Referral Programs
In the growth loops edition, I discuss the problems with funnels.
Which is that funnels primarily work top-down.
Meaning the more you put in at the top, the more you expect at the bottom. But the problem with that is the answer is always just MORE.
More tactics, tricks, money, people, channels…you get the point.
A funnel never reinvests any of the output back into the input.
So, the “more at the bottom” never gets reinvested to the “more at the top.”
A referral program solves that.
At the bottom, it leverages customers/subscribers to acquire the next cohort of subscribers/customers.
With that, your efforts consistently get reinvested to generate more output.
And therefore, your referral program becomes an acquisition engine.
Elon Musk says a good referral program should aim to "model it just like bacteria growth in a petri dish."
Meaning it needs to expand quickly, and it has to happen fast.
And when we look at referral programs that grow like bacteria in a petri dish, we find common denominators among the game-changers.
Specifically, what and how they incentivize customers and users.
Because what usually happens is Company A tries to replicate what Company B does without understanding why it worked for Company B.
But that’s not the route you should take.
Instead, we need to know what motivates people to share content, products, or services,
And what influences those decisions.
Then based on that, we can incentivize our subscribers or customers to refer their friends properly.
Because then we can create a referral program that leads to rapid growth.
What Motivates People To Refer Others
In 2011, The New York Times published The Psychology of Sharing.Â
In it, they break down how the digital age created an era where “we share more content, from more sources, with more people, more often, and more quickly.”
This makes getting our content, products, and services shared across the web both easier and harder.
Easier because it can be done at scale, thanks to the internet.
Harder because of the scale of the internet.
Because of that, we need to understand the motivations behind sharing.
According to The Psychology of Sharing, there are five motives:
1. To bring valuable and entertaining content to others
2. To define ourselves to others
3. To grow and nourish our relationships
4. To get the word out about causes or brands
5. Self-fulfillment
And according to The Psychology of Sharing, there are 5 key factors that influence sharing:
1. Appeal to consumers’ motivation to connect with each other — not just with your brand
2. Trust is the cost of entry for getting shared.
3. Keep it simple... and it will get shared… and it won't get muddled.
4. Appeal to their sense of humor
5. Embrace a sense of urgency.
Now, most people won’t refer you.
Even though every marketer talks about “word of mouth,” marketing is the most powerful channel for any business; it’s also the hardest.
Meaning we can’t depend on it happening organically.
We need to incentivize subscribers/customers to refer us.
And we need to do this strategically in a manner where it motivates and influences them.
The Catalysts - Incentives
So, what are the common denominators of successful referral programs?
Their catalysts, aka the incentives.
And the catalyst you choose determines the speed of your petri dish multiplication.
Here's a list of 7 ways you can incentivize referrers and referees with real-life examples of brands that nailed it:
1. Monetary Incentives
Who doesn't like their bank accounts going ka-ching?
Incentivizing referral programs with money is a sure-shot recipe for your referral program's success.
And something you will see many companies use.
For example, you’ll see:
- “Give $30. Get $30.”
- “Give 30%. Get 30.%”
They're simple, straightforward, and effective.
But, it works best for companies like Italic, PayPal, CoinBase, and DTC companies where money is being received, sent, or spent.
Example: PayPal
This is an overused example, but it was one of the first referral programs to go viral and generate INSANE growth.
And continues to be replicated.
The reason it worked so well is because it’s double-sided. Meaning both the referer and the referee get rewarded.
The result was 7-10% daily growth until hitting 100 million users!
Example: Coinbase
The Coinbase referral program works on both referrers and referees using their services. Unlike PayPal, incentives are rolled out at the post-use stage instead of the sign-up step.
Referrers are rewarded (in Bitcoin) when a referee signs up and makes a crypto trade.
Example: Italic
Italic’s referral program is similar to PayPal’s because it’s double-sided and offers $30 to both the referrers and referees.
So, why does this work for Italic?
Because Italic is like an online Costco. People become Italic members knowing they’re going to buy goods.
Therefore, incentivizing with money is the perfect recipe to incentivize an individual to make their first Italic purchase or make another purchase.
2. Product
A great way to incentivize referrals is to reward current and potential users with your product.
You do this by incentivizing them with more access, features, or tools.
For some, this can be an effective way to nudge uses from a freemium to a premium.
Example: ConvertKit
Don’t want to upgrade your ConvertKit account yet?
No problem.
Their referral program allows you to continue using ConvertKit, plus get additional storage by referring friends.
