I keep hearing a common fallacy of ‘if I give users $5 to refer a friend’ = viral growth. We’re looking to add an invite a friend feature to our learning app and I’m looking for best resources and feedback on it. Here’s how we’re thinking about it:
- Set goals for what would be a successful referral program (measuring viral coefficient, CAC & absolute numbers to see if this will be meaningful for us)
- Focusing on a cohort of our power users
- Diagnosed the customer needs that a referral program could address & the JTBD, for example: Money (“Gain seeking” or “Generosity” are two emotions that correlate), Utility (“Learn with a friend” or “compete vs someone”).
- Building specific flows/features that will address different needs to test which resonate the most.
What do you think? What have you seen work? What does a successful referral program look like - do you measure CPI? CAC? (we’re a B2C learning app)?
In a raw economic sense, you should think about your referral program as just another acquisition channel. The unit economics of referrals as an acquisition channel should at least be as good as other paid acquisition channels and ideally much better if you have a product people are excited to promote. You’ll have different psychographics of folks who participate in your referral program. For example:
- People who would refer anyway, who you now get to delight by compensating them for their referral
- People who are likely to refer but haven’t due to effort, so an incentive pushes them over the edge
- People who are highly incentivized by referral dollars who effectively become affiliate distributors for you
In general, I think you’re on the right track. Conventional wisdom tells us that referral programs are really only effective when you already have some word-of-mouth distribution as a baseline, and incentivized referrals both turn that dial up as well as provide more traceability for referral volume and performance. If you believe this is the right time to experiment with referrals, nurture it like you would any other new acquisition channel. It will require intentional investments and experimentation to grow and optimize. The economics may be awful to start. That may be a signal that you don’t yet have a product that naturally promotes virality, or it could just be a baseline to start from if you see a path to better performance.
This is fantastic. Any idea on what metrics to track beyond CAC?
Happy to help As far as metrics go, it depends.
What do you envision your initial referral program to look like? Are you starting out with incentivized referrals or something else?
In a B2C environment, the gamification element might work. For example, your “promoters” invite friends through your platform. When the friends start using your platform and complete their purchase(s), the promoter gets x% kickback of the friends’ purchase amount. The promoter can use it as an inner credit to purchase other trainings etc. If you want to take it up a notch, give kickback any time the promoters friends purchase sth to create the “passive income” feeling. It costs more but might have a big effect as well. Although this will take some above-average amount of engineering resources.
I know that Transferwise (Wise) just gave 50€ for every referral, no questions asked.
What to measure? What metric are you trying to improve by creating a referral program?
Thank you. I intuitively like the passive income concept but have not heard of it before I wonder why? The tracking and logistics would make it complex.
As far as success metrics are concerned, I would like to increase growth so the focus is on getting new users, reducing CAC, increasing paid users, AND increasing engagement.