Strategic Referral Marketing: Optimise ROI with Customer Advocacy

Read time:  16 mins

In the ever-evolving business landscape, customer leaders and marketing executives are consistently exploring innovative strategies for growth and enhanced profitability. While the spotlight often falls on acquiring new customers through paid channels, unlocking success frequently involves tapping into the untapped potential of your existing customer base.

Imagine turning your happiest customers into passionate advocates for your brand, who not only boost your revenue but also bring their friends. This article is your roadmap to unlocking the value of a strategic referral marketing programme that maximises ROI through harnessing the power of brand fans.

What is Referral Marketing?

The Business Case for Referral Marketing

From Acquisition channel to Marketing Strategy

Customer Advocacy as an ROI Multiplier

Examples of Successful Referral Marketing & Advocacy Strategies

What is Referral Marketing?

Referral marketing is about encouraging your existing customer base to tell their friends about your brand. It is a method of incentivising, recognising, and rewarding your customers for the indirect value they bring to your business.

Referral marketing operates on the principle that people are more likely to trust recommendations from people they know—friends, family, and colleagues—over traditional advertising methods. This trust can lead to higher conversion rates as potential customers are introduced to the brand by someone they already have a relationship with.

Referral Marketing Pros and Cons

Here are the main pros and cons of referral marketing:

Pro: Creates Loyal Customers

Referral marketing creates a community of loyal customers — when people feel appreciated, they stick around. Rewarding both referrers and referees creates a network of devoted brand advocates who are genuinely invested in your success.

Pro: Multi-Channel Marketing Mastery

Referral marketing isn't confined to word of mouth, so use social media, emails, blogs, and even webinars to extend your reach. This diverse approach boosts engagement and ensures a strong online presence.

Pro: Improve Customer Retention

Referred customers have a 37% higher retention rate, because trusting a recommendation from a friend makes them more likely to remain loyal, driving your retention rates through the roof.

Pro: Cost-Efficiency at its Best

Referral marketing is incredibly cost-effective. It taps into your satisfied customers to do the marketing for you, saving on advertising costs. The happier your customers, the more they spread the word, naturally expanding your reach.

Pro: Maximised ROI

Minimal setup and execution costs translate to a high return on investment. Efficient tools for managing points and rewards ensure you get the best returns from your resources.

Pro: Increase Brand Awareness

Referral marketing spreads organic awareness. Customers sharing their positive experiences create authentic, relatable narratives that attract new leads, letting your brand story resonate far and wide.

Con: Budget Considerations

Referral rewards are impactful but need to be well-managed to avoid cutting into profit margins. Simply take some time plan things out — incentives like discounts or free products must balance against generated revenue.

Con: Slow Initial Growth

Referral marketing is incredibly cost-effective but can take time to gain traction. Building trust and encouraging customers to refer others is a gradual process with long-term benefits, but can be accelerated with strategic social media campaigns.

How Does it Work? The Business Case for Referral Marketing

In the race to acquire new customers, the importance of retaining the ones you already have can easily take a back seat. Through referral marketing, companies can not only acquire new customers but also strengthen the loyalty of existing ones, ultimately building a more robust, customer-focused growth engine.

Quote from Fred Reichheld, Creator of Net Promotor Score

Indeed, Gartner research suggests that a large share of a company’s future profits (80%) come from only a small number (20%) of existing customers. This makes it crucial to know exactly which customers are the most valuable.

Increasing Revenue through Referral Marketing

Companies often use models like Recency, Frequency and Monetary Value (RFM) to find and segment their top customers — those who buy a lot and spend the most. But these models don’t always consider how many new customers these big spenders bring to your business. 

Not having this data to hand means that you are missing out on valuable customer insights. Without knowing how much each customer really helps your business, you might allocate resources in the wrong places.

For example, think about Alice, who spends £500 a year with your brand. That’s not a huge amount, so she might not get special treatment like early access to sales or free samples.

But here’s the thing — Alice loves your brand so much that she’s brought in 10 friends, and those friends have brought in even more people. In total, these referrals have accounted for a whopping £5,000 in sales. That’s ten times more than you first thought Alice was worth. So, it’s time to give Alice some recognition.

