Making Money From Existing Customers – Austin Brawner

Austin Brawner: All right. As we said, I’m talking about customer referrals. I’m super excited because we’ve already talked about funnels and acquiring customers and Facebook ads. All these things work together with customer referrals. As we said, it was one of the most underutilized channels. I believe that because often we focus on the front of the funnel and converting people but, let’s see here, the end of the funnel is just as important as the beginning. Once you acquire a customer that’s kind of where the second part of the journey begins and you’re able to get people to turn your best customers into your best salespeople. I truly believe this is possible for most businesses out there. Especially, like Ezra has mentioned, as you move and down the road you’re going to want to have a branded business with your own website that you want to turn your best customers into your best salespeople.

I first got interested in this because I saw some of these really fast growing companies like TOMS, Bonobos. I kept seeing Facebook posts, people sharing things, emailing about deals. Check this out. I bought it on Bonobos and I kind of was thinking to myself, “Well, these products are so good people are buying. They’re then sharing on Facebook. They’re emailing. Their friends are buying. All you got to do is have a really good product.” That’s what I was thinking. I realize that’s wrong. That’s not the way it works. Just because you have a good product doesn’t mean that your customers are going to refer their friends. Really, the way that it works and the way these big brands, who started out as small brands just like people here, have been doing it is they incentivize people. They really focus on creating incentives that work to propel people to do what they want them to do.

There is an interesting thing that goes on with your products, everyone’s products. People talk about them. Right? Everyone’s products are being talked about by customers way, way more than you think. You’ve got this lady here who’s posting about Starbucks like crazy. That’s insane to me. She’s posting about Starbucks every single day on Instagram. That’s only the visible times you’re going to see when your customers are talking about you but there’s a lot more conversations that go on about your products. Clay was talking about how to be a good copywriter, and I think it was Claude Hopkins that said, “You want to enter the conversation that’s going on inside your prospect’s mind.” That’s, if you want to write good copy you want to enter that conversation. To be good at referral marketing you want to enter the conversation that’s already going on between your customers and a prospect.

You want to incentivize that conversation. You want to give your customer a little bit of an incentive to bring in somebody new. I believe that right now it’s the best time ever to be able to focus on referrals online for e-commerce. There is a lot of technology and a lot of these big companies are just exploding because they’re able to leverage their customer base and they’re able to grow by just incentivizing their current customers to bring in new people. Bonobos, are you familiar with Bonobos? Who’s familiar with Bonobos? Bonobos is a men’s pants company. They’ve grown from a smaller startup to a massive, massive pant company and they’ve had so much success. In 2012, 25% of their customers came from customer referrals. It’s still at around 13%. That’s a massive channel. If you think about SEO, organic traffic, or pay per click that’s the same level so there’s a huge market for it.

Customer acquisition is also getting more competitive. You’ve got these wizards like Justin who are spending tons of money on Facebook and doing these amazing things and it’s great but more people are coming into the market so it’s great if you can leverage your current customers and make sure that they’re spreading the word as well you can acquire more customers for cheaper. Also, when I was doing research I came across a lot of really interesting statistics. A lot of research has been done by the University of Chicago and Wharton School of Business. They looked into referred customers and satisfied customers and they tried to figure out why people refer and why they don’t refer. It turns out the reason mostly that people don’t refer, it’s our fault, not theirs. They polled satisfied customers and 83% of satisfied customers would refer somebody else to your business.

They just fundamentally, if they’re satisfied, they would refer if you asked them. Seventeen percent said they will not. That’s not, 83% of people do not bring in new customers. Only 29% of people actually do. What happens, you’ve got this huge breakdown. Fifty-three percent of people would be willing to refer but they don’t and that is your opportunity, those people who are not referring currently. If you look at brick and mortar businesses, most of the time 50% of their business comes from referrals. It’s not the same online and it’s going to be like that in the future. More referrals will be coming. Why don’t they refer? Well, these are the reasons that I typically see. One, they don’t get asked. How many people actually ask for referrals in their e-commerce business here? We got one, two. Two.

