Having designed and implemented referral programs myself, I find that this essay misses the mark.
The single-most important quality of a referral program – by far – is aligning with novelty and the social currency implicit in an invitation.
Almost nothing else matters.
Without the referrer feeling “in-the-know” and valued by the referred, without the product warranting being talked about, referrals will not be a growth engine.
As such, iterations upon a referral mechanism should first take place at the level of language and context. Dollar amount, offer, terms, etc are not the most effective levers.
I advise neglecting referral programs until a product has natural “word-of-mouth” growth, then consider a referral program as lubricant upon that existing growth.
Prior to good growth, one might try a light/crude alternative sans transactional incentive -> gift 1-month free, give coupons, require invite-only access. While it lacks the reward-loop, this approach offers the same trigger as a referral program without the heavy backing logic, saving 95% setup costs. The trigger is the first part of a referral program to get right anyways, and the rest of the referral mechanisms can be built on top of what is working within this lightweight system.
Once successful, note that referral systems follow the Pareto principle (10% of referrers accounting for 90% of referrals), and the designer might accordingly shift their attention to encouraging serial referrers.
Not wishing to rain on anyone's parade, but there is no mention of broken incentives here. Tip for the marketeers, think about the users who will abuse your referral program.
* I've signed up for Amazon's free one-month Prime trial at least 20(!) times.
* I've referred myself for many different kinds of products over the years.
* My friends and I have referred each other for all kinds of things too. Sometimes with offline compensation, sometimes using the honour system for a future payback.
"Just sayin'..."
I ran an abusable referral program once. Those who abused the referral program were the best because they kept sharing our product onto new forums telling others about how easy it is to abuse. Many of those new customers we would never have reached and most second-degree referrals didn't abuse the system, all we had to do was make that first customer feel superior to us. So it was well worth it :)
For companies like Uber and Doordash and other such companies, the system is intentionally designed to be abused.
They can use these abuse signups to show growth to the investors and rake in more money.
It's not a bug but feature.
Dunno about that, everyone is trying to sell profitability and positive FCF nowadays.
The reason this isn't mentioned is that often referral programs are designed to be abused, so that metrics can be gamed just before an important funding round, a IPO, etc.
Seen it happen many times.
> often [referral] programs are designed to be abused
Heh.
As it happens my OH and I were sitting at the local playground this afternoon chewing the workplace cud - while vaguely watching our daughter play - and were discussing how often higher management types actually know what's going on at the coal face.
"Not often enough" was our unanimous conclusion.
Past 5++ years were the golden age of VC subsidized rides, meal and grocery delivery. I never abused, but have downloaded an app, did one ride and totally forgot about the app.
> * I've signed up for Amazon's free one-month Prime trial at least 20(!) times.
I think Amazon just doesn’t care. For the last 2 years, I’ve been without Kindle Unlimited maybe 2-3 months, and that was because I was reading a series not on KU. Usually whenever I cancel, they offer me a deal. So in those 2 years, an expensive time was paying 3.33€/month, currently I’m paying 0.33€/month (for 3 months, same as the last 3 months period). Normal price is 9.99€/month. And that’s without me going out of my way to get a deal, or any referrals.
That can be part of the game! People are more likely to buy if they think they got a good deal. Make them think that, by making them hunt for coupon codes or pull these tricks.
Fwiw, Andrew Chen led Uber's Rider Growth when the company was in hypergrowth. His book, The Cold Start Problem, is great, and anyone building a two-sided marketplace should read it. This guy knows referral programs. Highly credible advice. Probably one of the best business books I ever read:
https://www.amazon.com/Cold-Start-Problem-Andrew-Chen/dp/006...
Funny to read some of the scathing replies in this thread. Andrew is pretty much one of the leading minds in growth over the last 10 years. It’s unlikely that you’d find anyone in the role that hasn’t studied his articles in depth.
What other business books have you read?
Due to organisational restrictions (aka a dysfunction product team) I "invented" the double "sweapsteak" referral giveaway. Which worked mostly outside of the product (we just needed a "who referred this user"-flag), mostly just newsletters.
Basically you could win 2 IphoneX. One for you and one for the person you referred. If you referred one person, this person was a ticket for you.
If this ticket/person won. The referrer and the referred/ticket won an Iphone each.
The more persons you referred the more "tickets" you had.
If the referred person referred new people, then they gained more tickets (additional to the ticket they were themselves.)
worked massively. 2 IphoneX after all. And a benefit for the person you referred and yourself.
And an incentive for the referred person to refer more.
repeated runs were shot down by the legal department (Fintechs which want to become a bank care about law a lot) due to gambling laws of the EU.
