The customers who come because a friend told them about you are the cheapest you will ever acquire, the fastest to trust you, and usually the ones who stay longest. Referral rate measures how much of your growth is word of mouth: new customers who came via referral as a percentage of all new customers (or of your existing base). This calculator computes both views, the cost per referred customer if you pay rewards, and the viral coefficient — how many new customers each existing one brings.
The formulas
- Referral rate (share of new customers) = Referred new customers ÷ Total new customers × 100.
- Referral rate (per existing customer) = Referred new customers ÷ Existing customers × 100.
- Viral coefficient (k) = Invitations per customer × Conversion rate of invitations. Above 1 the base grows without paid acquisition — rare, but a k of 0.3 still cuts CAC sharply.
- Cost per referred customer = Rewards paid ÷ Referred customers.
A salon with 900 active clients won 120 new clients last quarter, 48 of them referred: 40% of new clients, a 5.3% referral rate on the base, and, with ₹200 gift vouchers paid to referrers, a CAC of ₹200 against ₹650 from Instagram ads.
How to use the calculator
- Enter total new customers and how many were referred (ask at first visit, use referral codes, or tag WhatsApp sources).
- Enter your existing customer count for the per-customer rate.
- Enter rewards paid to see cost per referred customer; compare with your paid-channel CAC.
- Optionally enter invitations sent and conversions to compute the viral coefficient.
- Track quarterly; a falling referral rate is an early warning that service quality has slipped even when sales are fine.
Designing a referral programme that works
- Two-sided rewards: something for the referrer and something for the friend — a ₹100 credit each beats ₹200 for one side.
- Make sharing effortless: a wa.me link with a pre-filled "My friend told me…" message, or a URL QR on the bill.
- Ask at the peak: right after a good delivery, a compliment, or a high CSAT score.
- Reward in kind where margins allow — a free add-on costs you less than its face value.
- Tell people it exists: a line on every payment receipt and GST invoice footer.
- Track honestly: referral codes or a "who told you about us?" question at first purchase.
Rules and taxes
- Referral rewards to customers are a marketing expense; GST on vouchers depends on their form (single-purpose vouchers are taxed at issue).
- Cash rewards to individuals who are not employees can attract TDS under Section 194R (benefits/perquisites) above ₹20,000 a year per person — rare for consumers, relevant for B2B referral partners; the TDS calculator covers the mechanics.
- Do not incentivise reviews — Google prohibits it. Referrals and reviews are different programmes; the review request builder handles the latter.
Referral messages sent by SMS or WhatsApp fall under the consent and template rules in TRAI's new anti-spam rules; the neighbourhood-store version of a referral engine is described in Quick commerce vs the kirana.
Related tools
- CAC calculator — referred vs paid acquisition cost.
- NPS calculator — promoters are your referrers.
- Customer retention rate — referred customers tend to stay longer; verify it.
- WhatsApp direct link — the sharing mechanism.
- Social media post generator — announce the programme.