Most of the time they don’t asked or there’s no incentive or bad incentive, no system in place. Right? These are the main reasons they don’t. The other part of the study was they figured out that referred customers are actually more profitable, 25% more profitable than another customer acquired from a different channel. Why? A lot of it comes down to speed of trust. Is anyone here familiar with speed of trust? When you acquire a customer from, let’s say Facebook, they’re seeing your ad and they’re becoming a customer. When you acquire from referral marketing they are coming in through their fried so if John likes the business and they trust John, the trust transfers through John to your business and they’re willing to spend more money right up front and it’s one of the reasons they’re more profitable for you.

Also, who are the people that refer? Usually your best customers are the ones that refer friends and they’re bringing in people just like them. I was thinking to myself, I’m like, “All right. These big companies are doing it. How do we do it?” I got this creepy stock photo guy. How do you actually do it for your small business? I’m going to tell you about three campaigns that I’ve run and they’re consumer products. Two of them were like knocked it out of the park and one just flopped. I really looked at it and I was like I don’t know. When I started the campaigns they all seemed on an equal playing field to me but I made a mistake on one of them and I’ll tell you guys why and I’ll tell you guys how the other ones have grown, did so well. I want to talk about results and to talk about results I’ve first got to define them.

For referral marketing there’s two things that matter, there’s share rate and there’s sales lift. Share rate is the percentage of people that share your offer that are customers. They may make a purchase and then share with their friends right afterwards. Sales lift is the percentage of sales you get from your referral program. These benchmarks, you guys might want to write these down because if you’re building a referral program these benchmarks will guide you and let you know if you’re going to have success with your offer. These don’t come from me. These actually come from the guy who built the Bonobos and TOMS referral program. They’ve built more referral programs than just about anybody online. They say that if you’re a healthy brand you can get a 20% to 30% share rate. If you’re at 50% to 60% that means your company is poised to blow up, really like to grow up quickly.

Over 60%, this is Ken Griffey, just the sweetest thing in baseball, you’re hitting home runs. If you get over 60% you’re absolutely killing it. The first one we ran was a sunglass company called Blenders Eyewear. It’s basically a simple product, a branded product, and there’s nothing too amazing about it besides the brand. What really mattered was the offer was good and the way it was presented and the system worked well. You can see down here we put a referral program together that got a 36% sales lift. Meaning for every 100 customers we acquired for the different channel, they brought in 36 new customers with them. It was huge, extremely successful. You can see we started at the bottom at 21% and we actually had over 100% share rate, meaning the offer was so good people shared more than one time. We started at, basically we got there.

We had to do a lot of testing and we got to 36%. We were able to replicate this with another bracelet company. We got them almost a quarter million dollar win because we boosted sales by 13.1% and it was all in the offer and the system. The one that failed, which I thought was going to be really good, was the women’s shoe company. The reason that it failed, and I say it failed because we got a 1.4% lift in sales. The reason it failed was because we copied, who’s familiar with Nasty Gal? Anyone heard of Nasty Gal? Really great e-commerce website for women’s clothing and shoes. They had a referral program. We copied it and it just totally bombed. I won’t ever do that again. I will go back to using data, which I kind of started with, to build an offer. Now, actually, I want to teach you guys how to do this. Right?

Those are some of the results we got and you guys can do it as well. Here’s the offer that we used. It was get a free pair of sunglasses for every friend that you refer. This is for the sunglass company. Your friend gets 15% off as well. What’s great about this is we were able to incentivize them by giving away the baseline, cheap model of sunglasses. They made all their money on the top line, the most expensive pairs of sunglasses, and we gave away the bottom level ones. It was still very valuable for the customers. To get to that offer there’s really four things you need to do. You’ve got to start by figuring out the value of each one of your customers. Then you’ve got to create an offer. Then you’ve got to pick a platform to deliver this referral program to them. Then you need to build the system that’s going to be pushing these coupons and emails between people to make this thing actually work.

