Why I Spent $500,000 Buying a Blog That Generates No Revenue


neil patel
(If you are wondering, the image of me above was taken when I used to work at KISSmetrics with Hiten Shah… I used to have hair)

In early January 2017, I purchased the KISSmetrics website for $500,000.

If you go to the site, you’ll notice that it forwards here to NeilPatel.com (which I will get into later in the post).

The $500,000 didn’t get me the company, KISSmetrics, or any of the revenue streams. The parent company, Space Pencil, is continually improving and developing the product.

And on top of that, there are restrictions. I can’t just pop up a competing company or any company on the KISSmetrics site.

So why did they sell me the domain? And why would I pay $500,000 for it?

I can’t fully answer why they sold it, but I do know a lot of their customers came from word of mouth, conferences, paid ads, and other forms of marketing that didn’t include SEO or content marketing.

For that reason, the domain probably wasn’t as valuable to them as it was to me. And of course, who wouldn’t want extra cash?

I’m assuming they are very calculated because they are an analytics company, so they probably ran the numbers on how much revenue the inbound traffic was generating them and came to the conclusion that the $500,000 price tag seemed worth it.

Now, before I get into why I spent $500,000 on the domain, let me first break down my thought process as I am buying out a lot of properties in the marketing space (more to be announced in the future).

Why am I buying sites that aren’t generating revenue?

This wasn’t the first or the last site that I’ll buy in the space.

I recently blogged about how I bought Ubersuggest. And it wasn’t generating a single dollar in revenue.

Well technically, there were ads on the site, but I quickly killed those off.

And eventually, I ported it over to NeilPatel.com.

When I am looking at sites to buy, I am only looking for 1 thing… traffic. And of course, the quality (and relevancy) of that traffic.

See, I already have a revenue stream, which is my ad agency, Neil Patel Digital.

So, my goal is to find as many sites that have a similar traffic profile to NeilPatel.com and leverage them to drive my agency more leads.

How do you know you won’t lose money?

I don’t!

This approach doesn’t guarantee I’ll make more money.

I look at the business as tons of tiny experiments. You don’t build a huge business through one simple marketing strategy or tactic.

You have to combine a lot of little things to get your desired outcome.

And sometimes you’ll make mistakes along the way that will cost you money, which is fine. You have to keep one thing in mind… without testing, you won’t be big.

With my ad agency, we tend to mainly have U.S. clients. Yes, we serve other regions as well… for example, we have an ad agency in Brazil.

neil patel brazil

But I myself mainly focus on driving traffic to the U.S. ad agency, and the other teams just replicate as I don’t speak Portuguese, German, or any of the required languages for the other regions we are in.

So, when I buy companies, I look for traffic that is ideally in the U.S.

Sure, the ad agency can work with companies in Australia, Canada, and even the United Kingdom, but it’s tough.

There’s a huge difference in currency between Australia and the U.S. and the same goes for Canada.

And with the U.K. there is a 5 to 8-hour time zone difference, which makes it a bit more difficult to communicate with clients.

That’s why when I buy a site, I’m ideally looking for U.S. traffic.

When I bought Ubersuggest it had very little U.S. traffic. Indonesia and India were the two most popular regions.

But I bought it because I knew I could build a much better tool and over time grow the U.S. traffic by doing a few email blasts, getting on Product Hunt, and by creating some press.

And I have…

ubersuggest traffic

As you can see from the screenshot above, U.S. is the most popular region followed by India and Brazil.

Over time it shouldn’t be too difficult to 3 or even 4x that number as long as I release more features.

Now, my costs on Ubersuggest have gotten into the 6 figures per month, and I am not generating any income from it.

There is no guarantee that it will generate any revenue, but I have a pretty effective sales funnel, which I will share later in the post. Because of that sales funnel my risk with Ubersuggest is pretty low.

As long as I can grow the traffic enough, I should be able to monetize.

What about KISSmetrics?

As for KISSmetrics, I mainly bought the domain for the blog traffic.