On average, referred customers tend to:

• Spend 11 times more on their first purchase.
• Spend 8% more on future orders.
• Be 5 times more likely to introduce others to your brand.

Understanding this helps you sort your customers based on their true value. By focusing on your most valuable customers and giving them a great experience, you can build loyalty, encourage them to promote your brand and grow your business organically, even during  uncertain times.

How Referral Marketing Maximises Lifetime Value

Customer lifetime value (CLTV) measures how much profit a customer brings to your brand, whether they shop with you for a day or stick around for decades.

If you’re into numbers, here’s how you can calculate it: CLTV equals the annual profit a customer generates multiplied by the number of years they stay a customer, minus the initial cost of acquiring them.

But if you stop there, you’re missing a crucial point: if a customer often recommends your brand to others, they’re probably more valuable than someone who spends more per purchase but doesn’t bring in new business.

Based on our experience with over 500 brands worldwide, we’ve discovered that referred customers can be gold mines; They have twice the CLTV compared to non-referred customers.

There are 3 big reasons why referred customers are great for your business’s profits:

• A customer referred by a friend already likes and trusts your brand before buying.
• Customers acquired through referrals tend to match your ideal customer profile, reducing the chances of them being one-time bargain hunters.
• People like to return favours, so they’re more likely to recommend your brand to others.
  
  

Extended Customer Revenue (ECR): A Key Metric for Referral Marketing Strategy

ECR goes beyond traditional revenue metrics by considering the long-term impact of customers’ referrals and advocacy signals. It’s called Extended Customer Revenue because it shows the revenue generated from the initial customer themselves and from those they refer and influence. 

It tells you at a glance how much value your referrals are generating for your business. 

Why ECR matters for ROI: 

• ECR accounts for the indirect revenue generated through customer advocacy, making it a critical metric for understanding the holistic impact of advocacy programmes.
• It highlights the potential for exponential revenue growth. Satisfied customers refer new ones who, in turn, become advocates themselves.
• Tracking ECR allows you to allocate resources effectively to advocacy programmes and optimise their ROI.

So, when you’re planning your next marketing strategy, pay attention to your loyal customers. By harnessing and rewarding their customer advocacy, you can not only increase their CLTV but also attract more returning customers with healthy CLTVs in the process.

Discover Customer Advocacy Intelligence  →

From Acquisition Channel to Marketing Strategy

Referral marketing is often seen simply as an acquisition channel, something to be bolted on to the end of your customer journey to incentivise new customers to spend money with your brand. 

And to be sure, acquiring new customers is an important part of any referral programme. But developing a comprehensive referral marketing strategy that sees your customers as potential advocates for your brand and looks for ways to nurture your relationship with them is a far more effective long term driver of revenue and profitability.  

So how do you build the relationships that will turn your brand fans into customer advocates?

Use your data to understand your customers

ECR is such a powerful metric because it lets you see how much value your customers are bringing into your business through referrals. Understanding this metric is a great starting point for understanding where your customers are in the referral journey. 

To go back to our fictional example, when Alice refers her friends to your brand she goes from having a direct value of £500 to an ECR of £5000. That’s a significant amount of revenue that she’s directly and indirectly responsible for. To maximise Alice’s value, you need to do two things:

• Show her that you’re grateful 
• Offer her more opportunities to advocate for your brand

Create Shareable Content

Maximize your referral program's reach by creating shareable content on high-impact channels. Spark engagement on social media with irresistible shareable links to your sign-up page, boost word-of-mouth via live chat by having agents casually drop referral mentions, and energise your email campaigns with clickable links and punchy messages about rewards.

Lastly, convert website visitors by prominently featuring your referral page and blogging about your program. In short, create valuable content that users want to read and show to their friends.

Show your customers some love

There are many cases where customers have spent, shared and referred multiple times, then suddenly stopped. And there are several other cases where well-timed gifts or inclusion in VIP programmes have deepened customer loyalty and extended it far into the future. 

