Look at the average referral value
The third way to calculate customer referral value is by determining the average referral value. Start by determining the average order value of referred customers and multiplying it by the average number of years referred customers stay loyal. Subtract the average cost of the referral incentive. The following is an illustration of the formula:
Average Referral Value = [Average Order Value of Referred Customers x Average # Years Referred Customers Stay Loyal] – Average Cost of Referral Incentive
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Compared to non-referred customers, referrals tend to be more profitable thanks to their increased lifetime value. Referred customers generally tend to view a business as more trustworthy and credible. The referral method is also more cost-effective and more likely to have a viral effect. All business owners and marketers need to know how to calculate customer referral value to monitor performance.
This article discusses the need for a higher customer referral value and how to calculate and increase it. Read on to learn how to effectively establish a standout customer referral program.
What is customer referral value?
Customer referral value is the monetary value of customers gained through referrals, as compared to the value of customers acquired in other ways.
The return on investment from referrals is typically 3-5 times greater than that from non-referred customers. By measuring the customer referral value, businesses can identify their most valuable contacts and work on retaining them. Your assessment of referral value is only complete, though, when you compare it with the value of customers acquired through traditional marketing.
Ways to increase customer referral value
Given the many benefits of referrals, businesses must take steps to increase the referral rate. That essentially means increasing the revenue brought into the business by referred customers. And the way to achieve that is by increasing successful referrals. Here’s how you can go about it:
Use strategic rewards
It’s more effective to increase customer referral value by rewarding referrers as well as the referred leads. This is known as a double-sided reward structure.
For example, you could give gift certificates or cash awards to referrers. But for the referred leads, a reward related to your brand is more appropriate. It could be a discount, free products, or credit to encourage referred customers to purchase your products.
Then, once referred customers refer their own peers, they can earn further referral rewards which encourages them to be repeat advocates themselves.
Focus on social media referrals
Encourage customers with a great experience with your brand to tell others about it on social media. This method is effective in reaching many potential customers at once, as people naturally share with many friends at once on social. Promoting your referral program on social media can help you to generate increased revenue from new purchases.
Be sure to track the impact of their actions using suitable referral software. Referral Rock software makes it easy for customers to send trackable referrals on social media, and get rewarded.
Keep optimizing your program
You don’t have to keep using the same referral program settings, no matter how successful it is. Instead, review and improve your programs based on customer feedback and performance metrics. Try A/B testing different page layouts, copy, and more, to see what drives the most conversions. Get reliable referral software to access real-time data. Where there’s a need, implement the necessary changes to keep going.
Customer referral value is the amount of revenue generated by a contact and the clients referred by them. Referrals are cost-effective and help improve the trust and credibility of your brand. You can calculate customer referral value by comparing customer lifetime values or getting net annual revenue.
Businesses that focus on customer satisfaction, use strategic rewards, invest in referral software, and promote reward schemes can increase this value. Even so, there’s a need to simplify the referral process, encourage customers to share on social media, and optimize referral programs.
Era ekonomi digital memudahkan pelanggan untuk berjejaring, berinteraksi dan berkomunikasi. Oleh sebab itu, sebagian besar perusahaan menyadari pentingnya membangun hubungan dua arah dengan pelanggan baik yang bersifat transaksional maupun non-transaksional. Proses interaksi dua arah ini dikenal sebagai “Customer Engagement.’
Begitu besarnya pengaruh customer engagement menciptakan nilai bagi perusahaan. Situasi ini mendorong sejumlah studi untuk mengeksplorasi ukuran customer engagement yang efektif. Salah satunya, Kumar et. al (2010) menyampaikan empat komponen penting customer’ engagement value (CEV), yakni: customer lifetime value, customer referral value, customer influencer value dan customer knowledge value.
Customer lifetime value (CLV) merupakan ukuran yang berkaitan erat dengan perilaku pembelian oleh pelanggan baik pembelian berulang ataupun pembelian tambahan melalui up-selling dan cross-selling. CLV merupakan nilai profit yang diperoleh perusahaan dari pelanggan. CLV memberikan sinyal terkait keberlanjutan bisnis di masa depan.
