The thing about referral systems
(They're a misunderstood superpower)
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Thanks to the Growth by Drift podcast. Insights pulled from the recent podcast where Matt Bilotti (Drift) interviewed Maria Causay (referrals product manager from Lyft and Opencare, blogs about referrals here).
Turn your customers into salespeople
You probably remember Lyft and Uber notifications: “refer a friend, and you both get $20 in ride credit.” Or Robinhood: “refer a friend, you both get a random stock.”
Selling is hard. Referral systems get customers to sell on your behalf. And your customers can be good at sales:
% of new users: Decent referral systems deliver 5-10% of new customers. Really good ones deliver 10-20%+.
% of revenue: Referrals generate high-quality users - second-best to organic traffic in LTV / CAC. So when referrals make 5% of new customers, they can deliver 10%+ of new revenue.
But what are the mechanics of referral systems? What gets people to refer others, how do you increase referrals, and what should you target as a referral system?
And if you’re in B2B, are the rules of referrals different for you?
Do your customers refer others today?
A referral system might not be for you if (1) nobody buys in your category via referrals, and/or (2) your NPS is really low - nobody wants to refer your product. Ask new customers how they found out about your product… if they come from referrals today, you’re on the right track!
The mechanics of referral systems:
Find the context in which your customers refer others
Capture their attention and encourage them to share
Remove as much friction as possible
Personalize the “flow” for the referred user
#1: Get the context right
Don’t try to create new habits and actions. Instead, figure out how and when your existing customers refer other customers today. Design your referral system from the perspective of customers in that context - when are they most likely to refer others?
Something is happening in their life: At Lyft, people referred others when Uber was surging. So Lyft introduced in-app nudges late at night on Fridays and Saturdays. With flashy colors and big letters.
Something just happened as they used your product (“moments of delight”): I just checked my paystub in Gusto. And now Gusto tells me I can get $100 if I refer another company.
#2: CAPTURE ATTENTION!!!
Your customers see tons of referral programs every day. How do you stand out from the crowd? How do you capture your customers’ attention and encourage them to share YOUR product?
Incentives // what: The more creative and valuable your incentives are, the more easily they’ll grab customers’ attention. if possible, tie incentives to your product’s core value. Robinhood gives you a free stock. Wealthfront manages $5k in assets for free. Drift has an “influencer referral program” that gives out Drift swag. Store credit works. Try to avoid cash… lots of fraud.
Incentives // who: Experiment with giving incentives to both sides. Often, you get better performance by ONLY giving an incentive to the referred user. I feel awkward referring others when I’m getting a benefit beyond sharing something I like.
Copy & design: Again, build to grab attention. Put CTAs in as many places as possible: the header of your product, your email signature, at a “moment of delight” in your product, at the top of your newsletter, etc. etc.
Did I mention that if you forward this newsletter to a fellow marketer, they’ll get $50 off an annual subscription to How to Grow by clicking here?
#3: Remove Friction
What prevents your customers from referring someone? The points of friction are going to be different for every product. Common ones are:
“I don’t know who to refer”: This is huge. The more specific you can be on WHO your customer should refer (for example, “a fellow marketer” or “your partner”), the less your customer needs to think.
“I don’t know what to share”: For expensive B2B SaaS products, your customers aren’t going to text their friends a link to a standard landing page. They may not be able to describe your product really well. Reduce friction by giving B2B customers the tools (messaging, collateral) that makes it easy for them to refer others without thinking too hard.
#4: Personalize the flow for the referred user
When someone’s referred to you, treat them differently. Don’t give them the same pitch and onboarding process that you just any prospect. Figure out the sequence of events, screens, messages that increase conversion rates for referred users.
Notice the difference in landing pages for the Morning Brew newsletter?
Standard landing page
Referral landing page
MVPs and Metrics
For MVPs, start by copying someone who’s doing it well for a similar customer / use case. You can ship a referral MVP within a month.
Maria - interviewed on the Drift podcast - has a blog on MVPs here. (It also covers whether to build in-house vs. buy a referral program software… tl;dr, build.)
Metrics that matter:
% of users seeing referral screen (Target: 100%)
% who share (Target: 20%)
# invites sent per referrer (Average: ~1.2 - 1.5)
Below is Maria’s model for a referral funnel - source here.
Real-life example 1: This newsletter
Get the context right: It’s a weekly email I send that marketers read on Saturday or Sunday. People mostly refer others by forwarding this email. They forward this email either (1) upon receipt or (2) after reading through much of the article. So this newsletter’s referral program should probably be designed around a forwarded email, and have a CTA at multiple stages throughout the email.
Capture attention & encourage to share: This will eventually be a $250-$500 annual subscription that marketers put on their company cards. The marketers I know like to be helpful and the first of their peers to find awesome things. So, giving a financial incentive to refer other marketers is probably counterproductive. I also don’t know if it’s worth giving a financial incentive to the referred user, if everyone’s just putting this on their company cards… but I don’t have any better ideas for incentives at the moment. (Reply with ideas!)
The copy + design fits in with the newsletter’s design and style - it’s not trying to be super salesy or hyped up, and it’s just in italics. I’ll include it in every email going forward.
Remove friction: Sigh. Substack doesn’t have an in-built referral program, so I can’t tell which subscribers are referrals. Which means my link currently redirects people to a decidedly unsexy Google Form and asks too many questions. High friction, will work on this.
Personalize the flow for a referred customer: Right now I send manual emails to each referred customer, and the referrer. High personalization, but significant time investment.
Real-life example 2: My B2B SaaS company
Get the context right: We sell recruiting software to quick-service restaurant franchisees. They are tightly networked and virtually impossible to find online. They’re often part of co-ops and other groups that share best practices and leverage their collective purchasing power. We’ve seen them refer other franchisees fairly quickly upon seeing initial product success - seeing their applicant flow increase.
Capture attention: In our “success” emails to customers, we should highlight our referral program. We don’t do that today. In terms of incentives, our team is split - some think we should give discounts or free months. Others think we should give a no-charge upgrade to our premium tier, which would eventually lead to an upsell.
Remove friction: We need to give customized collateral and emails that our customers can send to their connections, so they don’t have to do the explaining themselves. But we also need to keep it simple: “It helps us solve our staffing challenges, here are our current results” is often enough to get a referral to call us. Referrals also seem to prefer to call us instead of email or filling out a form on our website - we are testing this.
Personalize the flow for a referred customer: When referrals call us, they make purchase decisions extremely quickly. Our sales process for referrals often needs to slow them down so they understand what we do. When we do cold outreach, the decision-making process is often much slower and so our sales process adjusts accordingly.
—Rob
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