A referral marketing strategy that allows you to identify who your most valuable customers are and reward their goodwill puts your growth on a much more sustainable footing. 

Structurise Your Referral Programme Rewards

Follow this simple structure for your referral programme rewards:

One-Sided Incentives

Rewarding only one party can work, but choose wisely. If you reward just the existing customer, they might be excited to share but the referred friend might not feel motivated to buy, seeing the offer as self-serving. Without an incentive for the friend, your sales potential might fall short.

Two-Sided Incentives

Double the rewards, double the engagement! Two-sided incentives reward both the referrer and the referee, creating a win-win situation. This approach not only boosts shares but also entices new customers to act immediately — you can offer identical rewards ("Give $10, Get $10") or mix it up ("Give $15 to a friend, Get a free tester"). This balance is more likely to drive excitement and maximise conversions.

Use Social Media

In most high-performing referral programmes, social media plays an integral role. It's cost-effective, expands your reach, and it's where advocates are spending their time. In fact, social media users spend almost 2.5 hours per day on social channels, so push your referral content on where people are most likely to see it and engage.

Whether it's via Twitter, Facebook, TikTok or Reels, promoting on social media is one of the best ways to make sure your referral programme noticed by as many valuable customers as possible.

Nurture your fans and turn them into advocates

If someone is referring you to all their friends, it’s quite likely that they are a big fan of your brand. Harnessing your customers enthusiasm and directing it to where it will have the biggest impact is the core approach of customer advocacy. 

It takes a shift in mindset to fully realise the value in this area. The actual referral, where one customer takes advantage of a discount code or other incentive, is the endpoint of a long process. To get there, you have to build a relationship of understanding, recognition and respect. There are plenty of points along the way where you can encourage advocacy — a share on social media or by word-of-mouth is valuable in and of itself — regardless of whether it ends in a direct referral. 

If a customer leaves a glowing review, or excitedly shares their experience of your brand with their friends, this is all great publicity. These moments are examples of customer delight, where you’ve done such a fantastic job that someone feels compelled to tell the world how great you are. 

These moments of customer delight are key points of engagement. Experiment with placing referral prompts after a customer leaves a 5 star review or in an email after they’ve had a chance to fully experience your product or service.

There are some other significant ways you can nurture your customers:

• Loyalty — Advocacy and loyalty programs can be a powerful duo when working together. Target customers racking up the loyalty points with referral offers that drive them to refer friends.
• SMS — Send personalised reminders to share links and codes and increase conversion rates.
• NPS surveys — Promote NPS to gather and act on customer feedback. Turn NPS promoters into active brand advocates bringing in new customers.
  

Rebalance your Referral Marketing Strategy and Reduce Spend 

Engaging with your customers to get them advocating for your brand is the most direct customer advocacy strategy. It is also the cheapest. But beyond this, there are ways to use referral marketing to reduce the cost of your paid advertising, too.

Referral data can be a powerful tool in your arsenal to reduce the cost per acquisition (CPA) of a new customer and boost your return on ad spend (ROAS) across various marketing channels. Advocacy data enables you to target new customers more effectively, by using the data of your advocates to build a lookalike audience that matches their profile and attributes. 

Let’s take paid social as an example. Incorporating first-party referral data into your paid social strategy allows you to pinpoint audiences who have a high likelihood of becoming valuable new customers. 

This is especially valuable in the wake of changes like iOS 14. Brands have been able to enhance performance and generate immediate results on paid channels: 

• Referrer lookalike audiences at menswear brand SPOKE convert 65% more and deliver a 30% higher ROAS compared to standard seed audiences.
• Sustainable deodorant brand Wild reduced CPA by 25% and increased the conversion rate by 17% by using referral data effectively. 

You can apply a similar approach to paid search, leveraging first-party referral data to fine-tune your Performance Max audiences and bidding strategies on Google. If Google currently takes up a third of your paid advertising budget, even a slight improvement in conversion rates could significantly impact your profit margins.

