Referral programs have become a popular way for subscription businesses to attract new customers and retain existing ones. These programs incentivise current customers to refer their friends and family to the business in exchange for rewards or discounts.
Referral programs , simply put, can be thought of as customer acquisition channels, alongside SEO, paid advertising, social media etc.
By leveraging the power of word-of-mouth marketing, referral programs can help subscription businesses expand their customer base, increase brand awareness, and boost revenue. In this article, we will explore the benefits of referral programs for subscription businesses and provide tips for creating an effective program that can help take your business to the next level.
In this article:
- Benefits of a referral program
- Types of referral programs with examples
- Formulating a referral program
- Tracking referral programs
- Referral programs must-haves
Benefits of referral programs
There are several benefits of a referral program for subscription businesses, including:
- Increased customer acquisition: Referral programs can help subscription businesses acquire new customers more efficiently and at a lower cost than other marketing methods.
- Improved customer retention: Customers who participate in referral programs are more likely to be loyal and continue their subscription, as they are invested in the success of the business.
- Higher conversion rates: Referred customers are more likely to convert into paying subscribers than customers acquired through other marketing channels, as they come from a trusted source.
- Boosted brand awareness: Referral programs can help increase brand awareness through word-of-mouth marketing, as customers share their positive experiences with others.
- Cost-effective marketing: Referral programs are typically less expensive than traditional advertising methods and can provide a higher return on investment.
Overall, referral programs can be a powerful tool for subscription businesses looking to grow their customer base, increase revenue, and build a strong brand reputation.
Types of referral programs
- Discount or Credit-Based Referral Programs: These referral programs offer a discount or credit to both the referrer and the referred friend. For example, Grover offer 20€ as Grover cash reward to both the referrer and the referred friend for every successful referral.
- Tiered Referral Programs: These referral programs offer increasing rewards for multiple referrals. For example, a subscription service might offer a $10 credit for the first successful referral, $20 for the second, and $30 for the third.
- Give-One-Get-One Referral Programs: These referral programs offer a free subscription or service to both the referrer and the referred friend. For example, a subscription service might offer a free month to both the referrer and the referred friend for every successful referral.
- Points-Based Referral Programs: These referral programs offer points or other rewards for referrals that can be redeemed for products, services, or other rewards. For example, a subscription service might offer 100 points for every successful referral, which can be redeemed for a free box or other rewards.
- Discount on consumable subscription in case of bundle subscriptions - These referral programs can be very interesting for companies that have a physical product such as a washing machine, coffee machine etc., and also offers consumables that these physical products consume such as coffee, washing powder etc. In this type of referral program the company can create an offer in which the referrer and referee get a free one-time consumable subscription or a one-time discount on the consumable subscription.
- Free merchandise - In these type of referral programs the subscription company can offer their customers the possibility to get free products or discount on products that they can use alongside their subscription product. For example, bike gear for a bike subscriptions, small decoration pieces for furniture subscription etc.
- Partnership with other subscription companies - Leveraging the customer base of some other subscription company can also be an interesting referral strategy. For example if you offer e-bikes or mountain bikes, you can partner with another subscription company like Grover where the customer gets a free month or a discount if they subscribe to a goPro (or any other product that makes sense to bundle with an e-bike or a mountain bike).
Tracking Referral Programs
As for the performance of referral programs in the subscription business industry, there are several key performance indicators (KPIs) that companies typically track to measure the success of their referral programs. These KPIs may include:
- Referral Conversion Rate: This measures the percentage of referred friends who actually sign up for the subscription service.
- Cost Per Acquisition (CPA): This measures the cost of acquiring a new subscriber through the referral program.
- Customer Lifetime Value (CLV): This measures the total amount of revenue that a subscriber is expected to generate over the course of their relationship with the subscription service.
- Referral Revenue: This measures the total amount of revenue generated by the referral program, including both the revenue from new subscribers and the rewards paid out to referrers.
- Referral Churn Rate: This measures the percentage of referred friends who cancel their subscription before the end of their first billing cycle.
Overall, referral programs can be an effective way for subscription businesses to acquire new customers and generate more revenue. However, the success of a referral program will depend on a variety of factors, including the size of the company's customer base, the attractiveness of the rewards offered, and the ease of use of the referral process.
Formulating a referral program
Developing a successful referral program strategy for subscription businesses involves several key steps. Here are some general steps that you can follow to create a referral program strategy:
- Set clear goals: Identify the goals of your referral program, such as increasing customer acquisition, retaining existing customers, or driving revenue growth. Having clear goals will help you measure the success of your program and refine it over time.
- Define the incentive structure: Determine the rewards you will offer to both the referring customer and the referred customer. It's important to ensure that the rewards are appealing to your customers and provide value to both parties.
- Choose the right referral channels: Identify the channels that are most effective for your target audience, such as email, social media, or word-of-mouth. You can also consider using a referral marketing platform to automate the process and track performance.
- Create compelling messaging: Develop messaging that clearly explains the benefits of your referral program and encourages customers to participate. Be sure to emphasise the value of the rewards and make it easy for customers to refer others.
- Track and optimise: Use analytics to track the performance of your referral program and identify areas for improvement. Test different incentive structures, messaging, and referral channels to optimise performance over time.
- Promote your program: Market your referral program across multiple channels, such as your website, social media, and email marketing. Make it easy for customers to share and refer others by providing clear instructions and easy-to-use tools.
By following these steps, you can create a successful referral program strategy for your subscription business that can help drive customer acquisition and revenue growth over time.
Referral programs must-haves
- Landing page
- Clear incentive and easy sharing
- Regular communication
- Mobile optimisation
The landing page for a referral program should be designed to encourage customers to participate in the program and refer others. Here are some key elements that should be included on the landing page:
- Clear explanation of the program: The landing page should provide a clear and concise explanation of the referral program, including the rewards and how the program works.
- Compelling messaging: The landing page should include messaging that emphasises the benefits of the referral program, such as savings or discounts, and encourages customers to participate.
- Clear call-to-action: The landing page should include a clear and prominent call-to-action, such as a "Refer a Friend" button or form, that encourages customers to take action.
- Referral process details: The landing page should outline the referral process, including how to refer a friend, how to claim the reward, and any terms and conditions.
- Social proof: Including social proof, such as customer testimonials or reviews, can help build trust and encourage customers to participate in the program.
- Easy-to-use tools: The landing page should include easy-to-use tools, such as a referral link or form, that make it simple for customers to refer others.
- Mobile optimisation: The landing page should be optimized for mobile devices to ensure that customers can easily access and participate in the referral program from their smartphones and tablets.
By including these key elements, you can create a landing page that effectively promotes your referral program and encourages customers to participate.
Clear incentive and easy sharing
The rewards offered for referrals should be appealing and provide value to both the referrer and the referred customer. The referral process should be simple and easy to understand, and it should be easy for customers to share the program with their friends and family.
The program should include regular communication with customers to remind them of the program and provide updates on their progress.
The program should be optimised for mobile devices, as many customers may access the program from their smartphones or tablets.
A referral program for subscription businesses is a marketing strategy that incentivises current subscribers to refer their friends and family to the business. The most important aspects of a successful referral program include:
- Clear and compelling incentives for both the referrer and the referred customer.
- A simple and user-friendly process for making and tracking referrals.
- Effective promotion of the referral program to existing customers.
- Timely and personalised communication with referred customers to encourage conversion.
- Continuous optimisation and measurement of the program's performance to ensure its effectiveness and ROI.
By implementing these aspects, a referral program can help subscription businesses acquire new customers and increase customer retention, leading to sustainable business growth.