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Growing Your Company Through Customer Referrals

There is typically two ways potential customers will hear about your business: 1) through calling, advertising, marketing or emailing channels and, 2) customers acting on your behalf to tell people about your business and services. If you compare the two, you’ll notice that when a customer is talking on your business’ behalf, there is a 400% increase in conversions.

In this webinar, KISSmetrics’ Dan McGaw uses Dropbox as inspiration to discuss ways to optimize growth from referral campaigns. Dropbox went from 100K registered users to 4 million registered users in just 15 months through referral campaigns. That’s 3900% growth! These tips are not only for mid-size businesses though. The average small business gets 60% of its business from referral campaigns.

To make sure everyone is on the same page, Dan defines a referral as the act of referring someone or something for consultation, review, or further action. It’s also known as word of mouth.

Step #1: Happy Customers
Happy customers are very important, but the first thing you need to have is a product market fit. Dan says he has seen a lot of companies with great businesses that do not have product market fit in what they do. This means they do not understand the kind of mechanics they need and the customers they’re going after. So before you start on your referral campaign, make sure you have a product market fit.

Once you have your product market fit and you have happy customers in your business, you need to figure out what kind of segmentation to use to make sure this referral campaign is successful. Some companies don’t have the resources to handle the growth from a referral campaign. For a startup, you want to make sure you have the best customer possible so you aren’t overworking yourself.

segmentation

Types of segmentation you should be looking at include:

  • Highest lifetime value- you want to give people with the highest lifetime value the referral campaign, because typically people with higher lifetime value hangout with others with high lifetime value.
  • Large social following- if you’re testing something out like Hootsuite or SproutSocial and you can see who the real influencers are, only offer the referral campaign to them so you get the most bang for your buck.
  • In target vertical
  • Low support ticket volume- you want to stay away from offering the referral campaign to people who have high ticket volume. Needy people hangout with more needy people. By no means is this bad for your business, but when you’re trying to make sure you can handle the growth, you need to make sure your support person isn’t too overworked. You need to make sure you always offer supreme customer service.
  • Engaged user- if you’re using your mobile app, only offer the referral campaign to people who actively use your app to optimize your return.
  • Located in target region- if your business can only do service inside the US and you have tons of users elsewhere, but you can’t service them, why offer that referral campaign to those folks? It slows you down when you have to tell people ‘no’ because you can’t service them.

Steps two and three discuss reciprocal incentives and reproduction. You won’t want to miss out on these vital tips. Watch the rest of the webinar here:

view-the-webinar

  1. Hello,

    we always try to provides best Services to our customers because if we will provide them good services then they will tell to their friends and relative and i do agree with this article.

    Thanks & Regards
    Kapilheera

  2. Hi Neil,

    The example that was used (huge growth that Dropbox had) was really inspiring. I’m starting a small business soon, and in the area that I live in, it’s quite competitive.

    I’m going to hopefully successfully achieve step #1 from the moment the business starts until the minute I retire, but props to you for actually putting emphasis on it – because in the real world, you can’t really get any good customer service (Samsung almost drove me crazy with their phone support) if it’s not in a small local business.

    Thanks!

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