Customer lifetime value. This is, the thing you need to calculate first. The first step is to learn your customer lifetime value. If you don’t know this or you’ve been in business for only a year or two years, which is possible, you can make some sort of an estimate but it’s very, very important to know your numbers. I like to figure out first my basically cost per action, CPA, from each channel. I use this to build my offer. Adwords and Facebook. Figure out exactly how much you’re spending to acquire a customer off SEO, direct mail, any channel that you want. On the side there it just says CPM, which is cost per 1,000 impressions in pay per click and CPA, cost per action. That’s the first step. I’m going to give you guys some resources. You can write this down.

I don’t want to go over it too much because we could spend 20 minutes, 30 minutes talking about customer lifetime value, but if you Google search the easiest way to calculate lifetime value of your customers I’ve got a video I recorded. Also, who’s familiar with Quick Sprout, Quick Sprout blog? It’s a great blog by Neil Patel and he has a post, if you type “Google search lifetime value Quick Sprout”, if you write this down you can go get a really in-depth infographic and case study about how Starbucks calculates their lifetime value. To create an offer, a referral marketing offer, the way that I look at this and the way we’ve had the most success is by figuring out the cost per acquisition of your most successful channel. Let’s say it’s you can acquire a customer for, let’s say, $20 on Adwords.

You want to then match that with your referral program and divide it in two and provide value to the customer, the new customer, and the person who’s referring somebody. You would do something like, a really simple one, would be $10 for you and $10 for a friend. That matches the acquisition cost of AdWords. You also don’t want to compete, and there’s also other ways to do that but that’s just a basic example of an offer. You don’t want to compete with your core offer either. If your core offer, like I mentioned the sunglasses, the really expensive sunglasses, those were the core offer. We gave away the cheap ones because that didn’t compete with the luxury brand. You also just want to come up with at least three offers because I can almost guarantee the first one you come up with is not going to work.

I’ve built a lot of these referral programs and a couple of the things that I’ve observed. The biggest mistake that I see business owners making is not giving away enough. Not providing enough of an incentive. We’ve done something and the e-commerce, the online world, has made free shipping, 10% off, that’s not even really an offer anymore. It’s kind of expected. Consumers don’t, they see that as somewhat of an offer but it’s not really that compelling. You’ve got to go above and beyond and be unique and make sure your perceived value is cranked up. The other thing I’ve realized, if your offer scares you a little bit, you’re like oh God, I might be giving away too much, that means you’re going to almost be successful. That’s what you need to do. That’s what you need to do. That’s it. That will get people’s attention.

The last thing is deadlines will make you money in the referral marketing. You want to make sure if you give a coupon, let’s say 20% off, that the person who’s going to redeem this has to redeem it within 48 hours. Try that. It’s going to, it’ll really improve your results. Put a deadline on the coupon. Ezra’s got great names for all his process maps. I’ve got the customer profit loop. We could probably rename it with something funkier but we’ll see what we can do. This is it. This is what I do and this is what I implement for brands. This works really, really, well. A person, and I’m going to go over each step of this so you guys will be able to understand it. Person goes to check out. They receive an offer directly after checkout to be able to share with their friends. Email, Facebook, and Twitter. Email and Facebook are the ones that are usually most profitable. Then you got the shipping confirmation email. On the shipping confirmation email, what email is opened up the most of all the transactional emails?

Man in audience: Shipping confirmation emails.

Austin: Shipping confirmation email, two, three times. It’s a great place to put in a really soft offer but I’ll go over each step. I’m going to move forward and you’ll be able to see each one of these. First off, the post checkout offer. Right after checkout you give them an offer, something that pops up. This says give your friends $25 off and get $25 towards your next purchase. They can share via email or Facebook. The offer is irrelevant. What really matters is that it happens post checkout. What’s great about this is this is where you want to start if you want start in referral marketing. You want to test with a post checkout campaign because you can test very, very easily. Everyone who buys is going to be able to see this. Super high visibility. You can run an AB test between two offers. The goal, you want to get at least a 20% off share rate with this post checkout campaign.