Customer referral value (CRV) merupakan jumlah akuisisi pelanggan baru melalui program referral reward yang diinsiasi perusahaan. CRV fokus pada pelanggan saat ini dan mendorong mereka untuk merekomendasikan produk di jejaring sosial mereka (baik online maupun offline). Dari sisi perusahan, pelanggan yang merujuk dianggap sebagai tenaga penjualan non-karyawan karena mendatangkan pelanggan baru dan mendapatkan komisi dari penjualan (Kumar et. al, 2010).
Customer influencer value (CIV) merupakan pelanggan yang memiliki pengaruh untuk mengajak konsumen lain untuk membeli produk. Meski terlihat sama, ada perbedaan antara CIV dan CRV. CRV dilakukan karena ingin memperoleh imbalan yang ditawarkan referral reward yang diinisasi perusahaan sedangkan CIV dilakukan secara sukarela karena pelanggan tersebut merupakan pelanggan loyal dan merasakan sendiri keunggulan produk.
Customer knowledge value (CKV) merupakan ukuran umpan balik yang diberikan pelanggan kepada perusahaan. CKV dapat berupa ide inovasi produk/layanan baru ataupun upaya peningkatan kualitas produk dan layanan. CKV berkaitan erat dengan partisipasi aktif pelanggan melakukan co-creation dengan perusahaan. Studi Fuller, Matzler, dan Hoppe (2008) menemukan bahwa anggota brand community yang memiliki passion pada produk dan brand, biasanya memiliki pengetahuan produk yang luas dan berkontribusi aktif pada forum diskusi terkait produk untuk memecahkan masalah penggunaan produk dan kadang menghasilkan ide produk baru.
Pelaku usaha yang mampu memaksimalkan customer engagement melalui komponen CLV, CRV, CIV dan CKV akan memiliki keunggulan daya saing untuk pertumbuhan bisnis yang berkelanjutan. Semakin besar pengaruh customer engagement keberlangsungan sebuah bisnis, maka Pak Bi kerap mengingatkan agar pelaku usaha membangun kedekatan dengan konsumen. Salah satu upaya yang dapat dilakukan dengan beralih dari fokus pada produk menjadi fokus kepada konsumen.
Caranya dengan menerapkan 4E, yang membuat konsumen menjadi Evangelist untuk terlibat secara aktif (Engagement) menyampaikan keunggulan Produk Anda (Excitement) dan bersedia menjadi reseller Anda (Everywhere)
Bagi pelaku usaha yang berminat untuk beralih dari fokus pada produk menjadi fokus kepada customer, maka workshop “Branding Marketing Selling” menjadi pilihan yang tepat
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Why are referrals so valuable?
Compared to traditional methods of client acquisition, referrals can make your target audience view your company as trustworthy and credible. A referral strategy is also the most cost-effective way to acquire customers. Plus, there’s a strong likelihood that referred customers will also refer their friends and family. Let’s dive into three reasons why referred customers generate a high value.
Compare customer lifetime values
One way to calculate the customer referral value is to find the average lifetime value of all your referred customers:
Here’s what this customer lifetime value calculation looks like in formulas:
Average Customer Value = [Average Purchase Value x Average Purchase Frequency] – Average Customer Acquisition Cost
Customer Lifetime Value = Average Customer Value x Average Number of Years Customers Stay
For example, if a business has an average purchase value of $10,000, an annual purchasing frequency of 3, and an average customer acquisition cost of $5,000, the customer lifetime value is [10,000 x 3] – 5,000 = 30,000 – 5,000 = $25,000.
The resulting figure is the average customer value. Multiply that by the average number of years individuals remain customers. That should give you the referral customer lifetime value.
For non-referred customers, the formula above is also applicable. Calculate the average purchase value and multiply it by the customers’ average purchase frequency. Subtract the average customer acquisition cost and multiply the resulting value by the average number of years a customer remains loyal.
Compare this figure with the referral customer lifetime value to see which is better. The same formula is also useful in calculating the overall customer lifetime value before and after starting the referral program.
Focus on customer satisfaction
Customers are more likely to recommend brands about which they feel 100% satisfied by. So, create an unforgettable customer experience. A report in Forbes suggests providing responsive customer service, as customers will be more likely to talk about your business if you respond to their needs promptly. Also, build effective feedback loops through which you can get feedback from customers, and promptly act on it.
Having a satisfied and loyal customer base could benefit your business in many ways in the long run. It could lead to an improved brand reputation, increased customer loyalty, a reduced customer churn rate, and improved revenues and profits.
