How to Transform Your Loyal Customers into a Powerful Business Growth Engine

SDS 008: Clarifying Referrals

Hey! thank you for reading issue 008 of Startup Definition Sunday (SDS). 

SDS is the newsletter for founders, bringing you clarity one actionable tip at a time.

SDS arrives every two weeks (you guessed it) on Sundays.

In every issue you can expect: 

• 1 Definition of startup jargon

• 1 actionable tip you can implement right away

• 1 article on Africa tech that you should read

• 1 gift for founders

Let's dive in:

(PS I'll never sell your information, ever)

Hi, I am back! If this your first time reading SDS, you are probably wondering: back from where?

In February, I invited two phenomenal women - Maureen & Marge - to write guest posts on SDS.

(Yes, a month before your timeline got inundated with people suddenly remembering women exist in startup land - anyway, moving on).  

If you missed the last two issues, check them out here and here. Let's dive into today's issue.

I have been advising startups pro-bono over the last 3 years. I am still surprised that founders miss one of the most effective marketing tactics and head straight for paid ads.

Now, no shade to paid ads (*wink at future sponsors*) but what if I told you that I knew a marketing tactic that builds more loyalty and increases customer spending rate?

Come, allow me to let you in on a secret...

What is this mythical tactic?

Referral Program: a word-of-mouth marketing tactic that motivates existing customers to become your startup's evangelist to their friends, family and colleagues. Typically, both the new and existing customer receive a reward when the new, referred customer purchases a product or service for the first time. 

Why are referral programs beneficial for startups?

Do you remember when uber and lyft started out? You could refer your friend with a unique code. Then both you AND your friend got a free first ride. That was AWESOME! But uber & lyft were not doing it because they really cared about your friends making it to brunch on time.   

Lots of research has been done on the impact of referral programs on a company's customer base: Research from BCG shows that customers found word-of-mouth to be 2 to 10 times more reliable than paid ads (again, future sponsors don't vex. It's the data, not me). Additionally, referred customers have a 37% higher retention rate compared to customers via other marketing channels.   

I know what you are thinking: "Jasiel, show me the money!"

Ok, let's get into it. The graphic below shows 3 advantages referred customers bring to a startup's bottomline: 

Additionally, referral programs have a progressively higher trust levels for Gen X, Millennials & Gen Z customers. 

Despite all the existing data, Forbes found that only 30% of B2B companies have a sales referral program.

If you want to build loyal customers, that trust your brand and spend progressively more, you need a referral program. 

How do you build an effective referral program?

Now that I have motivated you to call your marketing lead and ask why you don't have a referral program instituted, here are 3 best practices on designing a referral program that the good people at Accion Venture Lab (disclaimer: that's my employer) have put together:  

Design a strong offer: 90% of referrals are two-sided i.e. a reward for the referrer and a reward for the new customer. Creating a compelling value proposition for both parties can create a virtuous flywheel effect that will result in more customers for your startup. Personalize the experience and craft custom messaging & landing pages for the referring customer. Personalization increases the affinity the referred customer has because it feels like it is coming from a trusted source rather than this company they have never used. Designing a strong offer is pointless if customers can't track & follow-up on referrals. Create a dashboard that allows referring customers to know their progress towards unlocking rewards.   

Promote & empower customers: It is almost cliche but if you don't talk about your referral program, no one will know about it. Promote the program through all channels and touchpoints with your customers beyond just the app. If your customers are on twitter, whatsapp, at tradeshows, wherever they are, tell them about your referral program.

Institute a system of reminders and follow-ups. One hack to promote your referral program to customers is right after they make a purchase. On the thank you page, redirect them to your referral program. Promoting is only half the journey, make it easy for your customers to share their referral code by pre-populating texts or instituting one-click referral (shameless plug: at the end of this post, I have instituted my own referral program. Tell a friend!).     

Monitor, optimize & improve: Referral programs are not silver bullets (at least, not entirely) so prioritize testing, monitoring and optimizing performance as necessary. Set goals, and track acquisition costs to confirm that net value is being added. As you get better at optimizing the program, your costs should be progressively going down. Finally, manage fraud and fulfillment issues on the back-end. The goal is to add and retain new customers - keep that North Star in focus.  

So, there you have it. Today, I have given you the opportunity to finally have an answer to the VC question you get on cost-effective customer acquisition.

Join the exclusive club of 30% of companies that have a sales referral program. Your KPI metrics will thank you.   

If you have learned something valuable today, consider joining sds so you don't miss future editions. 

If you only read one thing this week, read this...

Ngozi, co-founder of Carbon, penned a hilarious but still incisive article on vanity metrics.

Here's why you should read it: As the fundraising environment continues to get tough, investors are going to be asking founders tougher questions on their metrics. With no more free money & zero interest rates, Ngozi reminds founders of the metrics that actually matter.   

Founder's Corner

Let's get real for a second: raising a round in 2023 is beginning to sound like going outside in mid-2020 - everyone is advising you against it. Unfortunately, unlike missing weekly drinks with your friends, you can't just pause on the fundraising.

The team at Africa The Big Deal have been curating a database of investors that have done deals in Africa since 2019.

It costs a fraction what you will pay for Crunchbase or Pitchbook BUT the team has offered a 10% discount for subscribers of SDS. Grab it here (and tell a friend!) to help you target investors in your sweet spot. 

Thank you for reading to the end of issue 008.

If you have tried building a referral program for your startup, hit reply and let me know your experience!

Until we meet again in two weeks, here's how we can stay in touch:

• 🐦 Find me on Twitter

• 💬 Hit me up on Linkedin

• 💌 Email (hit reply)

• 🚀 Sponsor SDS (Reply to this email)

Let's chat again in two weeks,

Jasiel

P.S If you enjoyed reading this, consider sharing this with your friends and family using your personalized referral card.