What is referral tracking and why is it so important?

A referral marketing program is one of the most effective ways of acquiring new customers, given that 88% of consumers trust recommendations from friends and family above all other forms of advertising, and referral drives better customers, who not only spend more and stay longer than customers acquired by any other channels, but cost less to acquire and also are more likely to refer in more new customers themselves.

But once you’ve decided to add a refer-a-friend program to your marketing mix, you first need to be clear what your goals are and then you need to understand how you’re going to track progress towards meeting those goals in order to understand the return on investment (ROI) on your investment of time and money in your referral program. Particularly, if you’re an enterprise business, where you’re likely to need to convince a Buying Committee of the merits of referral marketing, you’ll need to evidence a robust, detailed and accurate tracking system that can correctly identify the conversions driven from referrals and the business value driven from them.

As you’ll learn below, accurate referral tracking is the key to tracking, measuring and improving the performance of your referral program. After all, in the quote often attributed to Peter Drucker, ‘if you can’t measure it, you can’t improve it.’

What are your Referral Marketing Goals

To start with, you need to identify the goals you want to drive from your referral program. In other words, you need to know what success looks like for your program. Obviously, this will depend on the nature of your business. For example, an NGO or Charity might want to drive donations, while a governmental or lobbying group might want to drive awareness or even signatures to a petition etc. But for a profit seeking business, the actions that you’d want to drive from a referral program typically include:

• Customer purchases
• Customer subscriptions
• Signs ups to free trials
• Conversions from freemium to premium
• App downloads
• Joining a loyalty program
• Switching to paperless billing
• Joining and participating in a customer self help program
• etc.

In other words, any action that has value to you as a business can be the goal for a referral program, as long as you can accurately track, attribute and reward the action.

Outside of referrals, you can also use welcome rewards and reward payouts to encourage customer signups and subscriptions, repeat purchases and extensions to subscriptions, upsells, customer loyalty, survey and NPS participation, for surprise and delight customer campaigns, to recognise customer events (like birthdays), or milestones (like being a client X years), and even to apologise for mistakes, like the email that went with a broken link. Similar to a referral program, you will need an accurate and reliable method for tracking the success of those campaigns.

What is Referral Tracking and Why is it Important?

In short, referral tracking is how you monitor and keep track of your referral programs results, both overall and by campaign, territory or other segmentation that’s important to you.

The basic information all referral programs need to capture is that a referral occurred, who made the referral and who was referred, whether the condition for a reward or incentive to be issued has been met and what reward or incentive should be issued. And then, of course, you’ll need a way of distributing those rewards and incentives to the right persons. For a small business with a simple referral program, with few referrals, just one standard reward and no post completion conditions, it may be acceptable to track this manually in an Excel or other simple tracking system. But for an enterprise business, particularly for a regulated business, you’ll need an advanced referral management and tracking solution that will track data across the entire referral customer journey, allowing you see the full referral funnel and take effective business decisions based on accurately and timely data. You’ll also want auditable data that can document the full referral journey, the offers made and the incentives offered, received and redeemed etc.

Hear from Buyapowa’s Referral Experts as to what’s a Referral Funnel and why it’s important to have access to detailed metrics across all the referral customer journey:

With accurate referral tracking and access to accurate data and analytics from an enterprise level referral marketing platform, you can track all the steps of the referral funnel including:

• How may customers visited your referral program?
• How many of those customers shared a referral link or code with friends?
• What types of referral sharing channels are most popular?
• How many referred-in friends visited your referral program?
• How many referred-in friends completed a data capture to give you a marketing permission to remarket to them?
• How many referred-in friends completed a transaction and what package or bundle did they buy or sign up for?
• How many of the referred-in friends went on to become qualified referrals, for example by paying for the service and not cancelling within a cooling off period?
• How many rewards and incentives were paid out and what was their cost?
• How many rewards and incentives were redeemed?
• How many times did each referrer share again?
• How many times did each referrer successfully refer a new customer?
• etc.

“.You’ve got all the different stages [of the funnel], so you want to be able to track where people leak out and [see] how you can fix it. So having a platform that lets you know they’re leaking out this stage and lets you go and fix something very quickly, or even test a different solution, can help you improve that funnel. The end goal is more customers at the end of that funnel.”
Peter Cunningham, Director of Marketing – Buyapowa

Once you have these data points accurately tracked, you can create and measure success using KPIs or ratios to compare against past performance, to see if you’re getting better over time, and/or to measure performance against publicly or privately available benchmarks. Using KPIs or benchmarks is an effective means to optimize and continually improve your referral marketing performance. In particularly, being able to identify the stage of your referral funnel where performance is weakest allows you to take targeted actions to fix and improve overall performance.

Additionally, having access to a sophisticated referral marketing platform will allow you to identify which campaigns worked best to improve performance, such as whether running a booster campaign with increased awards available for referrals made before a target date moved the needle, or whether a particular reward or reward choice was appealing to your customer base.