During its peak it was generating 1,260,681 unique visitors per month:

kissmetrics peak

By the time I bought the blog, traffic had dropped to 805,042 unique visitors per month:

kissmetrics purchase

That’s a 36% drop in traffic. Ouch!

And then to make matters worse, I decided that I wanted to cut the traffic even more.

There were so many articles on KISSmetrics that were outdated and irrelevant, so I had no choice but to cut them.

For example, there were articles about Vine (which Twitter purchased and killed), Google Website Optimizer (no longer exists), Mob Wars (a Facebook game that no longer exists)… and the list goes on and on.

In addition to that, I knew that I could never monetize irrelevant traffic. Yes, more traffic is good, but only as long as it is relevant.

I instantly cut the KISSmetrics blog in half by “deleting” over 1,024 blog posts. Now, I didn’t just delete them, I made sure I added 301 redirects to the most relevant pages here on NeilPatel.com.

Once I did that, my traffic dropped again. I was now sitting at 585,783 unique visitors a month.

kissmetrics drop

It sucks, but it had to be done. The last thing I wanted to do was spend time and money maintaining old blog posts that would never drive a dollar in revenue.

I knew that if someone was going to come to my blog to research Vine, there was little to no chance that the person would convert into a 6-figure consulting contract.

After I pruned and cropped the KISSmetrics blog, I naturally followed the same path of Ubersuggest and merged it in to NeilPatel.com.

The merge

The KISSmetrics merge was a bit more complicated than Ubersuggest.

With Ubersuggest, I didn’t have a keyword research tool on NeilPatel.com, so all I had to do was slap on a new design, add a feature or two, and port it over.

With KISSmetrics, a lot of the content was similar to NeilPatel.com. For the ones that were similar, I kept the NeilPatel.com version considering this blog generates more traffic than the KISSmetrics one.

As for all of the content that was unique and different, I ended up moving it over and applying 301 redirects.

If I decided to skip the pruning and cropping stage that I described above, the KISSmetrics blog would have had more traffic. And when I merged it in with NeilPatel.com I would have done even better.

But in marketing you can can’t focus on vanity metrics like how many more unique visitors you are getting per month. You need to keep your eye on the prize.

And for me, that’s leads.

The more leads I generate for my ad agency, the more likely I’ll increase my revenue.

Here’s my lead count for the weeks prior to the KISSmetrics merge:

hubspot leads

When looking at the table above, keep in mind it shows leads from the U.S. only.

The KISSmetrics blog was merged on the 25th. When you add up all of the numbers from the previous week, there were 469 leads in total, of which 61 were marketing qualified leads.

That means there were 61 leads that the sales reps were able to contact as the vast majority of leads are companies that are too small for us to service.

When you look at the week of the 25th, there were a total of 621 leads. 92 where marketing qualified leads.

Just from that one acquisition, I was able to grow my marketing qualified leads by 50.8%. 🙂

I know what you are thinking though. The week after the 25th (7/2) the leads tanked again. Well, you have to keep in mind that the table only shows leads from the U.S. and during that week there was a national holiday, the 4th of July. So, leads were expected to be low.

But still, even with the holiday, we generated 496 leads, 68 of which where marketing qualified. We still generated more marketing qualified leads than when we didn’t have the KISSmetrics traffic.

The early results show that this is going to work out (or so I hope). If you ever want to consider buying up sites that aren’t generating revenue, you need to know your numbers like the back of your hand.

My sales funnel

Some of you are probably wondering how I promote my agency from this site. As I mentioned earlier, I will share my funnel and stats with you.

The way I monetize the traffic is by collecting leads (and my sales reps turn those leads into customers).

On the homepage, you will see a URL box.

neil patel homepage

Once you enter a URL, we do a quick analysis (it’s not 100% accurate all of the time).

neil patel analysis

And then we show you how many technical SEO errors you have and collect your information (this is how you become a lead).

lead form

And assuming we think you are a good fit, you see a screen that allows you to schedule a call (less than 18% of the leads see this).

schedule call

From there, someone on my team will do a discovery call with you.

