How to Set Up Referral Tracking

Setting up effective referral tracking is a pivotal step for any business looking to leverage word of mouth marketing to boost growth and strengthen customer relationships. A robust referral program not only incentivizes your existing customers to introduce your products or services to new prospects but also provides critical data to help refine marketing strategies and increase ROI. 

In this article, we'll explore the essential components and best practices for establishing a successful referral tracking system. Whether you're a small business owner just starting out or a seasoned marketer looking to enhance an existing program, understanding how to track referrals efficiently can transform your approach to customer acquisition and retention.

• What is Referral Tracking?
  • Key Referral Tracking Components
  • Key Statistics to Track in Your Referral Program
• 5 Reasons Referral Tracking is Important
• 9 Steps to Set Up Referral Tracking
• Invest in Referral Tools and Automation
• Frequently Asked Questions

What is Referral Tracking?

Referral tracking is the process of monitoring and recording the activities and outcomes related to referrals made by existing happy customers. This allows businesses to identify which referrals are successful, understand how they were initiated, and ensure that appropriate rewards are distributed to those who referred their friends and family members. What exactly is important to track in your referral program?

Key Referral Tracking Components

Track the Referrer: Identify and record who makes the referral. This is often managed through unique identifiers like referral codes, links, or tracking cookies that are specific to each participant.

Track the Referred: Keep tabs on who has been referred, their interaction with the business, and any actions they take, such as signing up or making a purchase.

Record the Referral Path: This includes the medium or channel through which the referral was made (e.g., social media, email, direct link) and the journey of the referred individual from the point of referral to conversion.

Track Conversion: Monitor when a referred individual completes a desired action, such as making a purchase or subscribing to a service. This is crucial for evaluating the effectiveness of the referral program.

Manage Rewards: Ensure that referrers receive the promised incentives or rewards based on the actions of their referrals. This can involve tracking milestones or conditions that must be met for the reward to be issued.

Aside from these key tracking components, you should also monitor certain statistics in your referral program, which can provide crucial insights into its performance and help you make informed decisions to improve it. 

Key Statistics to Track in Your Referral Program

Referral Rate: This is the percentage of customers who participate in the referral program by referring others. A higher referral rate indicates good customer engagement and satisfaction with your products or services.

The referral rate can be calculated by dividing the number of customers who have referred someone by the total number of customers and multiplying that by 100. So, if you have 1,000 customers and 100 of them send you a referral, your referral rate is 10%. 

Referral Rate Formula

Referral Rate = (# of Customers who Referred Someone / Total # of Customers) x 100

There is some debate as to what a good referral rate looks like, and it will most likely vary depending on the industry. But, the general consensus is that a good referral rate is somewhere between 2% and 4%.

Conversion Rate: This is the percentage of referred prospects who take the desired action (e.g., making a purchase, signing up for a service). High conversion rates from referrals can indicate the effectiveness of your referral incentives and the trust in your brand among peer groups.

The conversion rate can be calculated by dividing the number of referrals who became customers by the total number of referrals received and multiplying that by 100. So, if you received 100 referrals and 15 of them signed up for your services, your conversion rate is 15%.

Conversion Rate Formula

Conversion Rate = (# of Referrals who Became Customers / Total # of Referrals Received) x 100

Number of Referrals per Participant: This statistic tracks the average number of referrals made by each participating customer. This can help identify your most active referrers and understand the overall enthusiasm for your referral program. 

Time to Convert: This is the average time it takes for a referral to convert into a customer after being referred. This can help you gauge the sales cycle length from referrals and refine your follow-up strategies.

Lifetime Value (LTV) of Referred Customers: Compare the LTV of customers acquired through referrals versus other channels. Typically, referred customers have a higher LTV due to the pre-existing trust and relationship established through the referral.

Revenue from Referrals: Track the total revenue generated from referred customers. This helps assess the financial impact of the referral program on your overall business.

Customer Acquisition Cost (CAC) of Referrals: Compare the cost of acquiring a customer through referrals with other marketing channels. Generally, referrals should have a lower CAC due to the lower cost of incentives compared to other marketing expenditures.

By tracking these metrics, you can continually optimize your referral program, enhance its effectiveness, and ensure it contributes positively to your business growth.

5 Reasons Referral Tracking is Important

Keeping track of all the referrals that come into your business may seem like a time-consuming hassle, but it truly is crucial for several reasons. Here are the key benefits of monitoring your referrals:

1. Measure Effectiveness: Tracking allows you to assess the performance of your referral program. You can determine how many new customers or leads are acquired through referrals, which helps justify the investment in the program.

Most referral programs prove effective while tracking the conversion rate and LTV of referral customers. Christian Zirbel, Marketing Manager at Shinnova, explains, “Referral customers are some of our highest converting customers. So they already come in with trust and social proof from some of our past customers. And they convert to an appointment and a sale at a much higher rate than pretty much any other customer lead that we come across.” 

Christian Zirbel

Marketing Manager @ Shinnova Solar

 

 

"Referral customers are some of our highest converting customers."

2. Optimize and Improve: By monitoring which aspects of the referral program are working well and which aren't, you can make data-driven decisions to enhance its effectiveness. This might include tweaking the rewards, adjusting the referral message, or altering the conditions of the program.

3. Reward Accurately: Accurate tracking ensures that the right referrers receive their earned rewards based on their contributions. This is essential to maintain trust and motivation among participants, encouraging them to continue promoting your business.

