Building a successful startup referral strategy

Referral schemes are one of the most common form of growth hacks we see within startups.  This is for good reason. Referrals are one of the most cost-effective acquisition channels in a startup marketers arsenal.

In my experience, from a cost and accessibility perspective, a referral system is relatively easy to roll-out.  The problems arise when it comes to the referral strategy or – more often than not – the lack thereof.  With so many channels to focus on, it’s easy for a startup marketer to lose focus. But trust me when I say that a short-term focus on referral strategy will show exponential long-term gains.

Some users – your fiercest brand advocates – will refer your product/service organically via word of mouth. The ol’ fashioned way. This is a fantastic sign of a good product-market fit, but likely wont deliver the kind of exponential growth that you (and your investors!) will be hoping for.

I won’t waste time talking about the best referral platforms to use, because other people have already done that HERE, HERE and HERE. My favourite for an all-round solution is Ambassador.

But here are some important factors to keep in mind when building your referral strategy;

Remember the Value Exchange

A referral should always be viewed as a value-exchange. not just literally in terms of incentivisation, but in terms of effort versus reward.  The user offers their time and the weight of their recommendation.  Therefore the reward must offer equal or greater value than the perceived effort in signing up.

Value to customer must be ≥ than the effort required.

As a result, this means two things for your referral mechanism.  Firstly, you should make it as easy as possible for a user to make a referral.  If it requires inputting their email address for a second time, giving additional information, signing up to a different platform etc they will likely drop out. It’s important to minimise friction. More on that later.

Secondly, the incentive needs to be sufficient…

Find the right incentive

For most SaaS platforms the incentive for successful referrals is a free month / free feature / free upgrade.  For consumer products, you’ll tend to see a discount on a subsequent purchase or even a credit balance.  In either case, it’s important not to make any assumptions about the value of an incentive.

Your perception of the value offered may differ from that of your user.

There are two paths to ensuring your referral incentive offers sufficient value.  One would be to simply check the referral ratio (the number of users making a referral).  The problem with this method is the assumption that there are no other underlying issues with your referral mechanism.   If you’re confident the process is watertight, then conversion rate is possibly a good measure of the suitability of reward.

To be slightly more methodical, why not undertake some user research? Tools such as Hotjar make user polling extremely simple and affordable, meaning that quantitative and/or qualitative feedback is just a few clicks away.  You can simply ask your users what reward would offer sufficient inventive to refer. Easy peasy.

With a slightly more mature referral programme, you can also explore the possibility of leaderboards or gamification to increase referrals, but this strategy isn’t right for every business. Check out Maslow’s Hierarchy of Needs adapted for gamification for some further reading on Motivation Theory.

Make the incentive double-sided

Double-sided referral programmes means an incentive for both the referrer and the person being referred.  Classic examples you may have seen are “refer a friend and share £X when they sign-up”. Kirsty Sharman, Founder of the Referral Factory believes that double-sided referrals increase the likelihood of conversion:

“There are two types of referral programs – single sided referral programs and double sided referral programs. A double sided referral program is where the person referring gets a reward (say $25), and the person being invited gets an incentive to sign up (say 10% off their first payment). The results achieved from the double sided referral programs are almost always higher, this is because new leads that have an incentive or an OFFER to convert are most likely to do so.

Giving people the ability to GIVE something to their friends is what makes a double-sided referral program so special. As a referrer its nice to get a reward, but humans also looooooove to give their friends things!”

Build referrals into the sign up process

One of the first pieces of advice I offer to businesses setting up a referral programme is this;  to make the process as easy as possible, build the referral mechanism into your sign-up process. I.E. the last step in sign up is the opportunity to refer friends/colleagues.

In terms of the value exchange, the means minimal friction as you’re not expecting a user to return to a referral portal at a later date.

This may sound counter-intuitive as a user hasn’t actually used your product/service yet, bur bare with me.  When a user is sufficiently bought into your offering to exchange their details for a free trial or to actually start paying, they are more often than not already bought-in enough to enter a friends’ email address in exchange for a [insert incentive!]. Can’t hurt to run some tests.

Not all users will be ready to refer at this point of course, which is why it’s important to set up an automated email onboarding flow…

Create an email automation flow for onboarding

Whether you’re offering a free trial, working on a freemium model or simply accepting cash for a product/service, an email automation flow should already be high up no your list of priorities (if it’s not, please get in touch).

With minimal expense and effort, email automations allow you to;

  • Directly address known pain-points, building brand advocacy and trust
  • Reinforce primary USPs
  • Reclaim otherwise dropped leads (for SaaS or free trial businesses particularly)
  • Help your customers to succeed with your product through tips and hints
  • Amplify the reach of blog content
  • Increase conversion rate and by extension, lower CACs

and as well as all that, an automated email sequence will…

  • Put the referral programme front-of-mind

An automated flow of emails let’s you reach out to those users that weren’t ready to refer during sign-up.  Remind them of the incentive and how easy the process is. By this point, they should have seen enough of your product/service to decide to make the referral (or not, as the case may be!).

These are just a couple of points to help you get started, but the important thing is to start.  Map out how you’d like the scheme to look (on the back of a napkin if you have to), find a cost-effective means of implementation and get started.  Test and learn for iterative improvements.

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