If you can get that that means you’re on to something with your offer and it makes sense to move on to the next steps so start here. Then shipping confirmation email. Like I was saying, everyone opens this thing up two to three times so there’s can spam laws. You’ve got to be careful. You can’t just put a blatant offer in there but what you could do is put a soft offer letting them know about a referral program in their shipping confirmation email. That then drives them to a dedicated landing page that hosts the offer for everyone at all times or for only the customers. The landing page. This landing page is going to be the hub for the referral program. I call it your bread and butter because most of your sales are going to come through this. It’s great because you can have a lot of content, great copy, explain it really, really well, and have share options. Also, if you get sophisticated with email segmenting you can only refer the people who are satisfied customers to this.

The downside, though, it’s harder to test because unlike the post checkout, the post checkout campaign you can set up super easily and test two or three before you build out a landing page. Here’s the Bonobos campaign. This is a really, really good one. It says, “Get your friends in Bonobos, a free shirt is one us.” So, “Share Bonobos with friends to give them $50 off their first purchase of $125. You get a free shirt valued at $88 for the friend that buys.” It’s just very clean. It’s got an email message in here. It’s also got a share button and they can type and import their contacts and use email. Email is, I have found, the most profitable referral channel. After you’ve got them to the landing page for the first time from the shipping confirmation email and the post checkout offer, then I like to actually send an email after they receive the product.

At this point they’re going to be satisfied. Right? If you’ve got a great product they’re going to be happy to share with their friends. It’s a perfect time to send them another email. I send them an email, something like this. This time I explain the offer. Get $15 in store credit for each friend you refer. Keep it very, very simple and drive them to a landing page. The landing page is basically the same one that we had earlier. At this point they would have received the post checkout offer, the shipping confirmation email, and this email. Then you’ve got the most important and I think the most overlooked part of this whole process, which is closing the loop. You don’t want to just barrage people with offers telling them share with your friends. Right? Share with your friends. They’ve already seen it.

At this point you’ve already hit them with three potential opportunities to share with their friend. Now, on the third and fourth emails, which is day 7 and day 14, you want to bring them back to the landing page. Does that make sense? Yes? All right. What I mean by closing the loop. It’s often like with direct mail. People talk about direct mail and how if you just get bombarded with email, email, email, email, email, people can get really annoyed. They’re like, “They’re always bombarding me with email.” If you switch it up and you go email, direct mail, email, direct mail psychologically it’s a changeup in what you’re providing to somebody. The same sort of thing happens if you change the psychology of the email. On these second and third emails you don’t want be telling them about the referral program.

You want to be closing the loop on the information that they’ve already done. If they’ve already shared you want to show them how many invites they’ve sent, how many friends have clicked on it, and how many friends they’ve referred, and ultimately how much money they’ve made or earned. You drive them, again, to a landing page so that one to this one. At that landing page they should be able to see the people, the number of people they’ve referred and also be able to share again. Does anyone have an idea of one of the most successful emails ever with the highest click-through rate? I guarantee everyone here has got it.

Man: Nigerian prince looking for a wife.

Austin: Yes. No. It’s this. You’ve been tagged in a Facebook photo. Right? You’ve been tagged in a Facebook photo. This has a 75% click-through rate, incredibly high. Why? Everyone’s terrified. They’re like, “Oh my God. Christine McLain Gibbs tagged me in a Facebook photo? What the hell?” So you click right through. Right? The reason it’s so successful is it’s super relevant to them. The second and third emails need to be very relevant as well. You want to send a subject line that’s something like, “Hey, check the status of your referrals.” That’s pretty interesting. Right? Oh, maybe I’ve got a referral waiting and I’ve $15 in my account. Or “Check to see if you’ve got money waiting for you.” Those have worked for me. People are like, “Oh, maybe I’ve got $5.” I have actually seen people put like, “You might have $4 in your account,” or something like that. That works as well.