Assuming things go well, a few of us internally review everything to double check we can really help, we then create projections and a presentation before pitching you for your money (in exchange for services of course).

That’s the funnel on NeilPatel.com in a nutshell… It’s pretty fine-tuned as well.

For example, when someone books a call we send them text reminders using Twilio to show up to the call as we know this increases the odds of you getting on the phone.

We even do subtle things like asking for your “work email” on the lead form. We know that 9 out 10 leads that give us a Gmail, Hotmail, AOL, or any other non-work email are typically not qualified.

And it doesn’t stop there… there are lead forms all over NeilPatel.com for this same funnel.

If you are reading a blog post like this, you’ll see a bar at the top that looks something like:

exit popup

Or if you are about to exit, you will see an exit popup that looks like:

exit popup

You’ll even see a thank you page that promotes my ad agency once you opt-in:

video thanks

And if I don’t convince you to reach out to us for marketing help right then and there, you’ll also receive an email or two from me about my ad agency.

As you can see, I’ve fine-tuned my site for conversions.

So much so, that every 1,000 unique visitors from the U.S. turns into 4.4 leads. And although that may not seem high, keep in mind that my goal isn’t to get as many leads as possible. I’m optimizing for quality over quantity as I don’t want to waste the time of my sales team.

For example, I had 2 reps that had a closing ratio of 50% last month. That means for every 2 deals they pitched, 1 would sign up for a 6-figure contract, which is an extremely high closing ratio.

Hence, I am trying to focus on quality so everyone in sales can get to 50% as it makes the business more efficient and profitable.

The last thing you want to do is pay a sales rep tons of money to talk to 50 people to only find 1 qualified lead. That hurts both you and your sales reps.

Conclusion

The strategy I am using to buy websites may seem risky, but I know my numbers like the back of my hand. From an outsider’s perspective it may seem crazy, but to me, it is super logical.

And the reason I buy sites for their traffic is that I already have a working business model.

So, buying sites based on their traffic is much cheaper than buying sites for their revenue. In addition to that, my return on investment is much larger.

For example, if I wanted to buy KISSmetrics (the whole business), I would have to spend millions and millions of dollars.

I’m looking for deals, it’s how you grow faster without having to raise venture capital.

When you use this strategy, there is no guarantee you will make a return on your investment, but if you spend time understanding the numbers you can reduce your risk.

I knew that going into this KISSmetrics deal that I will generate at least an extra $500,000 in profit from this one acquisition.

Realistically it should be much more than that as the additional leads seem to be of the same quality, and the numbers are penciling out for it to add well into the millions in revenue per year.

But before you pull the trigger and buy up a few sites in your space, there are a few things you need to keep in mind:

  1. Don’t buy sites that rely on 1 traffic source – you don’t want to buy sites that only have Facebook traffic. Or even Google traffic. Ideally, any site you buy should have multiple traffic sources (other than paid ads) as it will reduce your risk in case they lose their traffic from a specific channel.
  2. Buy old sites – sites that are less than 3 years old are risky. Their numbers fluctuate more than older sites.
  3. Spend time understanding the audience – run surveys, dive deep into Google Analytics… do whatever you can to ensure that the site you are buying has an audience that is similar to your current business.
  4. Be patient and look for deals – I hit up hundreds of sites every month. Some people hate my emails and won’t give me the time of day. That’s ok. I’m a big believer and continually pushing forward until I find the right deal. I won’t spend money just because I am getting antsy.
  5. Get creative – a lot of people think their site is worth more than it really is. Try to explain to them what it is really worth using data. I also structure deals in unique ways, such as I gave KISSmetrics up to 6 months before they had to transition to a new domain (and to some extent they are still allowed to use the existing domain for their client login area). You can even work out payment plans, seller based financing, or equity deals… you just have to think outside the box.