Many companies we’ve talked to struggle with this particular step. It’s difficult to manually track when a referral has qualified and who has now earned their incentive. Failing to reward the referrers in a timely manner has damaged relationships with their customers, which is why accurate referral tracking can be vital to your referral program.

4. Cost Effectiveness: Tracking helps you understand the return on investment (ROI) of your referral program. By comparing the costs of running the program against the revenue generated from referred customers, you can gauge its cost-effectiveness. And if referrals are a major source of new business, you might choose to invest more in this area.

5. Strengthen Relationships: By recognizing and rewarding your referrers, you strengthen your relationship with them. This not only boosts their loyalty but also encourages them to engage more deeply with your brand.

Tracking your referrals is fundamental to maximizing the integrity, efficiency, and impact of your referral program. It helps turn what could be a casual, anecdotal marketing effort into a strategic, data-driven growth engine for your business.

9 Steps to Set Up Referral Tracking

If you’re at the early stages of building your first referral program, you probably want to spend as little as possible on referral tracking until the previously-mentioned statistics allow you to justify a higher spend on this marketing channel. 

Setting up a referral program manually without the budget for sophisticated software is possible. Here are some steps and tips on how a you can do this efficiently:

Step 1: Define Clear Objectives and Key Performance Indicators (KPIs)

Identify what you want to achieve with your referral program (increase sales, boost brand awareness, grow your customer base). Establish KPIs based on key statistics you plan on tracking, such as the number of referrals, conversion rates, and customer acquisition costs.

Step 2: Create a Simple Referral Form

Use a basic form-building tool, like Google Forms, to create a referral submission form. Ask for essential information such as the referrer's name, the referred person's name, contact information for both parties, and any specific offer code if applicable.

Step 3: Use Unique Identifier Codes

Generate unique referral codes that can be shared by your customers. This could be as simple as a specific code that ties back to the referrer, which can be tracked manually in a spreadsheet.

Step 4: Set Up a Spreadsheet

Set up a spreadsheet in Excel or Google Sheets to track the referrals. Each row can record details like the referrer's name, referral code, referred person’s name, contact information, date of referral, whether the referral was successful, and any rewards given.

Step 5: Communicate Clearly with Customers

Explain how the referral program works through your newsletter, website, and social media. Make sure customers know how to use their referral codes and what rewards they can expect.

Utilize basic email automation tools, like Mailchimp, to send out referral codes and track who signs up for more information. These tools often allow you to see who opened emails and clicked on links.

Encourage customers to share their referral codes or links on social media. While this can make tracking more challenging, you can ask new customers to mention the social media post or friend who referred them.

Step 6: Verify Referrals

When a new customer signs up or makes a purchase, ask them if they were referred and by whom. This can be included in the purchase process or in a signup form. Verify these details manually against your spreadsheet.

Step 7: Issue Rewards Manually

Once you confirm a successful referral, you can issue rewards manually. This might be discount codes, gift cards, or whatever else fits your business model. Ensure this process is timely to keep your referrers motivated.

Step 8: Update Information Regularly

Keep your spreadsheet updated regularly. This might require daily or weekly management depending on the volume of referrals. The longer you wait to update the spreadsheet, the more overwhelming and time-consuming it becomes. Making this a regular to-do item will keep it manageable.

While updating the spreadsheet, take time to regularly review the performance of the referral program and track your KPIs. Analyze statistics and the effectiveness of different elements.

Step 9: Feedback and Improvement

Regularly ask participants for feedback on the referral process and make adjustments as needed. This could be through direct conversations, email surveys, or feedback forms. You should also continuously test different aspects of your referral program to find what works best. This could be different types of rewards, messaging, or even different ways of presenting the referral link.

Pro Tip:

Use this opportunity to build real relationships with your happy customers. Ask for a referral and continue to follow up overtime. Don’t overwhelm them with messages, but don’t be afraid to check in every once in a while. See if they need any maintenance on the product you sold them, ask for an online review, or maybe there’s an issue that’s come up that you can quickly resolve for them. Nurture these conversations over time.

Invest in Referral Tools and Automation

While managing a referral program manually is more labor-intensive, it can still be very effective, especially for small businesses with a manageable customer base. When the referral program has proven successful and you have the budget, you might consider investing in a referral management software or a referral automation tool. It will save your team a significant amount of time, especially in regards to referral tracking and reward distribution.

Atlasta Solar Center is a solar installation company that relies heavily on referrals for new business. When the need for tracking became too much of a burden on the team, Atlasta turned to Snoball, a software with referral management capabilities. Matt, Co-Owner and Marketing Director of Atlasta, explained, “Before Snoball, we spent a ton of time and a ton of money trying to track and pay out referrals as they came in or as they were being installed. Snoball has not only increased the number of referrals that we are getting but also saved our team time and money in tracking and paying those referrals out.”

Matt F.

Co-Owner and Marketing Director @ Atlasta Solar Center

 

 

"Snoball has not only increased the number of referrals that we are getting but also saved our team time and money in tracking and paying those referrals out."

The Snoball platform integrates with your CRM to launch referral outreach. It seamlessly tracks many statistics and even creates a dashboard of your top referrers. After a referral has been received and verified, it automatically distributes the appropriate incentive. Our team also nurtures conversations with your customers overtime, resulting in more referrals, reviews, video testimonials, and upsell opportunities. 

The Snoball Referrals Module has relieved a lot of stress and saved a lot of time for many of our partners. 

Frequently Asked Questions