In the first three phases of this sales funnel series, we covered the major aspects of acquisition, activation, and retention of the users. The series is used with an aim to scrutinize each stage of the AARRR framework making it more understandable and adaptable for businesses of all sizes. Now in this fourth phase (referral) of the sales funnel series, we will look at how to turn your customers into advocates.
Referral – are they referring you to their network
The framework consists of all the necessary steps to help you in achieving sustainable revenue growth. If all the steps are followed correctly, you can reach a state where you will witness consistent inflow of new customers, who would be interested in what you offer and stay with you as your loyal customers for an extended period of time. However, to ensure a consistent flow of new customers, you will need a strong strategy like word of mouth through referrals. It is one of the oldest and cost-effective methods to expand your customer base. Referral is when someone refers your product or services to others, who might get interested and take action. They don’t need to be a customer to do the referral, and the action is not necessarily a purchase.
Why are referrals so powerful?
“Nothing influences people more than a recommendation from a trusted friend” – Mark Zuckerberg.
Referral is the best medium to reach new customers. A message conveyed through an advertisement won’t be as impactful as the one passed by a current user. Human referral is more trusted, especially when they are in your networks.
92% of people trust recommendations from friends and family over any other type of advertising.
Referral between two known people increases the chances of lead conversion. Don’t you purchase a product if you get a good review from your friend? Similarly, people prefer investing in a tried and tested product. Referral often happens spontaneously when a customer is impressed by the features or benefits of a solution, but businesses can also influence it by using the right strategies. Customers referred by other customers have a 37% higher retention rate.
Two metrics that needs your attention to referrals are:
1. Net Promoter Score (NPS) – With NPS score, you can find out how willing users are to recommend your products or services. The score comes from the Net Promoter Score question, which is-
“On a scale of 0 to 10, how likely is that you would recommend our organization to a friend or business associate?”
Based on the number the client selects, they are placed into one of the below categories:
- 0-6: Detractors (unsatisfied customers who can influence others negatively)
- 7-8: Passives (might not recommend but won’t even create a negative image of your product)
- 9-10: Promoters (happy customers who fuel growth by spreading positive information about your product)
2. Viral coefficient – It is the number of new users a current referrer generates. For calculating the viral coefficient of your products or services, you require three numbers:
- number of existing users,
- number of invitations sent (shares, referral, etc.) and
- average conversion rate of those invitations.
Then multiply those three metrics and divide it by the number of existing users for getting the viral coefficient. Your viral coefficient needs to be more than one to experience growth.
Prerequisites for referral
To get more referral customers, you need to keep your existing clients happy. They can save you from the tiresome task of hunting new prospects. Besides a referred customer’s lifetime value is 16% higher when compared to non-referred customers. Positive word of mouth is the best, but sometimes negative word of mouth can spread like wildfire. So, make sure they share anything wrong about their experience with you first before sharing with someone else.
Be cautious about the below point as they can create a negative impression on your customers:
- Long wait time – as per a survey, 41% of customers expect a response from the support team within six hours, but only 36% of businesses responded within that time frame.
- Too many follow-up emails.
- Poor product performance (missing features, fewer benefits, etc.).
- Made a commitment and didn’t fulfill it.
- Being transferred from one sales rep/support agent to another – as per a study that asked customers what annoyed them the most, saw 37% of respondents mentioning “being passed around”.
- Complex website layout – researchers asked participants in an eye-tracking study to use a website to locate the USA’s current population, and 87% of them failed to find it even when it was presented in large red numbers
Don’t give them a reason to speak anything negative about you. Find the glitches in your solution and fix it in real-time. Technologies can help you in identifying the problem. Using the right software, you can track emails you sent and listen to the conversation you had during the buying process to discover the problematic areas. Ensure you build a consistent customer relationship by providing an exceptional user experience for boosting referrals.
Tactics for getting referrals
Several referral tactics continue to evolve in the industry; some work others might not. So, you need to conduct A/B testing to see what’s best for you to increase your conversions. For gaining referrals, companies have used tactics like invite a colleague, get an extended free trial, add promo codes, affiliate links or social sharing buttons on their website.
Below are a few tactics that can help you in getting maximum referrals:
1. Referral program
It is necessary to generate excitement for encouraging people to talk about your product. With the right referral program, you can turn your existing users into customer acquisition channels. Effective referral programs typically have a targeted promotion, offer incentives that benefit your customers and make them strong advocates. More than half of the companies with formalized referral programs ranked their sales efforts as highly effective, compared to only 35% of those without referral programs in place.
Below are some examples of successful referral programs:
- Dropbox grew 3900% with a simple referral program. They rewarded the users with free extra storage space not only for referring their friends but also for accepting an invitation. Currently, they have 500 million customers, and 35% of signups come from their referral program.
- Evernote earned their first million customers in just 446 days with $0 budget for user acquisition. It encouraged referrals by giving points that can be redeemed for months of free services.
- PayPal gave out cash rewards to people for inviting their friends. This is how they acquired their 100000 users in the first month
2. Remind users about your product features
Customers refer a product only when they find it valuable and are satisfied using it. Some users hesitate to recommend the product because it might backfire and hamper their image. Give them the confidence to refer your product by reminding about your product benefits. Send valuable information through newsletters or speak to them about the feedback on the latest updates and how you can improve it. Connect regularly and take their feedback about your product’s performance; if they are facing any issue then immediately resolve it to create a good impression on the users.
3. Social referral
Many customers engage with brands through social media channels. So, a referral model woven around this platform can be beneficial. Referral links from social media channels are the primary source of getting referrals for most of the SaaS companies. However, many others are gaining mileage through referrals made by existing users on their Facebook and Twitter accounts. Like, LastPass encourages their users to put an invitation on their social media accounts and when their friends sign up both the referrer and referee gets a free month of premium subscription. 81% of U.S. online consumers’ purchase decisions are influenced by their friends’ social media posts versus 78% who are influenced by the posts of the brands they follow on social media.
Referrals have the power to impact your bottom line positively. So, you need to focus on your referral strategies and build an action plan for getting new customers through your existing users. Stay committed to your present customers and give them more reasons to recommend your product. Once you succeed in getting good referrals, you need to concentrate on increasing your revenue. For which you can check out our fifth phase – Revenue of the sales funnel series where you can find helpful tips on how you can increase your revenue.
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We built two consulting agency businesses from scratch using these techniques.