We all need to be able to run the math and figure out the effectiveness of our marketing campaigns. In this section we explain the goals of a customer referral program and run through the basic viral coefficient calculation.
Hi, welcome to another session on customer referral programs. Today, we’re going to talk about what is the goal of your customer referral program. There’s three major goals someone will typically have when they’re launching a customer referral program.
The first one, and the lightest of the goals you might have, is simply brand awareness. You want people to talk about your company. If you imagine you can get someone to tweet about your company, whether or not that turns into a new sign up or not, that’s probably exposing you to 5, 10, 100 new potential customers. Brand is the first and lightest goal you might have when launching a customer referral program.
The second goal, is that you might be looking for new free users, or new trial users. If you remember back to one of the earlier sessions, we talked about the dropbox customer referral program, and the direct goal of their customer referral program was to get new free users to their service. This is a nice middle ground of the goals, you’re not necessarily looking to have your current customers looking to convert their friends to paying customers today, but you just want to reward them for when new people sign up.
Beware of Free Users
Now, one of the dangers of this goal of course, is that you have to bake it into your economic model for your customer referral program. Essentially, you have to make sure that the reward you’re giving to your customer who gets a friend to sign up is not going to bankrupt your company because all the friends they get to sign up don’t pay you. The third goal, is to get new paying users; revenue, if you will. This is obviously one of the most powerful customer referral programs you can run, and it’s a lot easier for your economics as well.
Concept of Virality
Whether you’re looking for brand, new users, or revenue, there’s one thing that always comes back in a customer referral program, and that’s people talking about how they want their app to go viral. Viral, as much as it sounds like a buzzy concept, is actually a mathematical concept. Stolen from biology, it’s really simply put in the respect of a web app. Viral (k=i*C>1), where k is your viral coefficient, and it’s really easily figured out by the number of referrals made by your customers multiplied by the conversion rate of those referrals. Everyone talks about this dream goal of going viral, well, you go viral when the number of invites people make, multiplied by the conversion rate, is ≥ 1. What that really means is, for every user you add to your system, that user is going to add one more. So, if you had 10 users today and you launched a viral referral program, those 10 users will bring you 10 new users, and the 10 users they bring you, will bring another 10 users, and this will go on forever. The thing about this is it’s rather unlikely to happen. Truly going viral, even for those who achieve it, is only short lived. Now, the thing is, that doesn’t mean you should stop, or shouldn’t try, because the two charts down here actually show that viral, while it may have an exponential curve, if you actually are under this viral amount, you’ll actually end up with a constant increase to your growth rate. An example, if you could get say, every one of your users to make 4 invites, and only 5% of those invites converted, you would end up with a viral coefficient of 0.2, much lower than what you’re hoping for with your 1. However, that 0.2 is actually going to give you a 25% boost in your growth rate, and I don’t think many of us are complaining about a 25% boost to our growth rate.
That’s going to work whether you’re focusing on your brand, growing your new user signup, or your revenue. Once again, the three goals you might be looking at are brand, users, and revenue, and whether or not you get to a viral growth, it doesn’t matter. Your customer referral program is going to help you grow these, and truly improve your efforts. So, that wraps up the goals of a customer referral program.