Before getting started with Extole, it is important that we establish a common vocabulary when talking about referrals. We're excited to share our newly released Referral Marketing Encyclopedia! In it you'll find definitions for all the key referral concepts you need to know, and how they relate to what's on marketers' minds.
Basics
Customer acquisition: the act of adding new paying customers to a customer list. Customer acquisition is the goal of most referral marketing programs.
Extole customers tend to acquire between 5 – 15% of their new customers through their programs. Exceptional programs see even higher levels!
Referral program: a set of digital marketing campaigns built to acquire new customers by rewarding people who refer a brand to their friends. Also known as a “refer-a-friend” program, it encompasses campaigns across channels including web, mobile, email, social media, physical media and more. (A program also allows you to promote, analyze, and track campaigns, and the fulfillment of associated rewards).
Referral campaigns are effective ways to acquire customers you can’t reach through other channels like search. To scale a refer-afriend campaign into a fully functioning referral channel, contact Extole.
Advocate: a person who refers a brand, product, or service to a friend. Anyone who interacts with a brand can become an advocate, and the goal of a referral program should be to make referrals a key part of the customers’ experience.
Extole allows you to promote your referral program to everyone your brand touches, make sharing easy, and reward participation quickly. Extole helps you create the most “everyday” advocates to generate awareness, fuel participation, and drive acquisition and revenue.
Friend: a person who sees or receives a referral from someone they know. Friends may or may not already be familiar with the brand or its products.
While not everyone may be right for your brand, almost everyone has a friend who is. Making your program as highly visible as possible through Extole’s easy promotion tools lets you reach the most potential advocates and, through them, the most friends.
Analytics
Referral funnel (aka social funnel):the referral funnel, or social funnel, is a model describing the process of generating referrals and referred customers, from advocate generation through new customer conversion. It comprises the advocate funnel and friend funnel.
You can see detailed metrics for how each of your campaigns performs at every stage of the referral funnel in your Extole dashboard, then test and iterate to optimize effectiveness.
Advocate funnel: the set of performance metrics that detail how often customers become advocates by referring. It encompasses impressions, advocate clicks, and number of advocates.
The size of your advocate funnel depends on how widely and prominently you promote your referral program. Use the Extole dashboard to find out how your campaigns perform at the top of the advocate funnel and each stage below it.
Friend funnel: the set of performance metrics that detail how well advocate referrals are converting friends into customers. They include reach, friend clicks, conversions, and revenue.
Performance in the friend funnel depends on a number of factors, including the message advocates share with their friends. Extole’s platform lets you set a customizable default message for your advocates.
Multi-step conversion: a form of the customer journey that requires a prospective customer to pass multiple consideration milestones (or steps) between initial awareness and final conversion. Most often found in B2B and high-consideration B2C sales cycles. For example, prospects of B2B software sales progress from leads to meetings to opportunities before becoming customers. Each successive stage indicates increased likelihood to purchase.
Customer referrals can be powerful tools for helping move prospective buyers through a multi-step conversion, because they trust opinions from friends and colleagues. They can also be effective in improving conversion from trial to paid subscription users. DocuSign rewards friends with a free 30-day trial combined with a discounted subscription.
Acquisition
Reach: the maximum number of people who can see a referral message from a given advocate. Reach is affected by the social networks that an advocate uses to refer and the number of connections s/he maintains on those networks.
In the Customers tab in your Extole dashboard, you can instantly see and export the segment of your Advocates with the largest reach.
Campaign: a campaign comprises the placement(s), creative assets, messaging, rules, sharing mechanisms, and rewards for a referral marketing flow. A referral program can house multiple campaigns. Brands will employ different campaigns to effectively target audience segments (such as super advocates and newly referred customers) simultaneously.
Extole customers with international footprints create targeted campaigns to their audiences in different countries, with content and rewards appropriate for a particular market’s language, currency, and regulations.
Call-to-Action (CTA): a message on a website, in an email, on packaging, or in other media that prompts someone to take action. Referral marketing CTAs are used to encourage people to share referrals.
Using Extole’s built-in promotion tools and APIs, you can put a referral CTA anywhere people will see it: on your website, in your mobile app, on printed materials, in email flows, and even on your packaging.
Share link: the unique, trackable link that an advocate sends to a friend when sharing a referral. (Also known as a referral link).
Creating personalized share links makes it simple for your advocates to refer friends wherever they are, using an easy-to-remember link. Try associating these links with your CRM contact records so you can include them in every customer communication.
Promo link: a trackable link used as a Call-to-Action when promoting a referral program through email, social, printed media, etc.
Using Extole's built-in promotion tools, you can generate promo links to easily track the effectiveness of all your promotions from clicks all the way through to acquisitions.
External reward: a referral reward unrelated to the product or service a brand provides. For example, a retailer that offers a $25 PayPal credit is offering an external reward. Usually offered as an incentive for advocates to refer friends, external rewards can provide continued motivation for super advocates who have already collected numerous internal rewards.
