What is referral tracking and why is it so important?

Deciding to launch a referral marketing programme is the easy part. It’s one of the most effective way of acquiring new customers, given that 92% of consumers trust recommendations from friends and family above advertising and referral has a lower cost per acquisition than other channels. But once you’ve decided to add a refer-a-friend scheme to your marketing mix, you first need to do be clear what your goals are.

After all, how are you going to know how successful you are if you haven’t defined what success is?

Once you’ve decided on your goals, it’s time to figure out how you’re going to measure them. That’s where referral tracking comes in. Think of referral as the car, your goals as the destination, and referral tracking as the GPS. The better (and more accurate) your GPS, the better the ride. You may even discover a better route.

On that note, let’s talk about tracking referrals.

What is referral tracking?

The clue is in the name, sure, but let’s just make sure we’re on the same page.

Referral tracking means collecting data across the entire referral process; from a customer registering to become a referrer, to them sharing a referral link or code with their friend, to that friend following that link or using that code to become a customer, or taking any other action that has value to you, like downloading an app — and everything in between. You may even track them beyond that point, but we won’t get into that here.

Very simply, referral tracking is collecting data on each touchpoint throughout the referral journey so you can map out that journey and look to understand how to optimize it.

How do I track referrals?

Now that you know the what of referral tracking, it’s time to learn the how. There are many ways that you can track referrals, from tracking cookies, to voucher codes, to recording details to post-purchase tracking. We’ll break down the key ways in which you can track referrals below.

1. Cookies

One of the most common (and accurate) ways that referrals can be tracked involves tracking cookies. In practice, this means these cookies are typically used with a unique sharing link. In other words, a unique URL is generated when a referrer signs up to participate in your referral programme. Referrers then share that unique URL with their friends and family.  When the referred-in friend clicks on the referral link and visits your website or app, a tracking cookie is embedded in their browser that then allows you to track the referral, as long as they continue using the same browser on the same device, or don’t clear cookies.

2. Referral or voucher code

Now, we’ve all seen an influencer online somewhere tell their followers: “Go to website X and enter referral code Y to get Z% off.” That’s a referral code. It’s a unique identifier that attributes a referral to a specific referrer and allows you to track and reconcile it. So when a referred-in friend enters that referral code, that entry is recorded and fed back to you so you can connect a specific referrer to a specific referral.

3. Personal details

A more basic method of tracking referrals is by using personal information, like a name, email or phone number. And like the referral/voucher code example, when a referrer registers for the program, their details are recorded and used to attribute the referral to them. So when a referred-in friend shops with you, they just need enter the referrer’s details for you to know who sent them.

4. Post-purchase tracking (PPT)

Post-purchase tracking is similar to the standard unique sharing link model in that a friend clicks a unique URL and registers as the referred-in friend. Once a referred-in friend has been registered, they just need to shop with you as per usual, for example buying in-store. The next step comes once they’ve shopped and got a receipt with a unique transaction identifier or order number. Now all they need to do is come back to the referral landing page and enter the details. This means, like a sharing code, you can connect the transaction to a specific referrer. This setup means you don’t require any integration with tracking tags or via APIs, and you don’t have to change any offline processes, because you just carry out a normal sale and leave it to the referred-in friend to self-report.

Why does referral tracking matter so much?

Using our analogy above, referral tracking is like the GPS you use to navigate your way to your destination and avoid any unexpected turns. And just like your GPS, the more information you have, the easier it is to find your way.

But let’s park the GPS metaphor for a bit and talk about the actual reasons referral tracking is so important.

1. Validate referrals and prevent fraud

This is the number one reason you should be tracking referrals. If you aren’t effectively and accurately tracking referrals, then you risk being defrauded or paying out for referrals that aren’t eventually completed. Because, quite simply, paying out for referrals that are not genuine will reduce the return on investment on your programme overall.

Proper tracking lets you control which referrals you reward, ensuring that only legitimate referrals are paid out and not fraudulent referrals, self-referrals, or referrals that are later canceled.

2. Examine referrer registrations

The first step of any referral program is getting your existing customers to participate. This is the top of your referral funnel. If you only have a handful of referrers, you will probably not get a lot of referrals. By tracking the details of referrer registrations, you can test and learn what is and isn’t working to get your customers to sign up — whether the incentives you’re offering, the messaging or the positioning in the channel you’re using to tell them about it. Or, in the absolute worst-case scenario, the reason they don’t want to refer you at all.