So, what do you think about my acquisition strategy? Are you going to try it out?

The post Why I Spent $500,000 Buying a Blog That Generates No Revenue appeared first on Neil Patel.



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Get More Subscribers by Provoking People to Ask This Question


Immediately after getting an idea for a content project, many content creators become preoccupied by the existing competition: “It will be extremely difficult to stand out.” If that sounds familiar, I’m hoping you’ll change your mind by the time you finish reading this post. To start, think of the last time you heard a song
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How to Write Marketing Emails That Don’t Get Marked as Spam


Email marketing needs to be a priority for all businesses in 2018.

It doesn’t matter what type of company you have or what industry you’re in. In fact, 89% of marketers named email as their primary method of lead generation.

If you are putting more effort into your email marketing strategy, you’ve got the right mindset.

That said, just because you’re sending lots of promotional emails doesn’t necessarily mean they are effective.

Some of your emails might be getting marked as spam.

You spent time carefully writing your content, but you didn’t get the results you had expected. Why did that happen?

As you’ll soon learn, there are several different reasons why your emails are getting marked as spam. That was my inspiration for writing this guide.

I want to help you identify what’s putting your messages in the spam folder.

Even if you’re not currently getting your content marked as spam, you can still benefit from this guide. Understanding these email principles and best practices for writing marketing content will help you avoid these mistakes in the future.

In a perfect world, your emails should go straight to the recipient’s inbox, get opened, and generate click-throughs.

But you can’t get conversions if your content is being marked as spam. Keep my recommendations in mind, and use this guide as a reference moving forward.

Understand how consumers define spam

Spam used to be pretty easy to identify.

You’d get a message saying you won a contest you didn’t enter. The subject line would have a bunch of stars and other sketchy characters.

The message would come from an unknown sender.

In your lifetime, you probably even got some spam messages with subjects featuring NSFW content. I don’t think I need to provide an example of this since I’m sure you have an idea of what I’m referring to.

Years ago, spam would even contain malicious content, e.g., attachments containing viruses or phishing scams.

But email software has improved over time, and these messages tend to go straight to the spam folder.

However, now legitimate brands are getting emails marked as spam because the consumer definition of it has changed:

define spam

As you can see, consumers report messages as spam even if they know the sender. They’ll even flag spam from senders who have their permission to send them emails.

This is a big game changer.

Someone could willingly sign up to receive emails from your brand and still send your content to the spam folder.

Studies show 57% of people say getting too many emails from a sender or receiving irrelevant messages causes them to mark the content as spam.

What does this mean for you as a marketer?

It means that your promotional messages are susceptible to getting marked as spam. Being a reputable brand and sending messages only to your subscribers doesn’t make you immune to this.

Don’t buy subscribers

As I just said, even recipients who subscribed to receive emails from a brand are still marking messages as spam.

If you’re buying email lists and sending content to people who never signed up to receive them, there is even a greater chance you’ll be heading for the spam folder.

Furthermore, you’re putting yourself at risk of violating the CAN-SPAM Act, which is enforced by the Federal Trade Commission.

Overall, sending unsolicited emails is just a losing strategy. In addition to the legal repercussions, it’s terrible for your brand reputation.

An average person who works in an office receives 121 emails each day. They won’t waste time checking unwanted messages.

Put yourself in their shoes for a minute. If you get a promotional message from a brand you never heard of and never signed up for, are you going to buy something from them? Probably not.

You can’t expect to see results from other people who receive these unwanted messages.

Instead, you should be focusing on how to grow your email list by getting new subscribers. Include signup forms on your website.

Research shows that the most common placement for email opt-in forms is in the footer of each page.

footer

Give this strategy a try, and watch your email list grow.

Now, you’ll be sending promotional content to people who actually want to hear from you as opposed to random email addresses you purchased.

Check spam risk before you hit send

Most email software for marketers has a built-in feature that checks for spam.

It scans your message and determines how likely it is to get sent to the spam folder.