Read how SPOKE uses referral data to supercharge paid social

Key Metrics for C-Levels to Monitor

To assess the impact of your referral marketing and customer advocacy efforts, it’s crucial to establish clear, measurable objectives, providing a concrete direction and benchmarks to measure the success of your programme. 

These are nine key metrics to monitor:

1. Customer Enrolment

Why it matters: Indicates the number of customers entering the referral programme, providing a gauge of initial interest and awareness.
Metric Insight: Total number of customers enrolled, both actively and silently.

2. Shares and Sharers
Why it matters: Reflects the programme’s viral potential and the effectiveness of your advocates.
Metric Insight: Number of times the referral offer is shared and the unique customers doing the sharing.

3. Share Response
Why it matters: Shows how engaging and appealing your referral shares are.
Metric Insight: Number of clicks on referral sharing links or name searches performed by referees.

4. Conversions and New Customers
Why it matters: Directly ties the programme to revenue generation by tracking how many new customers are brought in.
Metric Insight: Number of referees who make their first purchase.

5. Rewards Claimed
Why it matters: Ensures your incentives are attractive and drive the desired actions.
Metric Insight: Number of referees and referrers who claim their referral rewards.

6. Impressions and Unique Impressions
Why it matters: Measures the reach of your referral campaign.
Metric Insight: Total number of times the referral offer is displayed and the unique views.

7. Conversion Rate
Why it matters: Provides a holistic view of how well your referral programme is performing.
Metric Insight: Percentage of enrolled customers who convert to buyers.

8. Segmentation and Promotion Points
Why it matters: Assesses the effectiveness of different campaign channels and promotional strategies.
Metric Insight: Performance breakdown by promotion point (e.g., email, social media) and customer segments.

9. Executive Dashboard Insights
Why it matters: Quick access to top KPIs and performance summaries for efficient decision-making.
Metric Insight: High-level overview of programme performance and campaign value generation.

Measuring Referral Marketing’s Impact

As your advocacy programme continues to operate, it’s essential to assess its progress. Several metrics can help you gauge its effectiveness, providing deeper insights into the programme’s impact:

1. Total Referral Revenue:  This metric calculates the total revenue that can be attributed to your customer advocacy programme. It considers both the direct and indirect impact of advocacy on sales. Tracking revenue influenced by your advocacy programme helps you understand its financial impact on your business.
2. New Referred Customers: The number of new customers obtained through referral which have successfully been introduced to your brand through your advocates.  
3. Share Rate & Conversion Rate: The share rate shows the percentage of customers who are actively sharing your brand, and indicates the traction of your programme. The conversion rate measures the rate at which you have successfully converted referrals to new customers. A higher rate is an indicator of more sharing from your advocates as well as more new customers joining your brand. 

Regularly monitoring and assessing your customer advocacy initiatives’ performance ensures that you stay on track with your objectives and can make necessary, data-driven adjustments as needed. These metrics provide valuable insights into the programme’s financial impact, conversion rates, sales efficiency and customer satisfaction stemming from your advocacy efforts. By analysing this data, you can optimise your programme to maximise its impact on your business objectives.

Examples of Successful Referral Marketing & Advocacy Strategies

We’ve worked with hundreds of leading brands to increase revenue and boost ROI through referral marketing and customer advocacy. Here are just a few of their stories. 

Case Studies in Customer Advocacy

PUMA

PUMA has undergone a gradual optimisation of its referral programme with the assistance of the Mention Me team. Strategies adopted have involved:

• Promoting referrals through key touchpoints
• Pausing other competing promotions
• Conducting A/B testing with distinct user segments. 

This approach has allowed the leading sports apparel company to gain a deeper understanding of its most valuable customers and what motivates them to take action.

One particularly enlightening experiment conducted by PUMA focused on testing the impact of ‘give’ versus ‘get’ messaging. This test was run across major European markets and revealed significant differences in behavioural patterns. 

It revealed:

• German and French audiences were more motivated by the opportunity to give referral rewards to their friends.
• English audiences were primarily driven by personal rewards.