What’s important with those is you’ve got to have, the scent trail has to be strong from the subject line to the inside of the email. If it says, “Check the status of your referrals,” all you’re going to want to do is give them a link to basically go check the status. This is the sequence that’s worked for us. Post checkout offer, email sequence starts. The limited offer is in the shipping confirmation one. You don’t want to be pushy. Then you’ve got the positioning email, which is one day after. You’ve got the two intrigue emails. You’re just driving intrigue. You want people to click on it and learn if they’ve got money, that sort of a thing, to a stand-alone offer page. Sometimes I talk about this and people look at me. They’re like, “Oh my gosh. It seems like a lot of work. You’ve got a lot of crazy stuff going on there. How am I supposed to do this?”

The good part is that it actually is not as difficult, and why I think it’s really important to focus on it now is because the magic is not in the technology. It’s in the system that you build. It’s in the customer profit loop. It’s in the emails. It’s in the follow-up. All you need is an email marketing service. Who’s got an email marketing service? There you go. A referral marketing platform. I’ll talk to you guys about which one you can choose. Some graphic design work and then very important, a Terms and Service document because there’s going to be some people that are going to try and game your system and you’ve got to have a dialed in Terms and Service document so you can just deny the people who try to make fraudulent purchases. With referral marketing platforms, there’s a couple here.

Write this down. This is a good resource to write down because all of these people are going to, all these companies have, provide this service. The nuts and bolts part of this that’s going to connect people that want to share with their friends. Extole and FriendBuy, those are two of the largest companies. I like them because they provide good service for small business owners. ReferralCandy I think is a little bit sketchier than Extole or FriendBuy. FriendBuy runs some of the largest campaigns, same with Extole. They’re kind of, they’re competitors. Then Talkable. For anybody doing over 10 million, it’s an enterprise level amazing service for referral marketing. They start cheap, like $30. Also, people always ask me, they’re like, “I’ve tried this with my business and it failed.”

That’s the number one thing I hear. “I tried a referral marketing and it did not work for me.” Well I, usually there’s three questions that I ask at this point. Number one, is your company growing? If you’ve got a growing brand and growing company a version of referral marketing will work for you. I’ve seen it time and time again. You’ve just go to be creative. The second question is is your company healthy? What I mean by healthy is do you have a concept that’s going to last? You want, we talked, Ezra has talked so much about building brands and moving from Amazon to your own website in the future, having a long-lasting brand. It’s going to be way more successful if your company is healthy and it’s growing and it’s not taking advantage of a loophole. The last thing is if you do have a referral marketing program and it’s failing, you’ve got to check.

Are you getting, at absolute least, a 20% share rate? If you’re not you probably have a problem with your offer. That’s where you want to start. Hopefully you guys are ready at this point. You’re like, “How do we do this? What’s the next step?” I actually put together a bunch of resources for just you guys, SM Live. If you head to EcommerceInfluence.com/smlive and I think you actually have to capitalize the S and the M. I’ll fix that. My developer made some weird thing. I was actually using LeadPages but anyway. There’s a couple things here. I put in the Bonobos campaign playbook guide. Bonobos has run like 20 different campaigns since 2012. I put a picture and showed you exactly how to do this. I also put in that customer profit loop process map. Chad and I did a podcast episode with the guy who built the Bonobos campaign and built TOMS campaign, Dollar Shave Club, and he talks about exactly what they do and get into more of the campaign building aspect of it. All that stuff’s there.

There’s also the Terms and Service document there. You can just copy and paste. I put one in there. You can take it and put in the stuff you want so it saves some money. That’s what I got. Thanks, guys!