Referrals have a 14x impact on gross revenue when viral loops are used in an effective way

AAARRR Pirate Funnel — Referral

62% of referral optimization is at a 51- 100% level of efforts made

92% of consumers trust referrals from people they know — Signpost

Background

Why should customers recommend your service? If enough value has been created to motivate customers to tell others, referral efforts have worked.

When the value is created to a point where a customer’s problems are well-solved, they want to share the joy with people they trust. This is where growth hacking viral loops are most effective. A viral loop helps achieve these three things — customers discover and use your service, they tell friends about the service, and friends become customers as well.

The Net Promoter Score (NPS), which measures customer loyalty and the likelihood of churn, helps understand how to manage referrals.

The NPS starts by asking your customers: “On a scale of 0 to 10, how likely are you to recommend us to a friend?” Then, group the respondents into three categories.

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• Promoters 9–10
• Passives 7–8
• Detractors 0–6

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Calculate the net promoter score like this:

NPS = % Promoters — % Detractors.

Context

Bring this into a full circle with some of the critical questions to address being:

• What incentives would customers need to invite friends?
• What do customers like most about my service?
• At which point of their journey would customers most probably invite friends?

Identifying who those customers are, incentivizing them, and simplifying their referral experience are key to boosting referrals. Some measures to be used to manage this are:

• Percentage of customers who refer friends
• Referred customers
• Percentage of total purchases by referred customers
• Lifetime value of referred customers
• Positive reviews
• Social media shares
• Sent invitations & successful invitations
• Viral coefficient & viral cycle time
• Net Promoter Score

To get referrals moving, approach the best customers and reward them for inviting their friends. However, to really accelerate growth, viral loops will need to be optimized.

Takeaway

Referrals are about creating enough value to motivate a customer to bring you another customer. The goal is to lower customer acquisition costs by spending once on one customer and having that customer recruit other customers for you.

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ABOUT — Growth Thinking

Growth Thinking is a design methodology for growth hacking by the bestselling author of Ready Set Growth Hack, Nader Sabry. It has been applied as a book and a $1 million challenge known as the 10-day growth hacking challenge, which has generated $138m in revenue. This methodology has been adopted by universities like Harvard and Stanford, fortune 500s (Google/Microsoft), and unicorns.