Referrals don’t just happen—at least not at scale. Occasionally, a satisfied client might mention your company to another buyer, resulting in a sale with little effort. But how often does that happen?
You can't improve what you don't measure.
Scaling referrals requires predictability, and that predictability hinges on proper tracking. Correct tracking reveals what works and highlights exactly where to improve and scale results.
Data-driven decisions are the best decisions.
Sales and marketing teams must develop referral selling and marketing skills. To hold teams accountable, it's critical to measure referral program performance at a granular level.
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Which sales and marketing channels recruited the most people into your referral program?
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Which referral offers attracted the most people to join, start, and continue referring?
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Who are your best types of referrers, what is their relationship with your company (e.g., customers, partners, influencers, employees, etc.), and how can you recruit more of them to join your referral program?
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Which salespeople are best at following up on referral leads and have the highest closing ratio? Which salespeople need training?
1. Percent referring
The first important metric to know is the percentage of your customers, partners, employees, etc., who were told about your referral program, signed up and started referring. It's important to analyze this at a granular level, considering both the referral offer and the referrer's relationship with your company (e.g., customers, partners, employees, influencers, industry professionals, etc.).
Here's an example of tracking:
| Metrics | Control - No formalized referral program | Offer A | Offer B |
| Avg. new customers per month | 100 | 100 | 100 |
| # Referrers | 10 | 30 | 20 |
| % Referring | 10% | 30% | 20% |
Did you know?
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91% of happy customers are willing to refer products and services. |
But only 11% of salespeople ask for a referral. |
Only 29% of customers make referrals without being prompted to do so. |
The No. 1 reason referral programs fail is a lack of marketing. In other words, if nobody knows you have a referral program, it may as well not exist. Actively promote your referral program to your customers, partners, industry professionals, influencers, etc., so that everyone is aware of it.
2. Avg. qualified referrals per referrer
The next key metric to understand is the average number of qualified referrals received from those who have started referring (e.g., customers, partners, employees). It's important to analyze this at a granular level, considering both the referral offer and the referrer's relationship with your company.
Here's an example of tracking:
This example reveals that, although offer A brought more customers into your referral program, offer B generated twice as many referrals per person who joined and resulted in 50 more referrals for the month (200 total referral leads vs. 150).
| Metrics | Control - No formalized referral program | Offer A | Offer B |
| Avg. new customers per month | 100 | 100 | 100 |
| # Referrers | 10 | 30 | 20 |
| % Referring | 10% | 30% | 20% |
| Total qualified referral leads |
10 | 150 | 200 |
| Avg. qualified referrals per referrer | 1 | 5 | 10 |
3. Close rate
The next key metric to understand is the referral lead-to-sale conversion rate at a granular level. In this example, although Salesperson B received more referral leads, they closed the same number of deals as Salesperson A. It’s critical to examine the details to see if the referral leads Salesperson B received came from the same types of referrers and offers or if any of these variables impacted the close rate. If all variables are the same, then ask Salesperson A to share what they are doing to close more referral leads.
| Metrics | Control - No formalized referral program | Salesperson A | Salesperson B |
| Avg. new customers per month | 100 | 100 | 100 |
| # Referrers | 10 | 30 | 20 |
| % Referring | 10% | 30% | 20% |
| Total qualified referral leads |
10 | 150 | 200 |
| Avg. qualified referrals per referrer | 1 | 5 | 10 |
| # Deals closed (i.e., Deal Won) | 1 | 10 | 10 |
| Close rate | 10% | 6.67% |
5% |
4. Avg. deal size
The next important metric is the average deal size. It’s not enough to only look at the total revenue or profit generated by the referral program. It’s crucial to analyze the average revenue and profit per closed deal, broken down by the referral offer, the referrer's relationship with your company (e.g., customer, partner, employee), and the salesperson who received the lead. These factors provide deeper insights into the profitability of your referral program and can help identify opportunities to scale.
| Metrics | Control - No formalized referral program | Customers | Partners |
| Avg. new customers per month | 100 | 100 | N/A |
| # Referrers | 10 | 30 | 20 |
| % Referring | 10% | 30% | 20% |
| Total qualified referral leads |
10 | 150 | 200 |
| Avg. qualified referrals per referrer | 1 | 5 | 10 |
| # Deals closed (i.e., Deal Won) | 1 | 10 | 10 |
| Close rate | 10% | 6.67% |
5% |
| Total gross profit or revenue | $5,000 | $35,000 | $50,000 |
| Avg. deal size | $5,000 | $3,500 |
$5,000 |
5. Cost to acquire customer (CAC)
The next key metric to understand is the cost of acquiring a customer through referral leads compared to other lead generation channels. This calculation should include the total amount paid for referral leads (i.e., referrer commission) divided by the number of closed deals (i.e., sales generated).
If the referral offer includes rewards for both qualified introductions and closed deals, as opposed to only rewarding closed deals, it can significantly impact the final cost of acquiring a customer.
This analysis helps assess the efficiency of your referral program by referral offer, referrer relationship, and the salesperson who received the lead, compared to other acquisition channels with the same factors or variables.
In this example, the following is the reward structure for offer A vs. B:
- Offer A: $250 reward only when referral lead converts to a sale.
- Offer B: $10 per qualified introduction AND $250 when referral lead converts to sale.
| Metrics | Control - No formalized referral program | Offer A | Offer B |
| Avg. new customers per month | 100 | 100 | 100 |
| # Referrers | 10 | 30 | 20 |
| % Referring | 10% | 30% | 20% |
| Total qualified referral leads |
10 | 150 | 200 |
| Avg. qualified referrals per referrer | 1 | 5 | 10 |
| # Deals closed (i.e., Deal Won) | 1 | 10 | 10 |
| Close rate | 10% | 6.67% |
5% |
| Total gross profit or revenue | $5,000 | $35,000 | $50,000 |
| Avg. deal size | $5,000 | $3,500 |
$5,000 |
| Referral partners commission | $250 | $2,500 | $4,500 |
| Cost to acquire customer (CAC) | $250 |
$250 |
$450 |
Comparing customer acquisition cost
If you know your customer acquisition cost, you should be able to give at least that amount to a referral partner. You either pay Mark Zuckerberg to advertise on Facebook or your customers, neighbors, industry professionals, etc., to refer business to you.
A referral from a partner will be worth much more in lifetime value (LTV) than a lead from Facebook ads. Consider referral partners as having 10,000 people wishing you success every night. That’s how you build generational, multi-billion-dollar companies.
Remember: A well-compensated partner today is a loyal ally for tomorrow.