5 strategies to increase the lifetime value of customers


a 5-minute read

One of the most powerful marketing assets businesses often forget to tap into is their own customers. So many companies have apparently “built their business on referrals” but don’t actually have a concrete system in place to increase their chances of boosting sales through word of mouth. This means that their sales funnel ends when a customer completes a purchase, so they’re missing out on an opportunity to increase their revenue. Obviously, this is a chance for you to beat your competitors.

Referral programs have helped some of the largest brands in the world, like PayPal, Dropbox, and Amazon, grow to the size they are today. If it’s good enough for them, then it’s definitely worth a second look for your business. Put simply, if you don’t have a referral system in place right now, you’re losing money. 

That’s why we’re here to share five strategies you can use to optimize your referral program: 

These tips will get you on track to not only increase the lifetime value of every single one of your customers but also help your brand to grow organically. 

Before We Start | Always Create an Offer Worth Referring

Before getting into the strategies in detail, ask yourself this question (hint: the answer isn’t nearly as obvious as it seems): 

[quote] Why should your customers be referring business to you?

If your answer is, “because I provide a great product”, then that’s not enough of a reason.

Some of your customers will definitely enjoy your product enough to recommend it to a friend. But a large portion of your customers will let it slip their mind. Some will simply prefer not to provide referrals, while others just won’t be all that blown away by your service.

Helping your business is at the top of your to-do list — but not anyone else’s. That means you need to find ways to make referrals a priority for your customers.

Strategy 1 | Offer Upgrades

One of the most effective referral incentives is a free upgrade. Thousands of successful companies use exactly this strategy — and with good reason. It works.

Let’s look at a great example of an offer upgrade from DropBox: offering additional storage space to existing customers when they refer a friend.

This offer is effective because:

  • It provides something customers already want.
  • It offers a substantial reward.
  • The referral process is simple.

Depending on your industry, offering service upgrades in exchange for referrals might not be feasible for you. But think about other ways you can replicate Dropbox’s strategy in a way that works for you and your business.

What add-ons or bonuses could you offer customers who provide referrals?

Strategy 2 | Cold Hard Cash

There are certain pros and cons to the tactic of straight-out paying your customers for referrals.

Pro: It’s pretty much guaranteed to work because a pile of cash motivates people to act quickly.

Con: If you use large amounts of money as a loss-leader for referrals, you may sacrifice the profit of the order that they brought to you in the process.

For example, PayPal was able to achieve an amazing 7% to 10% daily growth by offering users a pre-loaded account when they first signed up. This money could then be spent quickly on online goods. All the user had to do was sign up, confirm their email address, and add a credit card to their account.

As PayPal’s popularity grew, they were forced to phase the program out, as they saw diminished returns from a larger customer base.

But the fact remains – PayPal’s innovative way of paying their customers brought a lot of interest to their program, and helped catapult them to the successful internet staple that they are today.

Strategy 3 | Commission and Affiliates

Nearly everyone likes the idea of getting a commission. Some of the largest online brands in the world use commission-based affiliate programs to multiply their customer bases.

In these programs, individuals and businesses sign up to promote the product, and earn a commission on every sale that is brought in. These sales are tracked through their own individual affiliate account.

Perhaps the most popular affiliate program on the web today is the Amazon Associates program, which allows businesses to promote their products for a small commission on each sale – starting at about 3%. Over time, their affiliates earn higher commissions at different tiers.

As a business owner, you don’t need to implement a huge affiliate program. Just talk with other complementary businesses, and offer them a commission on every sale they make of your product. You might be surprised how many businesses you’ll find who are more than happy to take you up on the offer. Be sure to focus on relevant businesses and partners. They will only be successful with sales if their customer base is somewhat similar to your own target market in the first place.

Strategy 4 | Discounts and Credits

Everybody loves a discount! If you provide big-ticket products or services, especially in a B2B setting, a discount or credit in exchange for a referral can be a powerful sales tool. After all, other businesses depend on your products and services every day, so if those products and services were to suddenly cost less, that’s a huge incentive to provide referrals for you.

One company that uses this tactic right is FatCow, a popular web hosting firm. They offered a $35 credit to any existing customer who refers a friend. On their cheapest plans, this would pay for almost a full year of service. This simple and straightforward referral system has helped Fat Cow dramatically grow their web hosting business.

Strategy 5 | Gifting Discounts

It always feels awesome to receive a gift. You might not think a discount for a customer’s friend would be a very powerful motivator for referrals — but the truth is, a lot of customers love to share discounts with the people they care about.

Airbnb has used this strategy to great effect. The unique travel rental company offered a $25 discount to all new users that were referred by a friend — and scored thousands of new referrals as a result.

This strategy is genius for two reasons:

  1. The referrer feels great because they get to recommend a unique service and save a friend some money.
  2. The newly-referred customer gets to try out the service at a discount.

This tactic was one of the main components that helped Airbnb grow into the vacation rental giant that they are today. Plus, discounts for friends can supercharge your referral program as well.

CHALLENGE | Start Growing a Referral Program Today

We hope our article sparked your creative juices and got you thinking about ways for kicking off your own referral program.

As you can see, you’ve got a lot of options when it comes to referral tactics. The key is to find an approach that connects with your audience — and that’s going to involve some trial and error. Don’t be afraid to experiment and get creative. Compare the results of chosen tactics, mix them, adjust them, and enjoy the long-term exponential growth.

Need some help with kick-starting this challenge?

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