To avoid a high spam risk, make sure you limit the use of promotional words such as:

  • free
  • buy
  • promo

Don’t get me wrong, you can include these words in your message, but use them sparingly.

Avoid special characters and writing in all capital letters. Don’t make obscure choices, e.g., adding spaces between letters, like F R E E.

Make sure the size of your email isn’t too big either.

If you’ve got links, be sure they from reputable websites with a high domain authority.

Your messages shouldn’t be too text-heavy or image-heavy. Balance text and images.

Don’t include too many colors or text written in colors difficult to read.

Here’s an example of what the spam check feature looks like on the Constant Contact platform:

constant contact

It may look a bit different on a different platform, but you’ll still be able to accomplish the same thing.

If your spam checker says you’re at a high risk of being marked as spam, you need to make some changes before you hit send.

Limit your sending frequency

As a business owner, you think about your brand 24 hours a day. I can relate to this.

You’re always coming up with new ideas to promote your company.

But your customers and email subscribers aren’t always thinking about you the same way you think about them. That’s just a reality. Can you blame them?

They have more important things on their minds, and they don’t want to hear from you that often.

Distributing promotional emails on a daily basis is not going to help your cause. You need to be selective when you send a new message.

When it comes to receiving emails, consumers report that sending emails too often is the number one most annoying action taken by marketers:

annoying

I’d recommend limiting these messages to once a week at the most.

You can even change the sending frequency based on what the subscriber prefers.

When a new customer signs up to receive your content, ask them how often they want to hear from you. You can segment this list by people who want weekly messages or just a monthly newsletter.

Giving your subscribers exactly what they’re asking for reduces your chances of getting marked as spam.

Use a clearly labeled “from” field address

Make it clear whom the email is from.

Some of you may have multiple email addresses within your domain, depending on the size of your company.

For example, if someone submits a complaint or request for help on your website, they may get a reply from a support@yourdomain.com.

But if they’re trying to make a purchase or return an item, email inquiries might be made through sales@yourdomain.com.

Don’t change the sender field too often. Try to stick with the one that works best for your promotional messages.

Avoid odd choices, such as donotreply@yourdomain.com or 372as2y9@yourdomain.com.

Make sure you create a solid reputation for these sender fields. It will build trust with your subscribers and even increase the chances that they will add the address to their contacts lists.

If they are used to receiving your marketing emails from the same sender address and one day it comes from a different one, they may think it’s spam.

Even if that message is coming from your company, it’s confusing to your subscribers.

Don’t try to trick the recipient

I see people make this mistake all the time.

In an attempt to increase email open rates, they try to be sneaky and trick their subscribers into clicking the message.

That’s a big mistake. Tricking your customers can damage your brand.

In addition to marking your message as spam, the recipient might ultimately unsubscribe from your email list. More than half of consumers say they have felt cheated or tricked into opening a promotional email:

deceptive

I’ll share with you some strategies that are perceived as deceptive by recipients.

Do not start your subject line with “Fwd:” or “Re:” to try to get more opens. This type of text implies you’ve already had a previous communication with the subscriber.

Discovering this was not the case will put a bad taste in their mouths.

Don’t send a message telling people they’ve won a prize if they haven’t actually won anything. Again, this is a fast way to disappoint the recipient and get your content marked as spam.

I’ve also seen some marketers conceal spam content by creating an image with text written on it.

You might fool spam filters, but you won’t fool the person who opens the email. They’ll still send you to the spam folder.

Stay relevant

You need to focus on the content of your messages.

Ask yourself these questions before you hit send: Why are you sending this email? Is this message adding value to the subscriber?

If you don’t have a clear answer to these, you should probably re-evaluate the message.

Don’t send content just to say hello or provide a friendly reminder that your company exists. Your subscribers don’t care about this.

Here’s a look at the top reasons why emails get reported as spam:

reasons consumers mark spam

Take a look at the top reason.

