What is referral program ROI?
Referral marketing ROI is a metric that measures the ROI generated from referred customers.
More precisely, it is the amount of revenue that is earned for every dollar spent on a referral marketing campaign.
How to calculate referral program ROI?
To calculate the ROI of referrals, divide the ‘amount of revenue generated’ from referrals by the ‘cost of referral campaign’.
To estimate the cost of a referral campaign, you have to take into consideration all the costs related to – incentives, marketing, and technology involved, etc.
Formula for calculating referral program ROI
Real-life example of referral program ROI
You are running a referral marketing campaign for your software business. Say, you provide an incentive of $5 to your participants. And 100 participants referred your software to their friends.
So, your referral marketing cost will be $500 (5 x 100). Now, say 80 out of those 100 invitations signed up for your paid version of the software which costs $15.
So, your revenue generated from referral campaign will be $1200 (80 x 15).
Now finally, your referral ROI will be: 1200/500 = $2.4
What’s considered a good referral program ROI? (benchmark)
The least ROI on your referral marketing you should aim for is 4x.
Some of average ROI seen across different verticals are:
- Apparel and Accessories, CPG/Essentials: 25x
- Health and Beauty: 22x
- Subscription: 18x
- High Consideration/Luxury: 47x
Coolbot’s referral program resulted in 10 times the ROI in just a few months.
Airbnb's referral program brought in millions of dollars of revenue, and even had a single user refer thousands of users and hundreds of signups in a single month.
Ways to improve your referral program ROI
- Market your referral program: The most basic and important step to increasing your referral marketing ROI is to get your referral program in front of as many people as possible. Display your referral program on your website, send emails to your existing customer base, and market aggressively. Check out this guide: How to Create Refer-a-Friend Buttons That Work
- Utilize post-purchase popups: Following a customer's purchase is the best time you can ask them for a referral. And once your customers have signed up for your referral program, remind them about the rewards they can earn for making a referral. Read: How To Keep Your Referral Program Top-of-Mind
- Use compelling incentives: Ask yourself if you giving the right reward, at the right time, to the right person? At the end of the day, your referral results will boost if your incentives match the ambassadors' interests and motivations.
Also Read: Related Metrics
- Net Promoter Score
- Customer Churn Rate
- Customer Lifetime Value
- Customer Retention Rate
- Repeat Purchase Rate
- Customer Satisfaction Score (CSAT)
- Renewal Rate
- Customer Acquisition Cost
- First Contact Resolution Rate (FCR)
- Free Trial Conversion Rate
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Average Revenue Per User
- Upsell Rate & Cross-sell Rate
- Viral Coefficient
- Participant Share Rate
- Invitation Conversion Rate
- Net Dollar Retention
- Product Adoption Rate
- Sessions per User