Using KPIs to Manage, Optimize & Continually Improve Your Referral Program Performance

So let’s assume you’ve been persuaded by the business case for referral and the many examples of leading businesses built on the back of word of mouth. And that you’ve also been able to convince your Buying Committee that your brand needs a referral program, and you’ve planned a perfect launch for your new program. Congratulations, now comes the hard bit: making sure your program is a success and working to continually optimize it and improve performance over time. 

In order to ensure that your referral program is a success, we would recommend that you partner with experts, like Buyapowa, who have successfully set up and managed hundreds of referral programs across all kinds of industries and across 27 countries and in 21 languages. A referral expert like Buyapowa, can only advise you as to the KPIs you need to track, but their advanced software will give you real time access to all the key data points. And they will also be able to advise you as to the benchmarks you should be aiming for across each of these KPIs and help isolate the source of problems and provide solutions and suggestions to materially improve performance, not only across each KPI, but for your program overall. 

Understanding the Referral Funnel

Key to managing and improving your referral program is to understand that referral is a funnel, similar to a traditional marketing funnel except that it has, at least, two participants: the referrer and the referred-in friend, each of whom must pass through different stages of the funnel in order to complete a successful referral.

Hear from Buyapowa’s Referral Experts as to what’s a Referral Funnel and why it’s important to have access to detailed metrics across all stages of the funnel:

But in short, the main stages in a referral funnel will be:

1. Potential referrers are made aware of the referral program and visit the referral page 
2. Potential referrers engage with the program and share their unique URL or code with friends
3. Friends see the link and click through to the landing page
4. Friends convert on the landing page by purchasing a product or subscribing for a service
5. The referrer is notified that their referral is pending until the friend completes passes a cooling off period and makes a payment
6. Once the referral conditions are met, the referrer and referred-in friend are sent a message that they have now earned a reward and that they need to come to your website to choose the reward they want
7. Both the referrer and referred-in friend will be invited to refer again, perhaps for a higher value reward.

Of course, there can be other stages, such as using a friend landing page where you can collect the details of the friend and permission to market to the friend. Or where you’re simply paying out rewards for a ‘soft conversion’, as with many retail referral programs, without validating that the referral is a good one, then you’ll have less steps in the funnel. 

“First of all, you need to promote your program across all touch points with your customers, so they actually know it exists. If you get enough people in the top, [then] you’ve got all the different stages [of the funnel], so you want to be able to track where people leak out and [see] how you can fix it. So having a platform that lets you know they’re leaking out this stage and lets you go and fix something very quickly, or even test a different solution, can help you improve that funnel. The end goal is more customers at the end of that funnel.”
Peter Cunningham, Director of Marketing – Buyapowa

But the key thing to understand is that each step of your funnel is a potential exit point for referrer or the referred-in friend, and you’ll need KPIs that track the performance of each step to understand where you need to make improvements.

Hear from David Hixon, Executive Director – Head of Product and Lifecycle Marketing at Ally Bank why, when your referral program works it can become a foundational part of your marketing strategy, and you can then look at what other things it can do and how you can improve it for customers etc.:

KPIs to Measure the Performance of  your Referral Program

Key Metrics to Measure include:

• Your Total Addressable Potential Referrers – often based on a combination of your monthly sales, your newsletter open rates and your average social media engagement and other customer engagement metrics (like in-store visits and call centre engagements in a month), this is a theoretical maximum of the number of potential referrers you could reach in any given month. The real potential addressable market would be the the percentage of those customers who are believed to be happy with your product or service – you may have some NPS or survey data to help estimate that.
• The No. of Visits to your Referral Program – this is the top of your funnel and indicates the total number of people who could have referred given that they visited your referral program.
• Percentage of Total Visits/Total Addressable Referrers – this gives you an indication of the total potential referrers you have reached in the month. A low percentage means that you need to increase your marketing efforts and/or improve your referral rewards or language to make the referral appear more attractive to potential referrers.
• Total No. of Shares – this is the number of people who visited your referral program and then went on to share with a friend. Ideally you would want to see this increase month on month, allowing for seasonality.
• Percentage of No. of Shares/Referrer Visits – this will show how engaging your referral program landing page is. If the number is low you might want to look at the rewards, the wording or even the referral landing page speed.
• Percentage of No. of Shares/No. of Sharers – this shows what percentage of the visitors to your referral program were engaged enough to share with friends. You can see if participation is widepread or whether you’re relying on a smaller number of super referrers or micro-influencers. If your program is engaging only a small number of referrers, you may want to consider why, again looking at the rewards and the language. 
• Total number of Friend Visits – this shows how many friends clicked through to the landing page
• Percentage of Total No. of Friend Visits/Total No. of Shares – this will give you an idea of how engaging the friend incentive is and how compelling the default sharing message is. A low percentage compared to benchmarks indicates that the messaging or incentive is not attractive.
• Number of Friends signing up on the Friend Landing Page – if you decide to include this page, you can collect a marketing permission to send reminders to the referred-in friend. Without this step, you won’t know who the friend is unless and until they become a customer. While not a conversion from a referral perspective, this is a useful indication of general interest on behalf of referred-in friends who, perhaps, cannot take advantage of the offer immediately as they are locked in with another provider.
• No of Pending Referrals – these are referrals made but not yet confirmed
• Percentage of No. of Pending Referrals/Total Referrals made – this will let you see how many referrals have been made but not yet completed. If this is low, you may want to look at whether it’s clear what the referred-in friend needs to do, how this is communicated, are you able to nudge the referrer or the referred-in friend to get them to complete the referral, particularly if you have included a friend registration page in the process. 
• No. of Successful Referrals – these are the number of referrals that have been validated and meet all the conditions of your program.
   
