Referral marketing capitalises on trust and social validation, creating more engaged and enthusiastic customers who are more likely to spend more with your brand over the long term.
There are three main reasons why referred customers are such good news for your business’s bottom line.
Let’s say it costs £50 to acquire a new customer. If that customer typically spends £100 on each purchase, buys three times a year, and remains loyal to your brand for an average of 5 years, their CLTV would be £1,450 (100x3x5-50).
This gives you a good starting point for benchmarking your CLTV. Of course, there are more complex calculations that factor in variables like ongoing marketing costs. As your business grows and you get more detailed data, you’ll be in a better place to refine how you calculate CLTV. We recommend checking out this infographic by Neil Patel to explore this in more depth.
They’ll trust you more—On average, a referred customer spends 15-25% more on their first order. That’s because a customer referred by a friend is predisposed to liking and trusting your brand before even making a purchase. They’re not coming to you cold, they’ve landed at your door as a result of a personal, emotional connection.
They’ll be a better fit—New customers acquired via existing ones are much more likely to fit your ideal customer profile, decreasing the chances they’ll be bargain-hunters looking for a one-off purchase and increasing their value to your business. Not only do they spend more straight off the bat, referred customers also make significantly more repeat purchases.
They’ll play it forward—When someone does you a favour, naturally you’ll want to reciprocate. Referrals are 3x more likely to go on and recommend your brand to someone else, so they too can benefit from the introduction.
To see how we’ve helped extend customer lifetime value for brands like Nutmeg, PrettyLittleThing and Zipcar, check out our case studies.
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