Part 4: Optimize and Troubleshoot

“Power is nothing without control.”

‍

If you’ve made it this far, it should be pretty clear exactly how powerful a referral marketing campaign can be.

But, the thing is, power without control can be a bit of a loose cannon! 

The secret to success? Harnessing the power your campaign is creating, while also controlling the refinement, adjustment, and tracking. 

And that’s what I’m going to talk about in this final section.

Now that you’ve designed your program, and launched it to your customers, followers, and fans — what happens next?

Chances are, there will be a period of post-launch refinement required. A little repositioning here, a quick landing page rewrite there. But once you’ve got into a rhythm, you can sit back and let your referral marketing machine really take over! 

What steps do you need to take so you can ‘set-and-forget’? Let’s find out.

Metrics 101

Metrics and measurements are the key to understanding how well your referral program works for your audience.

In my experience, there are 4 must-have referral marketing metrics — each of which help ascertain your program’s overall performance and predict further success. Please note: I’d suggest giving your program 4-6 weeks to run before you begin looking at these metrics. Otherwise you may not have enough data to draw informed conclusions.

Okay, let’s dive in...

1. Referral growth rate
   Your referral growth rate indicates how much faster your customer acquisition is growing due to referrals. This is the primary metric for judging the health and effectiveness of your referral program — the bigger the number, the better your referral program is catching on.
   
   You can calculate this rate by figuring out what percentage of your new customers are being referred by other people vs. how many are coming in from your other marketing channels.
   
   As an example, if one month you get 120 new customers, 20 of which have been referred, your referral growth rate is 20% because thanks to referrals you’re growing 20% faster (120 customers vs 100).
   
   So what’s a good referral growth rate?
   
   Anywhere between 5% to 15% is ideal. Over 15% is amazing, so throw yourself a little party if you’re already there. If your rate is less than 5%, don’t worry; this is just a sign that things need to be adjusted/tweaked (which I’ll go on to explain in a minute).
   
   
2. Advocacy rate
   Your program’s advocacy rate indicates the percentage of your customer base that has referred at least one person.
   
   A lot of people who launch their referral programs are disappointed when they see a relatively low advocacy rate early on, but the truth of the matter is that only a small proportion of your current customer base will engage with your referral program — and even small numbers of referrers can have a big impact.
   
   You’re not looking for any majority percentile here. An advocacy rate of 7% to 15% will certainly do the job. Over 15% is amazing. And less than 5%-7% is, again, probably a sign to revisit your approach.
   
   
3. Median number of referrals
   This metric shows the median number of referrals from your advocates. Why a median and not an average, you ask?
   
   Imagine a referral program with three advocates:
   One advocate has referred 2 people, one has referred 4 people, and one has referred 400 people.
   
   The average number of referrals is 135 — but what does that really tell us? At first glance, we could think that the program was going really well, when, in fact, we’ve just got one super-active, out-lier advocate. Only a third of our advocate base is really going for gold.
   
   Instead, the median number — 4 — shows you a more accurate picture of how many referrals most people are securing.‍
   ‍
4. First reward rate
   Your first reward rate is a metric that shows the percentage of people who have won the first reward from your program.
   
   If you think about it, this metric is the perfect indicator of how easy or difficult it is for your customers to participate in your referral program. The larger the first reward rate is, the easier it is for advocates to succeed.
   
   As I explained back in Part 2, your rewards should be obtainable — especially your first reward (if you have more than one). People are busy! Asking for too much, too soon, is a sure-fire way of putting people off.
   
   As far as measuring success, a first-reward rate of 5% to 15% is ideal. Over 15% is above and beyond. And less than 5% is a sign that you’re making it too tricky for advocates to take part.

Are you chasing the K-factor? (what it is, and why it’s so hard to calculate)

‍The K-factor — popularly referred to as the "viral coefficient" — is used to describe the growth rate of websites, apps, or a customer base. Because of this, the K-factor often crops up when discussing referral program metrics.

But, it’s a tricky one.

If you’re using unique referral links, the K-factor is pretty much impossible to calculate. You’d need to know how many "invitations" each user from your referral program has sent out. And since most modern referral programs don't actually use invitations — they use unique referral links, shared on social media and private mediums (like email, text or WhatsApp) — many referrals take place behind closed doors.

If you do want to calculate a K-factor for your referral program, you’ll need to have your referrers  send invites through your platform. But, remember: limiting how people can spread the word about your product will likely curb the potential of the program.

So why have I brought the K-factor up at all? Well, I wanted to include it in this list, in case you come across it elsewhere. While the K-factor is a nice metric to know, it almost goes against the very essence of referral marketing. Above all else, having a super simple way for advocates to spread the word is paramount to success.

Okay, so how often should you measure your program?

In those first few months post-launch, you’ll have a balancing act to wrestle with. On one hand, you’ll be eager to see how everything is going. But, at the same time, the metrics inside your referral program can change quickly during this stage.

Try to withhold the urge to check on your numbers every day — this’ll just lead to confusion, frustration or premature assumptions. Instead, check your analytics every 2-4 weeks (max)! This will give the numbers adequate time to settle and show you some real, actionable results. 

Troubleshooting your referral program: 6 common problems to look at first

Now that you’ve set up the right metrics, and given your program enough time to produce useful results, it’s time to identify any kinks — and then smooth them out.

