Generating more revenue from a single customer means one way in business: increasing the customer’s lifetime value for them to come back for periodically repeated purchases. I’m sure you’re familiar with the term CLV (customer lifetime value) – this means the life cycle of a customer from the moment they made their first purchase.
The customer lifetime value is an important metric that every growing business needs to keep track of to determine how much money to spend acquiring a new customer. It is easy to calculate just by multiplying the average purchase value of one customer by the frequency rate.
CLV = Avg. Purchase Value X Avg. Frequency Rate
This metric will vary depending on three factors that influence a buyer’s decision to purchase from a company in the first place and to come back as a frequent customer.
- Familiarity with the brand
Familiarity means how the customer comes in contact with your brand before making a purchase, either through paid marketing (social media ads, press, TV) or earned marketing (referral, influencer review).
- First impressions after making a purchase
What’s the first impression they have after interacting with your product or service – if they like the quality, staff, customer service, etc.
- Online reviews and feedback
Millennials and Gen Z are the generations that conduct a lot of research before committing to a brand and trying out new products, in comparison with older generations that make a buying decision after seeing an ad on TV. The research involves all the reviews and any feedback left online by older customers, employees, the company’s values and goals that can align with their goals.
All these three factors influencing a customer’s decision to make repeated purchases at your company is related to referral marketing. By leveraging this marketing strategy, you can improve and increase your CLV. Here are three ways you can start implementing today to increase that metric:
Referral marketing increases revenue per customer
Having a referral program for your customers will increase your CLV and the revenue a customer generates for your business because they were acquired based on a referral made by another one of your customers. When a new potential customer hears about your brand from a source like their friends and family, they’ll make sure to check you out and are more likely to come back again.
It shows how valuable word of mouth can be even today for businesses in comparison to paid marketing strategies like ads and press. Building a referral program doesn’t have to be complicated, and it sure doesn’t have to require additional staff. With our solution, it is automated and free for businesses.
Referral marketing increases brand awareness
A customer spreading the word about your business to friends and family sure makes an impact in your business, even if not all of their friends and family will make a purchase. They are more likely to make a purchase in the future and choose your company over your competitors.
It will also help you with earning a good online reputation, user-generated content, and positive reviews that will come in handy when a potential customer decides to purchase based on conducting online research.
Referral marketing decreases CAC (customer acquisition cost)
When using referral marketing to promote your business, your customer acquisition cost will decline in comparison to using paid advertising because it involves a lower amount of resources. When implementing a referral program, the incentive you add to reward a new customer referral is usually a discount, free sample, or even cash. Paid marketing channels like paid ads, influencer marketing programs, and press can be costly and with no immediate ROI.
Ultimately, referral marketing can be a huge growth opportunity for your company if implemented correctly, and it can help you increase CLV and lower CAC – two metrics to keep track of when you’re growing.
If you’re ready to give referral marketing a try, use btwn for free.