Cost-per-acquisition is among the most important business metrics you can track. It helps you price out your products and services and has a direct impact on your profit margins. This valuable metric is sometimes overlooked by business owners that don’t look at the cost of bringing a customer through a certain marketing channel. Each channel has its CPA, especially when it comes to paid social media advertising – where you compete with other companies for the same audience, and the bigger the competition, the higher the cost-per-acquisition.

This metric is very important for businesses that run 100% online because without a physical location that customers can walk into when they are nearby, with online businesses, you’ll need to attract customers through online marketing channels. If they don’t know your name, they’ll probably not find you online unless you invest in SEO and paid campaigns.

CPA in Referral marketing

There are a variety of channels for acquiring new customers, but we’ll focus on referral marketing or word-of-mouth marketing – an organic channel that helps you acquire new customers based on your existing customers’ recommendations. 

Compared to other channels, like paid social media advertising campaigns where the CPA can fluctuate based on competition, with referral marketing, you’re the one setting a cap to this metric because you’re setting up the incentive – the incentive is your cost-per-acquisition.

There aren’t a lot of channels that can guarantee a good volume of customers with the same cost-per-acquisition, but with a good referral program in place, you can leverage this organic way of monetizing previous happy customers. To learn more about the benefits of having a referral program for your business, visit this blog post.

Having a certain number of customers make a word of mouth referrals to their friends and family about your business can also be seen as a way to generate leads for your flywheel business model. According to Hubspot, a flywheel business is a more unified way to grow your business and acquire customers by adding value to increase word-of-mouth referrals!

Create your referral program

By creating your referral program, you’re the one that will manage all the costs and set the cost-of-acquisition for new customers. It gives you flexibility on setting up a fixed cap to the CPA metric since you’ll know the exact amount spent for each new customer coming from a referral. The cost can be a discount you’re offering along with a code to track referrals, or even free samples or cashback. 

An example of a successful in-house referral program comes from the online sneaker shop, Greats, which gives away $30 for new customers and $30. Giving credits to both parties is a great move to incentivize current customers to tell their friends about the brand and, hard to pass on this kind of deal, especially with their target market being millennials (a demographic that relies a lot on word-of-mouth).

Greats sneakers referral program

In this example, the total of $60 is the actual cost-per-acquisition that Greats pays for a new customer, which is not a lot if you take a look at their price point (over $179), and the fact that customers acquired through word of mouth will keep coming back.

Use a referral program software

Setting up your referral program can be rewarding but hard to manage since you have to manually track and reward customers so, using a referral program platform might be a better option. 

Nowadays, there are various referral program platforms for B2B and B2C organizations, but most of them require extensive setup. They also charge monthly fees for using their solution, sometimes, without any guarantee of new customers.

That’s why we created btwn – a free-of-charge platform that helps you leverage referral marketing without having to pay upfront for fees or extensive setup. The CPA is set up by you whenever you create the business account, so you’ll always have a fixed cost-per-acquisition for new customers coming from a referral. 

You only pay whenever you get a new customer acquired from a referral coming from our platform! It solves the problem of fluctuating cost-per-acquisition metrics and fees for running a referral program, as well as usability. 

As a business, the most important thing is to acquire new, valuable customers that will return to your brand again. Despite the route that you might take depending on your business goals, a referral marketing program will help you stabilize your cost-per-acquisition metric. So you can focus on optimizing your profit margins and creating a sustainable business model. Referral marketing will not only increase your brand trust by promoting it organically in front of a lookalike audience but will also increase your customer retention rates.

What's new at btwn