CPAU (cost per active user) was way better than the later implemented real referral program which worked with moneytary incentives.
>repeated runs were shot down by the legal department (Fintechs which want to become a bank care about law a lot) due to gambling laws of the EU.
>CPAU (cost per active user) was way better than the later implemented real referral program which worked with moneytary incentives.
the secret ingredient was crime
basically all EU wide giveaways are illegal.
the state laws are mutual exclusive.
later turned out that excluding Belgium and Nothern Irland (it was pre Brexit) would solve 98% of the legal issues.
I concur, however I believe that feeling "in-the-know," while useful, only applies to some products. In my recent reflections on our referral programme, I've been asking myself, "What is it about the referrer's temperament that will make them want to refer?" Here, being "in-the-know" is both useful and a method for someone to brag about their knowledge.
But when it comes to a charity referral campaign, it's not about being "in the know." Instead, you want to tap into people's level of compassion or measure of influence.
Anyone have any recommendations for a product that implements a referral program with reasonable defaults on top of Stripe subscriptions?
I have tried GetRewardful but it requires manual activities. I would prefer auto-paying affiliates and backfilling. Moreover, quite expensive imho.
Check Rewardful.com
Has anyone designed referral programs for online B2B products? What payback works, and is legal?
Good question. I toyed with this idea for a while but realized that it doesn't work (if you do it legally/ethically) because most businesses aren't sensitive to the types of incentives you can offer them. If they signed up for $500 in year 1, and they can refer someone and get 50% off in year 2, they don't care. Either they have the budget allocated for year 2 or they don't.
Of course, you can offer the incentive to the individual, not the company, but then you're on thin ice. Giving someone an iPad as a thank-you? Not something I'm comfortable with. Taking someone to an expensive dinner? That happens quite a bit, both as a thank-you for referrals, and in the sales world in general. That sort of stuff makes me feel uncomfortable, although I get that it's a continuum from 'regular business meal together' to '$300 per-person meal at fancy steakhouse'.
Affiliate or Partner programs typically work better for B2B than customer referral programs. But, like anything, depends on a lot of factors.
Officially these types of things can manifest as ‘joint ventures’ or ‘partner programs’.
Unofficially they are your sales AE hooking you up outside of work :)
What are some drawbacks of giving subscription product discounts for each confirmed (paid) referral, that accumulate up to 100%? Assuming margins that make sense in case everyone other than the leafs have 100% discount.
One draw back is it limits your most successful referrers, which may be good or bad depending on what you're trying to do.
If you design the program right you should be able to prevent unintended consequences (say one month free for every referral that signs up for a year kind of thing).
Surprised that this post does not talk about one of the most successful referral programs I have seen (way before Dropbox): Paypal. I certainly made a bunch of money and got a few friends signed up back in the day.
I think Chrome when it first came out was giving $5 per install as well.
You see similar rewards here in UK for referring people to new bank accounts, Chase made a big move over here and was giving £20 to the referrer, and £20 to the referred for minimum commitment. If you got the money it's a fast way to gobble up market share.
Yep I ran the early Google referral programs where we paid a bounty to adsense pubs that originally were referring Firefox installs!
Does it necessarily have to be money? I know everybody likes cash. Dropbox ran a very successful referral program where they give double (I guess) the storage to both parties.
Doesn't have to be cash, but I think it's important to remember when Dropbox was doing it disc space was a lot more valuable - I don't think it would work as well nowadays.
Dropbox storage is the lead example in TFA ;-)
I’ve seen people bend over backwards and jump through flaming hoops to score Uber Eats credits via referrals. There are definitely people out there who value a monetary reward.
Absolutely, people who don't have a lot of money - students for example will value a monetary reward. The more you earn the higher that reward has to be. This would have been good for Uber, since it is an 'everyone' product. So even if someone who wasn't going to spend much in the next year or so signs up, they in turn may refer someone who will.
I agree with this, but I think the feeling of "in-the-know" though valuable, only applies to certain products. I've been thinking about our referral program, and am looking at it from the perspective of "what is it in the referrer's nature that will make them want to refer".
"In-the-know" is definitely valuable here, as well as a way of showing off their knowledge.
However, if you think about a referral campaign for a charity, it isn't about being "in-the-know", you'd want to tap into people's level of caring, or measure of impact.
Yeah, the most successful (and annoying) referral program I can think of is the One Plus phones, and it hit the marks you're describing. Maybe the 2022 version is retailing something below market value, creating artificial scarcity, and prioritizing orders to referred people.