Earlier I talked about how the frequency of your emails can cause you to get marked as spam. Well, there is a second part to this principle.

Your content needs to be relevant.

Even if you’re sending emails only weekly or bi-monthly, you can still get sent to the spam folder if the subscribers think the message is irrelevant.

For example, let’s say you run an ecommerce website selling home furniture. A marketing email updating your subscribers about the weather doesn’t add value to their lives. It also has nothing to do with your brand.

Make an effort to always stay on brand.

If it’s been a while since you’ve communicated with your subscribers and you feel like it’s time to send a new email, you probably can’t go wrong by sending out a discount or promotional code.

Run a flash sale, or send an exclusive personalized offer.

These types of messages are likely to get opened and lead to conversions.

Master your subject lines

A successful email marketing campaign starts with the subject line.

You could have the best promotional message in the world, but nobody will see it if they don’t open the message.

It’s in your best interest to keep your subject line as short as possible. Research shows that email subjects between 1 and 20 characters yield the highest open rates, regardless of what type of email you’re sending.

This is partially due to the fact that 55% of emails are opened on mobile devices.

If your subject line is too long, it will get cut off when it’s viewed on a cell phone. If the subscriber can’t read the full subject, it decreases the chances they’ll open the message.

Let’s put open rates aside for a minute and get back to the topic of discussion: spam.

Research shows that nearly 70% of emails get flagged as spam just based on the subject line:

subject line

Learning how to write email subject lines will help reduce your chances of getting marked as spam.

I recommend personalizing your subject lines. Personal subjects have higher open rates and click-through rates. They also tend to increase website traffic and drive sales.

Use your subject line to create a sense of urgency. Provide an offer that won’t last forever, and make sure it’s properly conveyed in the subject.

Tell a story. Provide breaking news. Stimulate curiosity.

These are all great types of subject lines that will entice your subscribers to open your messages instead of reporting them as spam.

Conclusion

It’s great you’re focusing on your email marketing campaigns. But if your content is getting marked as spam, it’s obviously not an effective strategy.

Times have changed. Even reputable brands who have permission from recipients to send emails are getting flagged as spam.

The key is being able to identify why emails get sent to the spam folder and how you can avoid this from happening to you.

Never buy subscribers or send unsolicited emails. Instead, use your website as a tool for growing your email list.

Use tools to help check your content for spam before you hit send.

Don’t send marketing emails too often. Clearly label the sender field, and don’t change this address.

Do not deceive your subscribers by tricking them into opening a message. Always make sure the content of your emails is relevant.

Learn how to write subject lines that lead to opens and clicks as opposed to the spam folder.

Following these tips will help you avoid getting marked as spam. Ultimately, this will lead to higher conversions for your business.

How is your brand writing promotional emails without getting marked as spam?





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Avoid ‘All-or-Nothing’ Advice to Get Smarter about Your Business and Marketing


Most sites that teach digital business and marketing have absolutist prescriptions. “You must do this.” “You must never do that.” But the web is a complicated place. And rigid, black-and-white advice will only take you so far. This week, we talked about three ways to navigate the subtleties of conducting business online. On Monday, Stefanie
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How to Implement a Customer Referral Program That Drives Sales


As a business owner, you have to keep coming come up with creative ways to attract new customers. But as you know, this type of marketing can be expensive.

It’s much more cost-effective to market to your existing customers than to find new ones. Acquiring a new customer is six to seven times more expensive than retaining a current customer.

Sure, you may be very profitable right now without putting too much emphasis on acquisition. However, that business model isn’t sustainable forever.

You can’t grow at an exponential rate without expanding your customer base. Sooner or later, you’ll need to run marketing campaigns to attract new customers.

That’s why you need to implement customer acquisition strategies that won’t break the bank.

A customer referral program is one of my favorite ways to do this. Your campaigns will leverage your existing customers to bring in new business.

Take a look at the most significant driving factors of retail revenue:

image7 9

As you can see, retention and acquisition ranked first and second on the list. Combining both of these into one marketing campaign will be very beneficial for your business.