  Hear from Natasha Saviuk, Director of Growth at Wealthsimple, how recognizing that a person is in a referral funnel and reminding them of the rewards on offer at the end, is a helpful context to increase the likelihood of a successful referral, and this can include getting the referrer to nudge the friend along:
  
  How to Increase Confidence with Referrals | Wealthsimple Natasha Sa...

  How to Increase Confidence with Referrals | Wealthsimple

  Natasha Saviuk "Having the name of the referrer, or the context that you're in a referral flow are two things, that just based on client interviews and historical experiments we've run, we know are really important."

  "So, if possible, just making that the fact that a client is indeed in a referral onboarding flow, that their bonus is going to be received at the end, and mentioning the friend who referred them, are all contexts that help give confidence to the person."

  "So if you know that a client is stuck somewhere in onboarding but that they were referred, there are various strategies that you can apply to speak to them specifically, or maybe let their friend that referred them nudge them to complete it, or make it very clear that they're a few steps away from their bonus and what steps are left for them to complete."

  "I really think that it's the context that you are at the right place that really matters and using that to guide the client to their reward at the end, or their bonus at the end."

  
   

• Average Time from Sharing to Referral Completion – this is likely to be longer where the purchase is a considered purchase or involves a larger sum of money. This is another example of where having access to benchmarks for your industry and/or territory can be helpful. If your average time is long, you could think about simplifying the onboarding for the referred-in friend or, with a considered purchase, get a marketing permission from a friend landing page and send reminders.
• Time Between First share and Second Share – this will let you analyse how well your program encourages repeat sharing and whether you need to use tactics like tiered rewards to get customers to refer again.
• Percentage of Customers who Generated More Than One Referral [or X referrals] – this again lets you analyze how well your referral program generates repeat referrals.
• Percentage of referred-in friends who go on to refer another friend – this let’s you understand the network effect of referral, the heightened loyalty of referred-in customers and leverage your new advocates even further.

The above examples of KPIs are not intended to be an exhaustive list, and the key point is that when you work with an enterprise level referral marketing provider like Buyapowa, you can identify the KPIs most relevant to your program and get that data so you can work together to continuously improve your program. 

In addition to the KPIs mentioned above, you would be advised to track metrics that are available from your own back end systems, such as the average order value, customer lifetime value, repeat purchase rate and total costs per customer or CPA. An enterprise level referral provider, like Buyapowa, will be able to allow you to connect your referral program to your back end systems, and track this data, and understand the true value driven from referrals. In each case, as well as comparing performance over time and against benchmarks, you should compare against similar metrics from other marketing channels which will allow you to prove that referrals do bring in better customers who stay longer and spend more. 

Working with the Referral Experts

For each of these stages in the Referral Funnel, you will notice the difference when working with Referral Experts like Buyapowa, who can tell you not only the percentages you should be aiming for given your industry and territory, but also can guide you as to the best practice steps to implement at each stage of the funnel to improve your funnel performance. 

For example, if you’re not getting a large percentage of your total addressable market to visit your referral program, you may be advised to increase promotion across more touch points, such as adding permanent links on your home page, in your customer account areas, in FAQs, or in your app. Also you may want to send more emails, newsletters, text and in app messages. You could also look to change your messaging and rewards, perhaps with short term booster awards. 

If your potential referrers aren’t sharing, then you’d be advised to look at the language of the landing page and the referral rewards. If referred-in friends aren’t converting, likewise, you might want to change the language and the rewards or add in a friend landing that captures details of the friend and a marketing permission to reach out to that person. 

By working with Buyapowa, you get access not only to the data but advice based on tried and trusted techniques that have been proven over hundreds of different referral programs.