#Driving #growth #referral #programs
I remember those early days at Qawafel, our B2B e-commerce marketplace. We were doing well, but growth was steady, not explosive. I often found myself discussing ways to break through the plateau with our team.
One evening, while going through user feedback, I noticed a trend. Many of our customers mentioned they heard about us through a business associate or a friend. That’s when it hit me: our users could be our best promoters. We began focusing on a referral program, rewarding both the referrer and the referee. Within months, Qawafel saw a surge in its user base.
The lesson? Sometimes, growth isn’t just about typical marketing techniques like fancy paid ads or automated marketing campaigns. It’s about utilizing your retained users to your favor. In the bigger picture of scaling products, referral programs aren’t just a tool but a growth technique.
In this article, you will learn the ins and outs of referral programs, how they fit into the big picture of product growth, and how to strategically build and tailor one for your product.
Table of contents
What is a referral program?
A referral program is a structured product growth strategy product teams use to encourage retained users to introduce their product to new potential users from the same target group. In essence, it’s another form of the word-of-mouth marketing tactic, but referral programs are supercharged by incentives. Through these programs, the referring party typically gets a reward, ranging from cash, discounts, credits, points, or other special offers, when the referred person makes a purchase or signs up (aka, one of the product’s core actions).
For example, Dropbox, a cloud storage service, popularized its product largely through a referral program. Users were encouraged to invite friends to join Dropbox. When a friend signed up and installed Dropbox, both the referrer and the referred received additional free storage space.
This not only led to increased user sign-ups, but also ensured that users were invested in the platform, as their rewards (in the form of storage space) grew with more referrals. Similarly, Airbnb offers travel credits to users who refer friends. When the friend travels or hosts, both parties receive a credit to use on the platform. Such strategies not only foster loyalty among existing users but also serve as a potent tool to attract new ones.
How referral programs contribute to product growth
Referral programs aren’t just isolated marketing tactics; they’re essential components within the broader product growth strategy. They integrate with the bigger picture in the following ways:
Accelerating user acquisition
The primary goal of any growth strategy is to acquire customers now or later, and referral programs provide a boost by tapping into the networks of your existing user base (retained users). Instead of solely relying on traditional marketing channels, you’re leveraging the personal connections and trust that your users have built with your product.
For instance, when a user refers their friend to an app they love, the likelihood of that friend trying out the app increases compared to seeing a random ad on social media.
Building organic growth loops
Each successful referral not only brings on a new user, but also a potential new referrer. This creates a growth loop or a viral loop, where one new user leads to multiple new users, who then bring even more new users.
Imagine a scenario where every new user brings in two more users. The initial 100 users could potentially snowball into 200, then 400, then 800, and so on.
Enhancing retention rates
Referral incentives often come in the form of product benefits, which encourage users to continue using the product. This dual benefit of acquiring a new customer and further engaging an existing one is a powerful combo for sustainable growth.
Consider a platform like Uber. When a user refers someone, they often get ride credits. This not only encourages the referrer to ride with Uber again but ensures the referred individual takes at least one ride.
Impacting key metrics
A well-executed referral program can positively influence growth KPIs. The customer acquisition cost (CAC) often decreases since word-of-mouth marketing costs are generally lower than paid advertising. Moreover, the lifetime value (LTV) of a customer can increase because referred users, coming in through trust-based channels like a referral program, often stick around longer and are more loyal.
Cultivating brand advocates
Beyond the metrics, there’s an intangible yet invaluable aspect: brand loyalty. Users who refer others become brand advocates. They not only use your product but believe in it enough to recommend it. This kind of organic promotion is golden for building brand reputation and trust.
Think of Apple’s ecosystem. Users love their products so much that they naturally recommend them to friends and family, further driving Apple’s growth. Imagine now starting to offer rewards with organic advocacy.
Providing a feedback loop
Referral programs also serve as a feedback mechanism. Users are unlikely to refer products they don’t believe in. If your referral rates are low, it could be an indication that there are areas of your product or service that need enhancement.
What are the different types of referral programs?
Referral programs come in different sizes and shapes. While several frameworks exist, each catering to different product types, areas, and goals, the following are some of the top referral program frameworks commonly employed:
Double-sided incentive programs
In this type, both the referrer and the referred get rewards. This creates an incentive for both parties to take action. An example of this is Dropbox’s famous referral program, which offers extra storage space to both the person referring and the person signing up based on the referral.