Armed with these valuable customer insights, the PUMA team crafted a customised referral campaign for each specific country. They tailored elements such as messaging and imagery to ensure the maximum word-of-mouth impact, and with the recent expansion of the referral programme to 19 additional countries, this personalised approach has proven to be instrumental in driving increased engagement for every campaign. 

Having harnessed the power of customer advocacy within their referral marketing programme and other marketing activities, the company has recorded a whopping 6x return on investment.

Db

Db, a prominent Scandinavian brand, describes Mention Me as “word-of-mouth on Red Bull”. Unlike platforms such as Google and Facebook, where diminishing returns are common, a referral marketing campaign has consistently delivered impressive results for the company.

By seamlessly integrating a referral marketing platform into its customer data system, the company was able to: 

• initiate referrals 
• Collect valuable customer data
• Administer efficient Net Promoter Score surveys

Personalised messaging, informed by NPS surveys and referral data, played a pivotal role in its strategy. 

As a result, the company’s mailing list grew from 30,000 to 185,000 subscribers in a short period, with referred customers proving to have a higher CLTV than existing database members.

This case demonstrates how a well-executed referral marketing strategy not only yields immediate returns but also fosters long-term customer value, defying the diminishing returns often associated with other digital platforms. The company has had exceptional success, achieving a 5x ROI.

Explore All Success Stories →

Case Studies in Referral Marketing

Huel: Referral Marketing Implementation

• High Engagement: 22% of Huel customers referred friends.
• Conversion: 60% of these referrals converted into new customers.
• Community Expansion: Referred customers introduced twice as many new shoppers as non-referred ones.
• Revenue Growth: 12% increase in referral revenue year-on-year.
• Key Metrics: 35% increase in referred customers acquired through Name Share®, significantly boosting overall customer loyalty and retention.

Warrior: Optimisation of Referral Marketing Strategy

Background
Warrior recognised the potential within their loyal customer base to drive more value, aiming to optimise their referral marketing strategy.

Implementation
Focusing on acquiring new, high-value customers, Mention Me helped Warrior optimise their referral strategy, leading to impressive results. Referred customers generated 3x more revenue and introduced 4x more new customers than any other acquisition channel.

Results
Integrating Mention Me's referral data into their SMS platform, Attentive, Warrior sent personalised messages to referrers, increasing engagement. This multi-channel approach converted passive promoters into active advocates, resulting in 9% of new customers being acquired through SMS.

Symprove: Boosted Conversion Rates in a Referral Marketing Programme

• Increased Sharing: 19% of their customers now actively share the brand.
• Conversion Boost: 51% of all referred customers are acquired via Mention Me’s Name Share® capability, showcasing how everyday conversations translate into conversions.

Practical Advice from Industry Leaders

“We’ve always known that word-of-mouth is an important marketing channel for building trust among our target consumers, but we hadn’t found a way to track and measure its impact — until now.”

Diane Larramendy, COO, Linxea

“During this tough economic period, we’re spending way less on sales and marketing than our competitors. Why? Because there is such a loyalty effect that our customers have with us and their willingness to refer. When your customers are continuing to come back and spend even in a difficult environment, there’s no better proof you should be focusing on customer love.”

Nate Henderson, CEO, BILT Intelligence Instructions

“By integrating customer advocacy data into our existing strategy, we’ve changed how we segment and communicate to our customer base. It’s helped us identify who our biggest advocates and most loyal customers are, helping us to overcome rising paid media and acquisition costs.”

David Witts, Senior CRM Manager eCommerce, PUMA

“Through our brand advocates, we’ve created an organic, scalable revenue stream. Customer advocacy has quickly proven to be a high-performing growth channel that acquires quality customers who spend more and share our brand with others.”

Ellis Hennebry, Senior Marketing Manager, COAT Paints

And that’s how referral marketing works its magic. It’s all about capturing and nurturing customer advocacy, keeping the buzz alive and recognising those who spread the word. We at Mention Me team up with brands big and small to seize these convos and transform them into fully fledged referral programmes. If that resonates with you, you’re more than welcome to book a free demo with one of our specialists who’ll walk you through everything related to our referral platform.

Read next: Harness the power of your customers with referral marketing