A lot of the time, a little of your own expert intuition, mixed with an element of customer research, will help you spot opportunities for improvement. But if you’ve done all you can to fix or adjust what you believe is broken and the numbers still won’t budge, it’s possible one of these 6 (very common) mistakes are to blame:

1. You have boring rewards
   As explained in Part 2, the success of your referral program starts and ends with your rewards.
   
   So if you launch your program, and no one bites, chances are your rewards aren’t all that incentivizing. If interest is super slow to pick up — or you’re not getting any interest at all — this fix might take more than a quick adjustment. You might have to go back to the drawing board altogether.
   
   If that’s the case, don’t give up. 
   
   Revisit the long list of ideas you jotted down in Part 2, reassess them using the scoring framework, and roll something new out. Trust me, coming up with a new rewards system will be well worth it in the end. 

2. You haven’t promoted your program enough
   This might sound a little obvious, but are you sure that customers know about your referral program? 
   
   Oftentimes, lack of communication is the biggest cause of un-engagement. Businesses can be hesitant to push their message out, for fear that the audience will get annoyed. But remember what I said about customers needing to be exposed to something 7 times before they really take notice? 
   
   Don’t be too subtle, either. Be proud of what you built and be bold in sharing it. Be confident that your customers will want to get involved, and they will.

3. Your messaging is too lengthy or confusing
   I’ve said this before, and I’ll say it again: your referral program needs to be summarized in one sentence. 
   
   Double check the copy in your promotional emails, on your landing page, etc., and make sure the reader can immediately understand what your referral program is about.
   
   It’s possible you — as the creator — think it’s crystal clear, so ask your friends, colleagues, and family to give their opinion, too.

4. You are setting unrealistic expectations
   Again, I talked about this in earlier sections, but it's of the utmost importance to set realistic expectations for your program. 
   
   A successful referral program will increase your acquisition by 5% to 15% month after month (a good boost, in anyone’s books!). But if you're looking for quicker ways to, say, double your customer acquisition, you should probably look into other channels as well.

5. You’re not continuously optimizing
   ‍No one gets their referral program 100% right on their first try. In fact, rarely any form of marketing is exempt from testing and optimization. 
   
   Referral programs (and especially rewards) need to be tweaked and optimized 1-2 times a year to shake things up and keep people interested. Optimizing also allows you to test different incentives, and track the differences they create to your campaigns.

6. You’ve given up too early
   Effective marketing requires time, energy and dedication  — and referral marketing is no exception. So maybe you don’t see the result you were after in the first 1-3 months. The very worst thing you could do is scrap the hard work you’ve done so far and just give up! 
   
   Use your metrics, make informed tweaks, measure again, and test some more. Eventually — I promise — if you put in the work, you will see the results.

Ready to become a Referral Hero?

Great job! You’ve made it to the end of this guide. Thanks for sticking with me.

I am beyond confident that you’re now ready to set up a killer referral program — one that will keep the customers rolling in, and send your revenue sky high.

These four chapters have sent a lot of info your way. So let’s do a quick review on what we’ve learned from start to finish:

Section 1: Why referral marketing?

• 84% of consumers consider recommendations from friends, family and colleagues to be the most trustworthy source of buying information 
• A well designed and well run referral program produces ROI (return on investment) almost immediately, and lowers CAC (customer acquisition cost) by an average of 30%.
• When done right, referral marketing can produce quicker ROI than other promotional activities. But referrals are still a largely untapped resource, as businesses just aren’t sure how to use them
• Both B2C and B2B businesses can succeed with referral marketing, but they have to approach it in different ways

Section 2: Design

• Get specific (and realistic) about your goals and expectations
• Choose rewards that are:

• Attractive to your audience
• Proportionate to the amount of effort required
• Obtainable

• Rewards can come in many forms, for example:

• Company currency 
• Discounts
• Bundles
• Exclusives
• Free products

• Two-sided rewards should be your default: design a program that rewards both advocates and referrals for taking part
• Don’t skimp on your program spend — you’ll need to invest in designing and promoting your campaign, for it to succeed. Be generous and surprise advocates now and then with little bonuses
• Design the User Experience from start to finish for both advocates and referred customers — use emotion in your messaging, and lean on automation to stay in touch

Section 3: Promoting your referral program

• There are three crucial promotional tools to use when promoting your program:

• Email
• Social media
• Content marketing (blogs posts, ebooks, etc.)

• Dedicated landing pages also make it easy for advocates to find their unique referral link and track their own progress
• Always ask yourself: how easy is it to share my program? The easier it is to share, the more likely you are to succeed
• Build trust with new customers before introducing your referral program to them, and capitalize on positive interactions when you can

Section 4: Optimize and Troubleshoot

• Pay attention to these metrics:

• Referral growth rate
• Median # of referral
• First reward rate

• Don’t obsess: only check your metrics every 2-4 weeks max
• Troubleshoot an underperforming campaign by double-checking your:

• Reward interest
• Communication and messaging
• Your own expectations
• Optimization rates
  
  

Whew! That was a lot — kudos for hanging in there! The most intimidating part of setting up a referral program is learning how to do it correctly. 

Now that you do, you’re unstoppable. 

If it gets tough, remember this: if you focus on creating a great referral experience for your customers and put in the work, you’ll have given yourself a long-term, organic and almost maintenance-free acquisition channel. And frankly: isn’t that something worth investing in?

When you’re ready to launch, you don’t have to go it alone.

ReferralHero is a plug-and-play referral marketing platform, used by thousands of companies to grow their business.

‍Get started for free today — let’s turn your referral program idea into a reality.