to bring you more customers that are loyal, making it the perfect marketing technique for the subscription industry.
Referred Customers have a Lower Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) is the amount of money you spent to get a new customer. Unlike digital channels that charge based on the number of conversions, clicks or impressions, referral marketing generates high paying customers at a lower fixed rate.
Before now, Click-Through-Rate (CTR) or the percentage of people that clicked on an ad was the major metric. Marketers were looking for effective ways to optimize ads in a way that it gets the maximum number of clicks. From scammy copy to flashy designed images, they were applying different techniques to play an A-game.
In the year 2019, the average CTR rate for paid ads continues to depreciate compared to 2018, Q4, where the numbers were fifteen times lower than usual. While paid ads can help your brand to gain awareness, referral marketing program reduces your CAC cost in an ongoing process, plus maximize your ROI to boost your business efficiently. In a simple term, the whole process can be explained thus: old customers bring new customers at a considerably reduced cost.
Generally, referral program expenses are connected to your reward costs, customer referral technology, plus your employee headcount, committed to the referral channel. But with Talkable, you can choose to work with our team of friendly customer support to help you create, optimize, test, and manage your referral campaigns. Thus, the better the performance of your referral program, the lower your CAC will be.
Referred Customers Have a Higher Customer Lifetime Value (CLV)
Referral consumers are found to have a 16% higher lifetime value. They are exceedingly valuable to subscription companies due to their high engagement, low cost, and many repeat purchases. Referral marketing works better because your existing customers are vetting your prospective customers. When a customer wants to share your brand, they would think of those people they know that will not only like your product but also make a purchase. Consequently, your company generates better-quality leads.
Final thought
Now is the time to reward your customers for referrals. Customer referral marketing is an exceptional strategy for subscription companies. Unfortunately, only 30% of companies are currently using referral marketing today. Its major benefit to subscription businesses is that it helps you grow your revenue by 86% more over two years period. Referred customers have a higher lifetime value, are more loyal, and cheaper to acquire. Overall, referred customers are 25% more valuable than non-referred customers.
If you want to learn about Talkable or start your subscription referral program, do not hesitate to tell us here.
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