Why your referral program doesn’t work

Referral programs can be daunting

tl;dr: you’re not helping people feel good about it

During a conversation with an entrepreneur the other day, he explained his business, the community his business served (online gamers in his case), and the fascinating elements that drove action in that community.

Then I asked him about his customer acquisition strategy and he listed all the strategies I would have expected, including a referral program. I dug into the specifics of the referral program a bit (the program pays the referrer a fee for referring a new gamer to the startup’s service,) and asked the entrepreneur how effective he thought it was. He said that it wasn’t and to me, it was clear why.

Earlier he explained that the gaming community was surprisingly generous to those who provided value, to the point where asking for payment for that value was well-received and that translated to tremendous growth for his startup.

However, his referral program wasn’t aligned with the community’s value of generosity. His program rewarded those who extracted value from the community in the form of a referral payout.

My recommendation: empower your referrers to give a service credit to anyone they want and pay them nothing for it.

Why?

  • You are helping them feel good about the referral by empowering them to give a gift to someone in the community (adding value to the community vs. extracting)
  • You are preventing them from feeling sleazy about making money from the referral
  • Recipients are more likely to follow through with the referral because a) they have been given a service credit and b) they understand the incentive structure and that the referrer receives no compensation. Plus it’s rude to refuse a gift :)

The global online community operates in a favor-based economy, so the next time you’re building a referral program, take time to understand how you can empower your referrers to do a favor for you and your prospects by allowing them to give a gift in the form of service credits or one-time discounts on your product or service. And then let me know how that works out!