Single-sided incentive programs
Within this framework, only one party, typically the referrer, receives a reward when a successful referral is made. An example of this is my company (Qawafel). We offer the referrer a special discount if they get another retailer shop to sign up and order from our platform.
The more people someone refers, the bigger and better rewards they receive. This framework capitalizes on gamification to drive more referrals and, thus, more significant user acquisitions. To illustrate this, think of any fitness app that might reward a user with a basic workout plan for one referral, an advanced plan for three paid referrals, and a personalized coaching session for five.
Referrers compete against each other, and the top referrers receive special rewards or recognition. TopMate, an online mentorship marketplace, offers a free feature on the NYC Times Square board for top referring users.
This is a more formal setup where individuals or entities become official promoters of a product. They get monetary rewards based on the number of people they refer or the sales generated from those referrals. One known example is Amazon’s Associates program, which allows individuals to earn commissions by promoting and referring sales.
Businesses partner with other organizations or communities to promote their product. The incentive might be mutual promotion, a share of revenue, or other negotiated benefits. Think of any startup in your area that partnered with a larger company in their industry to offer exclusive deals to that company’s user base.
Remember when the product school partnered with Miro to provide free access to Miro for its students? Miro, with this strategy, has acquired an enormous number of new users.
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Using the net promoter score (NPS) system, product teams can identify their biggest fans (promoters) and target them specifically with referral incentives. An example of this can be any SaaS company that might send out an NPS survey and then follow up with high-scoring respondents with a unique referral program invitation tailored to their characteristics.
Content-driven referral programs
Users are encouraged to create and share content (like reviews, testimonials, or user-generated content) as a referral form and then offer incentives for those who have generated the content. Think of any cosmetic brand that might offer a discount to customers who post an Instagram photo using their product and tagging the brand.
The 3Rs framework for referrals
Imagine you’re hosting a party. You want your guests to:
- Return — Come back to your next party
- Rate — Tell others how great it was
- Refer — Bring their friends next time
This is how the 3Rs work in the world of product growth. However, the 3Rs start with the “WOW” effect. Have you ever used an app or browsed a website and found something unexpectedly good? Like a feature that’s super intuitive or a little bonus you didn’t see coming? That’s the magic touch.
In our world of endless apps and websites, standing out is tricky. But one way to get noticed? Give your users a memorable moment—a genuine “Oh wow!”
Here’s the thing. You don’t need deep pockets to create these moments. Often, it’s the thoughtful little touches (product touchpoints) that matter. Think of it as hosting a get-together. You don’t need a lavish spread. Sometimes, it’s that homemade dip or playlist that gets everyone talking.
These moments are your ticket to not just grabbing attention but keeping it and, thus, returning your users.
The 3Rs framework — Return, Rate, and Refer — encapsulates this relationship journey post the initial ‘WOW’ effect:
- Return — This is the first marker of a successful “WOW” effect. If a user keeps coming back, it means the experience was memorable enough to warrant a repeat. It’s not just about having them buy again; it’s about making your platform or product a regular part of their lives
- Rate — Once a user has returned multiple times, their engagement deepens. Your users now have feedback and a voice that can influence others. When they rate or review their experiences using your product, it serves a dual purpose: it gives you feedback to improve and acts as a testament to potential new users
- Refer — The pinnacle of the 3Rs, referring is a clear sign of trust and satisfaction. It shows that the user believes in your product enough to recommend it to others and refer them to use it and this is the step you want to reach for organic growth in your acquisition rate
Referral program example
Airbnb’s success in the hospitality industry wasn’t just due to its unique value proposition but also its smart growth tactics. Here is how they used the 3Rs:
- Return — Airbnb ensured high retention by offering diverse listings, a secure payment system, and a review mechanism that built trust. The personalized recommendations and wish-list features made users return to the platform, exploring more options for their next travel
- Rate — The platform aimed for more than just bookings. They nudged users to engage by creating wish lists, leaving reviews, and participating in community forums. This deepened the connection users felt with the Airbnb community
- Refer — Airbnb’s referral program was genius in its simplicity. Users could earn travel credit for every friend they referred. This not only led to new user acquisition but also increased bookings as both parties had credits to spend
If there’s one takeaway you should hold onto, it’s the importance of a personal touch in your referral schemes. Think back to times you’ve shared a product with a friend – wasn’t it often because it genuinely made a difference in your life? That’s the heart of it.
To really drive your product’s growth, dive deep. Understand what makes your users tick, and give them that bit extra that gets them talking. Be creative with incentives, stay authentic, and listen to your community. Every happy user can be your brand ambassador!
Featured image source: IconScout
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