This plan focuses on optimizing metrics essential to referral marketing, ensuring that the strategies implemented drive higher engagement and revenue. By tracking metrics such as Referral Rate, Customer Acquisition Cost (CAC), Lifetime Value (LTV), Referral Conversion Rate, and Net Promoter Score (NPS), businesses can make informed decisions to improve their referral programs.
For example, the Referral Rate helps gauge the percentage of customers recommending your business, while CAC measures the cost-effectiveness of acquiring new customers. LTV provides insight into the long-term profit from each customer, and NPS assesses customer satisfaction and loyalty, all of which are vital for a successful referral marketing strategy.
By analyzing these metrics and implementing the suggested improvements, companies can enhance customer retention, optimize marketing spend, and ultimately boost overall growth.
Top 5 metrics for Referral Marketing
1. Referral Rate
The percentage of your customers who refer others to your business. This is calculated by dividing the number of referred customers by the total number of customers
What good looks like for this metric: 10-30%
How to improve this metric:- Enhance referral incentives
- Simplify the referral process
- Promote the referral program frequently
- Provide excellent customer service
- Recognise and reward top referrers
2. Customer Acquisition Cost (CAC)
The cost associated with convincing a consumer to buy your product or service, including all marketing and sales expenses. This is calculated by dividing the total costs of acquisition by the number of new customers
What good looks like for this metric: $7-$15 per customer
How to improve this metric:- Optimise marketing spend
- Increase organic reach
- Leverage social proof
- Enhance referral incentives
- Use cost-effective advertising channels
3. Lifetime Value (LTV)
The predicted net profit attributed to the entire future relationship with a customer. This is calculated by multiplying the average purchase value, purchase frequency, and customer lifespan
What good looks like for this metric: $400-$500
How to improve this metric:- Improve customer retention strategies
- Enhance product/service quality
- Upsell and cross-sell effectively
- Provide excellent customer service
- Offer loyalty programs
4. Referral Conversion Rate
The percentage of referred leads who become paying customers. This is calculated by dividing the number of referred customers who make a purchase by the total number of referred customers
What good looks like for this metric: 10-20%
How to improve this metric:- Streamline referral onboarding
- Offer time-limited incentives
- Provide clear value proposition
- Enhance user experience on landing pages
- Engage referrals with follow-up communications
5. Net Promoter Score (NPS)
A measure of customer loyalty and satisfaction, calculated by asking customers how likely they are to recommend your business to others on a scale of 0-10 and subtracting the percentage of detractors from promoters
What good looks like for this metric: 30-50
How to improve this metric:- Regularly solicit and act on customer feedback
- Improve product quality
- Provide exceptional customer service
- Engage with customers on social media
- Implement loyalty and reward programmes
How to track Referral Marketing metrics
It's one thing to have a plan, it's another to stick to it. We hope that the examples above will help you get started with your own strategy, but we also know that it's easy to get lost in the day-to-day effort.
That's why we built Tability: to help you track your progress, keep your team aligned, and make sure you're always moving in the right direction.
Give it a try and see how it can help you bring accountability to your metrics.