Hear from Ollie Moore, AVP, Product & Member Marketing at Delta Community Credit Union, why it’s challenging to track, incentivize and grow organic referrals without a formalized referral program:

And finally, where you have an enterprise referral marketing platform that lets you link referral data to your back end systems, you can see customer lifetime value generated from referrals and take informed decisions based on the real value of customers, rather than just the initial purchase value. Additionally, where you have detailed customer profiles, you may be able to learn about the customers that are valuable referrers and use this information in your other customer marketing.

“Before we started a proper referral program, we found that we had a lot of referrals happening organically. The challenge was how could we track it? How could we then capitalize on that or incentivize folks for their their organic referrals, and then how could we grow it? How could we really just make that a formal program in which members felt even more inclined to share what they loved? So it just made sense when we had the opportunity to formalize it.”
Ollie Moore, AVP, Product & Member Marketing at Delta Community Credit Union

How can you track referrals?

Now that you know the what of referral tracking, it’s time to learn the how. There are many ways that you can track referrals, from tracking cookies, to voucher codes, to recording details to post-purchase tracking. We’ll break down the key ways in which an enterprise business can track referrals below.

1. Referral Links and Cookies

One of the most common (and accurate) ways that referrals can be tracked involves tracking cookies. In practice, this means these cookies are typically used with a unique sharing link, or ‘referral link‘. In other words, a unique URL is generated when a referrer signs up to participate in your referral program. Referrers then share that unique URL with their friends and family.  When the referred-in friend clicks on the referral link and visits your website or app, a tracking cookie is embedded in their browser that then allows you to track the referral, as long as they continue using the same browser on the same device, or don’t clear cookies. Of course, recent changes to how some operating systems accept and deal with cookies can cause issues with cookie tracking, and you should ask your provider how this problem can be dealt with.

2. Referral Code

Now, we’ve all seen an influencer online somewhere tell their followers: “Go to website X and enter referral code Y to get Z% off.” That’s a referral code. It’s a unique identifier that attributes a referral to a specific referrer and allows you to track and reconcile it to the referrer. So when a referred-in friend enters that referral code as part of the check out process, that entry is recorded and fed back to you so you can connect it to a specific referrer and issue a reward when all conditions are met.

3. Personal details

A more basic method of tracking referrals is by using personal information, like a name and/or email or phone number. There are two standard ways to set this up. The first method, which may infringe privacy laws like the GDPR and CCPA, is where a referrer provides the details of their friend to the brand and the brand then tries to contact the friend. This method is often seen in offline referral programs or in B2B programs. As well as potentially breaching data protection laws, problems can arise when the referrer does not have all the data for the friend available or where the friend goes by a name in their personal life but uses their legal name for business, which can make it challenging to reconcile the referrer with the referral.

The other form is where the referred-in friend just uses the name, email or a pseudonym for the friend as a referral code, for example entering Liam Gordon, liam.gordon74[@]gmail.com or pinkelephant13, in the referral code field when signing up.

Hear from Natasha Saviuk, Director of Growth from Wealthsimple on why you should consider letting referred-in friends apply a referral code up to 30 days after a referral, where a friend forgot to use the unique link or code.

4. Post-purchase tracking (PPT)

Post-purchase tracking can be used where the referred-in friend forgets to use the referrer’s link, code or name, or where the referred-in friend shops offline. Typically this involves the friend completing the transaction and then later registering online and providing the name of the referrer and proof of purchase, such as a purchase receipt or unique order number. In other words, the referred-in friend self reports the referral and it’s matched to a referrer.

“Typically to be in a referral flow you have to use a specific link. But some people, their friend told them about it, they went to the app store and downloaded the app and then they’re like ‘oh but I didn’t go through my friend’s link’… That’s where promo codes come in and that 30 day window comes in…Definitely saw customer service complaints come down when that was implemented. But it doesn’t seem to be something that’s abused in any way.”
Natasha Saviuk, Director of Growth – Wealthsimple

Why is referral tracking so important?

Here are some of the main reasons why it’s important to be able to track referrals accurately:

1. Provides robust evidence for the ROI from referrals

As mentioned above, for an enterprise business seeking to get approval from a Buying Committee, having a robust and accurate means of tracking performance maybe crucial to getting signoff to start a referral program in the first place. But being able to track progress throughout the lifetime of the program is essential to being able to argue for increased resources or support from the rest of the business to push the program to its full potential. And, where you’ve decided to proceed with an outsourced supplier, that information may be vital to prove the case for renewing the contract for another period, particularly where you can compare the costs and value driven from referrals with that from other channels competing for budget.

2. Validation of referrals and preventing gaming and abuse

This is one of the number one reasons you should be tracking referrals. If you aren’t effectively and accurately tracking referrals and matching these to outcomes, then you are vulnerable to gaming, abuse and other undesirable behaviors, like paying out for valueless referrals that aren’t actually completed. These behaviors can significantly reduce the return on investment on your program overall. Whereas proper tracking and reconciliation lets you control which referrals you reward, ensuring that only legitimate referrals are paid out and not self-referrals, referrals that are later canceled or in cases of gaming and abuse.