Plus, this helps cement you as a long-time user of ConvertKit because the more you cement your grounds on a platform, the harder it will be for you to switch.
Example: Evernote
Evernote offered its users points for every referral. With these points, users get access to premium features available on Evernote.
Plus, every time a referee upgraded to a paid plan, the referrer would be awarded more points.
Of its 100 million users, 13 million have come from referrals.
3. Service
Similar to incentivizing with a product, if you're a service-based company, incentivize with a drum roll, please – your service. By encouraging more usage, you open the door to a higher loyalty threshold.
Example: Uber
When a referred friend takes their first ride with Uber, the referrer instantly earns credits equal to a free ride. The referred friend also gets credits spread across the first few rides, encouraging loyalty.
Example: Robinhood
Robinhood is a stock brokerage that allows users to invest in shares, stocks, EFTs, cryptocurrencies, etc.
It gives its referrers reward stocks for every referee who signs up for their services. This reward stock becomes redeemable against actual stocks within a specific time frame.
The priority queue is an excellent way of driving FOMO and playing on the user's psyche.
We all want to stay ahead as humans, and Robinhood has aced accomodating that factor into its referral program.
4. Community
Charity begins at home, yes.
How many of us actively do our part, though?
What if you could do your bit through a product or service you're using?
If a referral program were to donate, plant a tree, or volunteer time at a soup kitchen for every referral, every referrer would feel like they're contributing to making the world a little better.
Example: Starling
The UK's leading digital bank launched a referral program to plant a tree for every successful referral they received.
By telling their customers that their goal was to plant one trillion trees by 2050, they made them feel like part of the revolution.
Tied in with their idea of sustainable growth and the fact that they are a paperless, fully sustainable business, it made for a great ad, PR stunt, and referral program.
Example: The Room Where It Happens
In October, Sahil Bloom and Greg Isenberg launched their exclusive community called "The Room Where It Happens."
Want to join?
Refer 3 friends, and access is all yours.
This plays with creating FOMO.
Epic use of a referral program for a launch.
Example: CommitGlobal
Commit Global is a translation and localization, service provider. They have developed a charity-centered referral program and donate to a non-profit called "The Smile of the Child," irrespective of whether or not the referee becomes a client.
5. The Die-Hard Fan
Loyal customers feel pride in wearing the love for their brands on their sleeves. Creating referral programs that give referrers fan gear and merchandise makes them walking, talking, living advertisements for your brand!
But, remember, not every brand has die-hard fans, and many companies mistake “fan-gear” as an effective referral reward when in reality their customers wouldn’t rock their gear.
Because usually the companies that create die-hard fans are the companies that penetrate themselves into the routines of their customers.
Example: Harry's
When they were starting, this razor company used a milestone-based referral program to garner a response of 100,000 emails in a single week!
As a new business, their referral offers ranged from free shaving cream to a year's worth of razor blade supply for free.
Example: MorningBrew
Morning Brew has a tiered referral program where it sends out branded Morning Brew freebies to its referrers once they reach a certain number of successful referees. Merchandise included stickers, mugs, sweatshirts, and more.
6. Exclusive Access
The best rewards are the ones that cannot be bought. VIP treatment, exclusive access to new launches, special referrer events, special edition products not available to the public - great incentives!
Example: SuperHuman
SuperHuman is an email service that created a premium, exclusive club vibe email service. Their referral program fits nicely into their exclusive vibe. Thanks to a referral, all invitees could jump the waiting list if they were on it.
Example: Tesla
When Tesla first launched their referral program, they incentivized with money. Later, they changed the incentives to exclusive batteries, invitations to exclusive parties, and a chance to buy a limited edition product.
Of course, limited edition products make the buyer feel special.
Notice how this little exclusive access ticket plays on priority treatment?
7. Content
If there were a word of the 2020s in marketing, it would be 'content.' Content sells, and content helps sell. So incentivizing your referral program with content becomes a fun option.
Just do content well.
Example: TheSkimm
This news content provider has a referral scheme to call their referrers Skimmbasadors. Anyone who signs up for a free newsletter and refers TheSkimm to 10 more people gets exclusive access to the Skimmbassadors Club.
Designed as a milestone program, the first milestone sends out an exclusive Sunday newsletter to the referrer.
Example: GetResponse
GetResponse is a tool to send emails, create pages and automate marketing. They run a two-tiered referral program. The referrer and referee are given $30 off on their bills, whether or not they sign up as paid subscribers.
And if a referrer gets them three paid users, he can choose to enroll in a digital marketing certificate course of his choosing.