If you can properly implement a customer referral program, you’ll get new customers without having to do much work. All you have to do is set up the program. The rest will take care of itself.

Don’t get me wrong. It’s not as easy as it sounds.

The key here is coming up with the right referral program that gets your current customers excited enough to participate.

Whether you’re creating your first customer referral program or trying to improve your existing one, this guide will help you. I’ll tell you everything you need to know about referral programs that drive sales.

Prioritize the customer experience

Before you start worrying about the logistics of your referral program, you need to make sure your existing customers are properly taken care of.

After all, this strategy won’t work if your customers are unhappy. Research shows that 89% of businesses named customer experience as a key factor for customer retention and loyalty.

In fact, customers care more about the customer service than the quality of whatever they are purchasing.

Research indicates 86% of consumers are willing to pay more money for an enhanced customer experience.

This type of service starts at the top of the organization and works its way down. As the owner, you need to set the tone and make sure all your employees know how important customer service is to your success.

Unhappy customers are bad for business. Only 1 out of 26 dissatisfied customers will complain. What about the other 25? They’ll leave without saying a word.

According to research, 68% of customers say they left a company because they believe the brand didn’t care about them. Don’t let this happen to you. Let your customers know how much you care.

Happy customers are much more valuable. In fact, more than 80% of customers say they are willing to make referrals.

image2 13

Unfortunately, only a smaller percentage actually do.

That’s why your referral program will need to provide some extra incentives, but we’ll talk about that in greater detail shortly.

Offer referral incentives

If customers are happy, you’ll get some organic referrals even without implementing a program.

But for the most part, you can’t rely on such referrals alone when it comes to driving sales and getting new customers. It’s not scalable.

Give your customers a reason to refer their friends and family. Discounts and other monetary benefits will be the most actionable.

Put yourself in your customers’ shoes for a minute. Think about some of your favorite brands. Are you going to spend a ton of time trying to bring them new customers? If it comes up in a conversation, you might make a recommendation. But I assume you’re probably not actively going out of your way to do this.

However, I’m willing to bet that if the company offered you a credit, discount, or reward for these efforts, it would probably change your approach.

On the flip side, let’s say someone refers you to a new company. Sure, you may be likely to try them out. But an incentive would definitely boost your motivation to do that.

The best customer referral programs offer incentives to both current as well as new customers.

Here’s an example of this strategy implemented by MeUndies:

image5 13

It’s a simple concept.

When one of their customers refers a friend, the new customer will get 20% off their purchase. Once that purchase is made, the original customer gets a $20 gift card.

That adds up fast. The customers know they’ll get a $100 credit if they can convince just five people to make a purchase. This gives them a reason to spread the word.

Make sure your incentives are worth it to both parties. The amount needs to be relative to your prices.

With the MeUndies example, most of their products fall within that $20 range, so it’s a great amount. But if the reward was only $5, it may not be worth their customers’ time.

However, that doesn’t mean $5 won’t work for another business. Check out this referral incentive offered by Bird:

image3 13

If you haven’t heard of Bird, they are a new brand with an innovative spin on ride sharing. They have electric scooters placed all over different cities.

Customers use their mobile app to unlock the scooters. At a rate of just $1 to unlock a scooter and an additional $0.15 per minute, the $5 reward translates to nearly 30 minutes of free riding time.

While $5 may not be a big incentive for other referral programs, it is for this one.

That’s what you need to come up with. Take a look at your products or services, and decide what would be a good offer.

You don’t want to offer something too high that’s going to lose you money, but it also can’t be so low that it doesn’t motivate customers.

Find that sweet spot in between, and set your incentives at that amount.

Focus on a fast ROI

Just like with any other marketing campaign, you want to make sure your referral program makes sense from a financial standpoint.

If you’re spending money without getting a return on your investment, you obviously won’t be profitable. But the great thing about referral programs is that unlike traditional acquisition campaigns, they cost much less.