Looking at the data can suggest how you can improve wording, images, and incentives to encourage more customers to participate. This is key to success, because the more people you get to sign up to your referral program, the more likely you are to get more referrals.

3. Analyze shares

The next major metric in the funnel to measure is sharing rates. It’s all well and good having huge numbers signed up to be referrers, but if they’re not actually sharing with their friends and family, then you’re going nowhere fast. The first thing to realize is that sharing behaviour will be different between different referrers. While some referrers may only ever share once, others may share tens, hundreds, or even thousands of times. Also, some may prefer sharing a referral link on social media, while others prefer to send a referral code via a messenger app or email. The basic principle is that you should allow your customers to share in any way they want to, provided that you comply with all relevant data and privacy laws. In particular, on mobile you should let your customers use all their favorite sharing tools and apps via native sharing.

Your customer base, or parts of it, might share differently from other customer groups, but you’ll never know unless you’re actually tracking it.

The more data you can collect on the way in which and the rate at which your referrers share, the more you can tailor and streamline your process. It might suggest you need to use advanced features like tiered and intelligent rewards, or leaderboards and gamification, to encourage repeat sharing or that you need to send reminders to customers who signed up but didn’t share. But ultimately it’s this information that’ll help you give referrers more reasons to share than excuses not to.

4. Look at friend sign-ups

This is one part of the funnel that many overlook. Often referral tracking discussions jump from sharing to purchases and just skip over friend sign-ups. You might think that friend sign-ups and conversions are the same thing, but often they are not. For starters, unless you are just looking to build up an email database, a friend signing up to a referral program is not itself a conversion. But, as a sign up is often the first step, it’s important to understand what might be holding referred-in friends back from doing so. They won’t convert until they make a purchase, pay the price and pass the cooling-off period without canceling, but if they don’t get past this step, then they won’t convert at all.

With information on friend sign-up rates, you can look at how you can make your program better at encouraging sign ups, whether that’s making the process easier, changing the criteria to qualify, or offering more (or a different) incentives.

5. Examine conversions

This is the most important referral metric to track as it determines your return on investment. Above we talked about tracking inbound friends who actually sign up to your referral program and how to encourage that. Here, we’re talking about analyzing the rate at which referred-in friends who have signed up to the program, then actually go on to become customers and don’t later cancel their purchase. It allows you to answer the question: Of all the people coming through the referral program, how many actually become customers. Then you can look to find out why/why not?

With this data you can investigate how to increase the percentage that actually go on to shop with you — whether by adjusting your incentives, the criteria to qualify, the products and services included in the program, or even just your overall shopping experience.

6. Reveal high-value promoters

With any referral program, there will be super promoters and then the rest. Of course, there will always be people who sign up to be a referrer and take no action, but there will likely also be referrers so prolific you feel like you owe them a bottle of champagne and a Thank You card personally signed by all your team. But, as we’ve said throughout: if you’re not tracking referrals to referrers, you won’t know who they are. And if you identify your most proactive and high-value promoters, then you can encourage them to keep referring using tiered rewards, leaderboards, and custom communications (that Thank You wouldn’t go amiss).

Now, while super promoters may drive the bulk of referrals, you shouldn’t ignore the less active referrers. You can test ways in which to activate them and even turn them into super promoters, too.

7. Feed business intelligence

Referral tracking doesn’t just help the referral program, it can also feed into your overall business intelligence. By looking at referral data within the context of your overall business, you can understand its impact and allocate resources accordingly. For example, if you find referral works particularly well over the summer period, you can dedicate more resources to boosting your referral program over those months, with a summer booster campaign or leaderboard. Or, if you have an underperforming product category, you could try using referrals to boost it with special promotions.

The takeaway

We’ve covered a lot of ground in this article and, honestly, there’s still plenty more we could talk about. But ultimately what this should help illustrate is the importance of referrals to keep your referral program on track. Because if you’re not tracking as carefully and as effectively as you can, you can’t honestly say that you’re doing referral right.

If you’re interested in launching a referral program of your own complete with advanced referral tracking, don’t hesitate to get in touch. Our award-winning platform includes advanced analytics to help you trace the full referral journey beginning to end and our experts can help you take your referral game to the next level.

Leave a Reply

Your email address will not be published. Required fields are marked *