Extole’s platform makes it easy to create external rewards for your advocates and their friends.
Internal reward: a referral reward related to the product or service a brand provides. For example, a retailer that offers 10% off their products is offering an internal reward. Usually offered as an incentive for advocates to refer friends, internal rewards drive retention by incentivizing future purchases.
Many Virgin America campaigns reward advocates and friends with bonus miles in Elevate, the Virgin America loyalty program. This encourages participation in the loyalty program and drives future purchases among program members.
Loyalty
Flywheel effect: the phenomenon by which referral marketing begins to sustain itself through the generation of referred customers. Brands find that customers acquired through referrals are more likely to refer friends themselves. Therefore, the flywheel
effect occurs as a brand acquires customers through referrals, who subsequently refer friends, who refer their friends, ad infinitum.
Brands using Extole find that their referred customers refer more often — as much as 4x – 5x more often — than their non-referred customers
K-Factor: a measure of the viral growth rate of website users, apps, customer bases, etc. Roughly, it is the product of the number of invitations users or customers send (i) multiplied by the conversion rate of the average invitation (K = i * c). Combined with the flywheel effect, K-factor explains why effective referral programs don’t just sustain themselves but experience sustained growth.
Using your Extole dashboard’s detailed referral analytics, you can calculate your K-factor.
Referral rate: the rate at which advocates refer friends as new customers.
The more you use key interaction points to remind advocates of the referral opportunity, the higher your brand’s referral rate will be.
Segment: characteristics that are shared by a group of people. People can be part of more than one segment, and segments can be specific to brands or shared broadly. Important segments in referral programs include advocates who share the most, advocates who drive the most revenue, and recent customers who have not yet referred. Each of those segments can drive additional marketing initiatives such as
surprise and delight campaigns.
The Extole dashboard’s Customers tab instantly shows you the customer segments that matter most to your program’s success. You can export these segments into the campaign tool of your choice to target the highest-impact participants to reach your
marketing goals
Super advocate: a top-performing advocate. Super advocates are measured by the number of referral conversions they drive, the amount of revenue they help generate, or how much they share.
Alongside acquisition, other referral marketing benefits include additional purchase from existing customers, earned media through referrals shared on social networks, and reactivation of customers who haven’t interacted with your brand for a period of time.
Surprise and delight: the act of delivering something unexpected and pleasing
to customers or advocates.
Try surprising and delighting your superadvocates with a special thank-you gift for their referral activity. They’ll appreciate the recognition — and you can include a referral CTA with the gift so when they open, they share again during a really positive experience with your brand.
Net Promoter Score (NPS): one measure of a customer’s likelihood to advocate for a given company. Using a 10-point scale and a one-question survey (“How likely is it that you would recommend [company] to a friend or colleague?”), NPS categorizes customers as Detractors, Passives, or Promoters. Every advocate in a referral program essentially gives a brand an NPS of 10.
Through referral marketing, AAA of Northern California, Nevada & Utah (AAA NCNU) acquired customers with 15-point higher average NPS scores than customers from other channels.
Value
Customer Lifetime Value (CLTV): the dollar value of an average customer’s worth to a brand over the entire timespan of his/her interaction with it. Customers acquired by referral often have a higher CLTV since they often have higher average order values.
A referral program gives customers an easy way to help you acquire new customers. This allows marketers to increase the CLTV of their existing customers (because you can attribute some of the new customer’s value to the existing customer responsible for referring them).
Average Order Value (AOV): the dollar value of the average purchase that a brand’s
customers make. AOV is an important part of the program since it allows you to compare the referral channel against other channels.
AAA NCNU sees its new business from referrals average 20% higher premiums per insurance policy than its new business from other channels.
Related
Affiliate: a third party compensated by a brand for publicizing its products to the public. Affiliates are economic agents who receive a commission based on the amount of traffic or purchases they drive. Unlike referral marketing advocates, affiliates are usually motivated by economic interest, not brand affinity. As a result, affiliates acquire bargain hunters who are less valuable and loyal than referred customers.
An Extole survey of 300 retail marketers found that more retailers will decrease their affiliate marketing spend in 2015 than will increase it
Minimum Advertised Price (MAP): the price at which a reseller agrees to advertise a brand or product. When negotiating reseller agreements, manufacturers using MAP as an alternative to Manufacturer’s Suggested Retail Price (MSRP) can help prevent resellers from undercutting one another.
MAP policies often limit a brand’s promotion and discounting options, and they must be accounted for in how referral programs market to customers. Extole’s customer success team can help you navigate potential MAP conflicts in your program through a combination of program or campaign placements, incentive, copy, and reward rules
Canada’s Anti-Spam Legislation (CASL): Legislation passed by the Canadian federal government which took effect as of July 1, 2014, that generally prohibits the unsolicited sending of commercial electronic messages, unsolicited installation of computer programs, unsolicited collection of personal information or electronic addresses, and the use of false or misleading promotions online.
CASL has specific provisions that support the use of email in referral programs. Contact Extole to discuss your questions about CASL.