The e-commerce subscription market has grown over 100% per year for the past five years as industry leaders have generated more than $2.6B in sales. Subscription business models have become more popular for both B2C and B2B because they quickly generate recurring revenue. Referral marketing capitalizes on the popularity and success of subscription companies are currently seeing. Understand the inner workings of a subscription referral program and why referral marketing works for subscription businesses.
What is a Subscription Referral Program?
A subscription referral program is a method of promoting a subscription product or service by incentivizing your customers to refer the business to their friends.
Simply put, subscription referral programs operate in a similar manner to typical referral programs. However, the main difference is the goal of a subscription referral program is to convert referred friends into subscribers rather than encouraging friends to purchase. Subscription referral programs can also trigger rewards based on different referral actions.
For example, let’s say your subscription business offers “first month free” trials. The program can reward advocates when their friends sign up for a trial, become subscribers, or subscribe and remain a customer for a specified duration of time. Whereas typical referral marketing programs reward advocates once their friends complete a purchase.
Is a Referral Program Right for Your Subscription Business?
Referral marketing is great for generating brand awareness, new customers, and revenue. If you’re a subscription business interested in getting the word out about your business while attracting new subscribers, referral marketing is a must-have for you.
3 Advantages of Referral Marketing for Subscription Companies
Using referral marketing programs to promote subscription products and services has its advantages. It generates new subscribers and you can determine when to reward advocates; i.e. when they sign up or complete their first transaction as a subscriber.
1. Get New Subscribers
Referral marketing is an excellent marketing tactic to acquire new customers. For subscription businesses, they live off of customer retention and acquisition. Referral marketing excels at driving higher quality leads because your customers are more likely to share with friends who would be interested in your product or service.
2. Only Offer Rewards When They Subscribe
In addition, with Talkable’s referral platform, you can pick how they reward referred friends. In a subscription model, you can offer rewards once there has been a transaction and a referred customer subscribes. If your company notices subscribers drop off after three months, then you could delay sending the reward to the advocate until their friend has remained a customer for four months. On the other hand, if you want more people to try your business you’ll want to offer rewards for signing up for a trial.
3. Easily Track Customer Lifetime Value (LTV)
Another difficult statistic to keep track of is your customer lifetime value. With Talkable’s platform, you get a custom lifetime value report and understand the value of both your advocates and their friends. It’s important for subscription businesses to know their customer acquisition cost (CAC) and their customer lifetime value (LTV) because this is how they are able to determine your margins.
Why Market Your Subscription Business With a Referral Program?
Referral marketing is an excellent strategy to grow your subscription base and generate ongoing demand. Other digital marketing channels have much higher costs associated that charge based on click rather than conversion. The referral marketing channel mostly costs you money in reward spend once referrals have made a purchase with their incentives.
On average our customer acquisition cost (CAC) is $44, which is much lower than an average $82 CAC for most e-commerce businesses.
Referral customers have higher lifetime values (LTV) because referred friends are more connected to the brand and less likely to churn. In fact, referred customers have a 16% higher lifetime value than customers acquired through other marketing channels. As you grow your referred customer base, your company is more likely to see greater profits.
However, utilizing referral marketing allows subscription businesses to keep their subscriber acquisition cost down while generating new subscribers.
Subscription businesses are growing due to the subscription model and its effectiveness to generate recurring revenue. To help your subscription company, try a referral marketing program today. Referred customers have a lower acquisition cost, longer lifetime values and are overall better for your business.