This connects to my previous point about finding an incentive that will encourage sales without depriving you of your profits.

When you’re unsure how to do things, it’s always a good idea to follow the lead of those who succeeded before you. Take a look at Uber.

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That’s one of their initial referral promotions. It was a standard “give $20, get $20 concept.”

Let’s do some simple math here. If the current customer and new customer each get $20, the cost per acquisition is $40 based on this campaign.

I know what you’re thinking: $40 per acquisition sounds high. You might not think your business can afford something like this.

But if you do your research ahead of time, you’ll be able to get a quick ROI if you know your margins.

In a short period of time, Uber turned into an international giant. Customer referrals were the driving force behind their expansion strategy. I came across a recent study that analyzed how they were able to accomplish this:

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Keep these numbers in mind. If Uber kept 25% of what the average customer spent in a month, that would mean they would break even in less than two months if their acquisition costs were $40.

Once that $40 is repaid, everything else is profits.

The $20 for $20 offer is no longer available in every city or region.

Once they were able to control a large portion of the market share and prove their concept, they lowered the incentive. However, the new customers were already hooked.

You can apply the same approach to your referral program. Start off with high incentives to spread the word fast, but make sure you get a return on your investment.

After that, you can always make adjustments that translate to higher profits for your business.

Set yourself up for growth

Think about how you were able to get your existing customers to refer their friends.

You leveraged their customer loyalty and offered an incentive. Now, you have to apply that concept to these new customers.

Don’t waste any time. This is your chance to secure them for the long haul as well. Sure, they made a purchase because of a recommendation.

We know 92% of consumers trust a recommendation if it comes from someone they know. Your new customers already have a positive impression of your brand.

Now you have to convince them to stay. Once they make that first purchase because of the incentive you offered, what’s next?

Use your email marketing strategy to create an actionable drip campaign, and encourage these customers to buy again in the future.

Make sure they understand they can benefit from the referral program. This should be much easier for you because referred customers are more willing and likely to refer more new customers.

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Furthermore, the profit margins from referred customers are roughly 25% higher than from non-referred customers.

Your customer referral program can set you up for exponential growth. Think about how successful you would be if each new customer referred just one new customer.

And then imagine all of those new customers also referred a friend. Can you see how quickly this could turn into a sales-driving formula for your company?

Keep an eye on quality control

This whole concept started with prioritizing the customer experience. Don’t ruin that.

For example, let’s say a customer refers a friend, but due to some glitch in your system, they don’t receive their incentive. That’s a big problem for you.

Now they went from a happy customer, who wants to refer their friends, to a dissatisfied customer, who thinks you’re trying to take advantage of them. Instead of getting an additional customer, you may have lost one.

It’s important you thoroughly check all the technology associated with your referrals. How will you send the incentives?

Text. Email. Social media. Promo code. Make sure each distribution method works.

Here’s something else to consider. You have to keep an eye out for customers who may be trying to rip you off. Just like with anything else, there will always be people looking to take advantage of the system.

You spent the time and crunched the numbers to come up with the perfect incentives for your customer referral program. In order for you to profit, those margins can’t be tampered with.

Customers might create multiple accounts and refer themselves to get the incentive on both accounts.

If this happens, you’ll end up losing money without getting a new customer. Make sure you have some safety nets in place to catch and/or prevent this type of occurrence.

Conclusion

Your business needs new customers.

With high average acquisition costs, you need to focus on cost-effective marketing campaigns. Leveraging your current customers is the best way to do this.

First, you need to focus on providing excellent customer service. Next, you’ll have to come up with an incentive that encourages the current customer and prospective customer to make a purchase.

Set yourself up for exponential growth and a quick return on your investment.

Keep an eye on the quality. You need to make sure your program works from a technical perspective and that nobody takes advantage of any loopholes.

If you implement this strategy, you’ll see an increase in sales from both current as well as new customers.

What kind of referral incentives are you offering to drive sales?





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