What a brilliant tie-in and incentive!
Ok, so you’ve got your incentives locked in – now to increase your referral rate.
This Is Your Job...
Your job is not only to build and launch a referral program but to coach your subscribers/customers.
Imagine a basketball coach who never gave his players a playbook and expected them to go win a game.
In this case, you're the coach.
And your subscribers/customers are the players...
To get them to participate, you need to do these three things.
1. Educate
The simple truth is that a slither of your customers will be aware of your referral program if you don’t educate them about it. Where an onboarding experience exists to create the “aha moment” for customers, your referral program creates the “oh wow” moment.
And the only way to create that moment is to educate customers about your referral program is, how it works, and how to use it.
I’ll break this down more below.
2. Motivate
After educating subscribers/customers about your referral program, it’s time to motivate them. Motivation comes in two ways. The first is to take initial action and engage with the referral program.
One of my favorite ways to do this is to share a GIF that displays “how easy it is to refer a friend.”
Secondly, is to use progress bars, tickers, counters, and even a line standing (like Italic or Superhuman) to motivate customers/subscribers to take action.
While also using copy like “You’re only X away from Y” or “You just unlocked X and can unlock Y by doing Z.”
In conjunction with a progress tracker, this copy can create a sense of urgency to get someone to partake in your referral program.
3. Assist
The majority of individuals won’t go out of their way to refer a friend. And the more friction you add, the fewer people will make referrals. But make it nearly frictionless to refer a friend, and you’ll increase your referral rate. Meaning, make sharing as simple as possible.
For example, when Harry’s collected 100k emails in a week, they made the process of sharing your personal link effortless by adding a pre-populated message.
Another example is Morning Brew, who’s well known for creating a successful referral program. Morning Brew’s referral program adds three sharing sections that make it one click and share.
The Three Emails You Should Send
So, I use SparkLoop.app for my referral program. And have spent a lot of time talking to Louis, the Co-Founder of SparkLoop, about how to maximize the effectiveness of my referral program for my newsletter.
And he says there are three emails every company should send subscribers or customers.
Let’s break them down.
1. Educational
First things first, send out a dedicated email to educate subscribers/customers about your referral program. This email should discuss how it works, what they’ll receive, how to share, and where to share.
The goal of your educational email should be to leave no questions or objections unanswered.
Currently, I send my “educational email” 7 days after someone subscribes to Marketing Examined.
Why seven days?
Because the first six days, I’m providing as much value as possible through my “taste test” of emails. Meaning my top newsletters in hopes of turning a new subscriber into a fan.
And after delivering immense value for five days straight, I introduce my referral program.
Because a subscriber/customer is much more likely to refer you to a friend after you’ve delivered value without asking for anything in return. On top of that, providing immense value upfront will create the expectation that the value creation behind the referrals tops what they’ve already received.
2. Milestone or Reward Emails
These are straightforward. After an individual makes X amount of referrals and hits a milestone or reward, you should send an email congratulating the individual while also mentioning what’s next.
Ride their high and motivate them to hit the next milestone/reward.
3. Crossing The Line Emails
Morning Brew calls these “nudge” emails. Meaning if an individual unlocks a reward at three referrals but is stuck at two referrals, then the “crossing the line” email would be that small push the individual needed to hunt for that last referral.
These are the low-hanging fruits you can easily capitalize on. Just make sure that you have automated emails set up for each reward.
Squeeze-ing The Most Out Of Your Referral
Create a dedicated squeeze page to get the most from your referral traffic. This squeeze page has one goal and one goal only to collect an email address.
No other links.
No other pages.
No distractions.
Here’s the template I would use:
And here are examples of effective squeeze pages:
And Some Final Tips
As Zuckerberg says, "A trusted referral is the holy grail of advertising." No other advertising can bring you more cost-effective subscribers/customers than a referral program structured right.
Here are five tips for you to get your referral programs right.
1. Use the right messaging
Make sure the way you tell your users what your referral program is, aligns with everything your brand stands for.
2. Choose the right rewards
Study and understand your market and current users before deciding on rewards and incentives.
3. Make redemption easy
One-click redemption through an easily accessible web page or link or simply through an app will ensure higher participation.
4. Use FOMO to your advantage
Create such exclusivity that everyone wants to be part of it.
5. Give priority treatment
Make your customer feel like he is the be-all and end-all for you - whether the customer is the referrer or the referee.
And finally, the most important tip.
Structure your incentives based on the dominant personas that exist within your audience.
And then position the incentives to motivate and influence them to share.