3. Testing and Learning

As mentioned above, if you can track each stage of the referral funnel and track which campaigns led to successful and valuable referrals, you can see what works and test new hypotheses to increase referral success, which is crucial to improving performance over time. Looking at the data together with best practice examples from a referral expert like Buyapowa can provides ideas as to how you can improve wording, images, and incentives to encourage more customers to participate and refer friends, and encourage those friends to convert.

For example, the more data you can collect on the way in which, and the rate at which, your referrers share, the more you can tailor and streamline your process. It might suggest you need to use advanced features like tiered and intelligent rewards, or leaderboards and gamification, to encourage repeat sharing or that you need to send reminders to customers who signed up but didn’t share. But ultimately it’s this information that’ll help you make a success of your program.

4. Reveal high-value promoters

With any referral program, there will be super promoters and then the rest. Of course, there will always be people who sign up to be a referrer and take no action, but there will likely also be referrers so prolific you feel like you owe them a bottle of champagne and a Thank You card personally signed by all your team. But, as we’ve said throughout: if you’re not tracking referrals to referrers, you won’t know who they are. And if you identify your most proactive and high-value promoters or brand advocates, then you can encourage them to keep referring using tiered rewards, leaderboards, and custom communications (that Thank You wouldn’t go amiss).

Now, while super promoters may drive the bulk of referrals, you shouldn’t ignore the less active referrers. You can test ways in which to activate them and even turn them into super promoters, too.

5. Feed business intelligence

Referral tracking doesn’t just help the referral program, it can also feed into your overall business intelligence. By looking at referral data within the context of your overall business, you can understand its impact and allocate resources accordingly. For example, if you find referral works particularly well over the summer period, you can dedicate more resources to boosting your referral program over those months, with a summer booster campaign or leaderboard. Or, if you have an underperforming product category, you could try using referrals to boost it with special promotions.

6. Encourage referral contagion

Recent research from Rachel Gershon of UC San Diego and Zhenling Jiang of the University of Pennsylvania analyzed the anonymized data of 41.2 million customers of a large US mobile provider over a ten year period and found that not only where referred-in customers more valuable in their own right, but that they were also, in turn, more likely to refer in new customers. And, in a side experiment, they found that customers were more between 20-27% more likely to refer if you reminded them in messaging that they too were referred to the brand. Hence, if you don’t track who was referred-in you can miss this simple but highly valuable trick to drive more referrals.

Referral Tracking FAQs

What is a conversion tracking tag?

A conversion tracking tag or script is a short line of code inserted onto a webpage to signal when a conversion occurs.

Conversions can vary based on your business goals. For instance, they might encompass a demo or quote form submission, an online purchase, newsletter sign-ups, or other on-site actions.

These tracking tags are commonly placed in specific areas:

• A thank you page following a successful form submission
• A confirmation page post an ecommerce transaction
• A welcome page upon successful user sign-up

Once these pages load, the conversion tracking tag initiates data collection:

• It identifies if the visitor arrives from a referral by checking for a cookie
• It generates a referral record and accurately assigns it to the respective customer or brand advocate
• Additionally, it adds relevant details or parameters into the new referral record (such as the referral’s name, email address, purchase amount)

How do I create a referral link for my website?

The best answer is to get an expert to do it for you. If you’re interested in setting up a referral program, there are dedicated solutions out there like Buyapowa that will handle the end-to-end tracking and the distribution of rewards and incentives to your customers and their friends. But if you want to manage all this in-house you can Google Referral Link Generator and find many free resources that allow you to create unique links adding your landing page URL, the unique reference or referral code and any other tracking you need.

What if someone is sent more than one referral link?

A sophisticated referral platform will ensure that a user account is associated with one code alone. If a person receives referral links from multiple referrers, only the referrer associated with the unique referral link actually used by the referee for the desired action will receive the referral reward.

Where can I track progress of my referral program?

A best-in-class referral platform, like Buyapowa, should have a back-end ‘portal’ for you and your business to analyze and iterate your program. In addition to detailed reporting and content management tools, you should be able to access information across the referral funnel for every referrer and their friend(s), plus the status of all rewards.

See more FAQs here.

The Takeaway

We’ve covered a lot of ground in this article and, honestly, there’s still plenty more we could talk about. But ultimately what this should help illustrate is the importance of referral tracking. Because if you’re not tracking as carefully and as effectively as you can, you can’t honestly say that you’re doing referral right.

If you’re interested in launching a referral program of your own complete with advanced referral tracking, and data and analytics don’t hesitate to get in touch. Our award-winning platform includes omnichannel tracking and advanced analytics to help you trace the full referral journey beginning to end and our experts can help you take your referral game to the next level.