Building a Referral Program from Ground Up: A Subscription Business Saga — Part 1

This series of articles explores the key elements of a successful referral program for project, marketing, product managers or anyone who was gracefully handled the task for creating a referral program in a subscription model business. Hoping that the journey you will take with Sara — the hero of this series of these articles will help you avoid running into choppy water (like I once did).

To make this relevant we will imagine a company named LetsGo! Provides medical, fitness, and nutrition advice to beginner, mid and advanced runners. LetsGo! Is a subscription based model business that has 2 subscriptions standard and premium. Users may subscribe to pay monthly, for 6 months or annually. This service tracks running activities of users, asks them to record a video of them running, and provides either coach-curated training or self-paced pre-recorded video lessons, helping thousands accomplish the goal of running a marathon, and not only.

Sara — is marketing manager who just left a Top Management meeting, was instructed to launch a referral program as a reaction to the continuous fall in the number of leads coming in. Sara is excited but has little knowledge of how a referral program works. So she googles “what is a customer referral program.”

“Referral marketing is a word-of-mouth initiative designed by a company to incentivize existing customers to introduce their family, friends, and contacts to become new customers.” — Wikipedia.

Yet, just last week, her friend bought a subscription from LetsGo! referred two of her friends to join without needing an incentive. So Sara wonders how many of those clients are out there who refer without the need to have an incentive. What Sara’s friend did is called organic word of mouth. Most businesses that are doing well do have a segment of clients that practice organic word of mouth. This is the top tip of the iceberg of the referral program.

So she sets a bot on the landing page that asks clients, “Where did you hear about us from?” with the options of social media, friends, TV, billboards, ads, and turns it on for any new non-user visitor.

The second type of WOM (word-of-mouth) is incentivized or economic. Once the client starts receiving a gift (bonus, discount..etc.) to friends he refers to, we can start calling this the Referral program.

While the bot is collecting the data, Sara maps out the basics of the referral program:

The referee: The client that will invite his friends.

The referral: The friend that will sign up after being referred to use LetsGO!

The incentive: 30 bonus points granted to the referee after referral purchase. Those points can be used as a discount for the next purchase.

Fortunately enough for Sara, the development team has already created personalized referral links for each user that signs up and developed a system through which she can regulate the granted incentives.

Just before the launch, Sara specified the KPI for this program and set it to be the percentage of referral sales from total sales since the sole purpose of the referral program right now is to save the sales plan.

The announcements of the launch are prepared and ready to be published on social media, email, messengers, and on the website.

Referral program: Our savior has come!

In around a week from the launch, signups to LetsGO! increase by 23%, the conversion rate increases and clients are almost buying by themselves. The referral program is a success, Sara has beaten the sales plan and the month was closed successfully. The best part of it, that all of this is accomplished with almost 0 spending!

Referral program: Our savior has come?

The next month starts, and the leads continue to roll in. Top management expects the same numbers this month, yet Sara sees a decrease in signup referrals — this looks like a red flag. From the technical point of view, the referral program is functioning well — it must be that clients forgot about the referral program, 5 weeks have passed from the launch date. Starting to stress out, Sara does what most managers do; she puts a task to rewrite the posts and emails adding to them a slogan “Make Running Great Again — Invite your friends”, as the designer team puts designs around this theme, and launches the campaign again. She talk to department in Sales and client support asking them to mention referral program to every happy client out there.

Guess what — this works!

The sales plan is saved for another month. Management is happy, but Sara is still worried. She saw that the reminder campaign had to be strong and almost spamming to reach the KPIs she needed to hit.

Roll your sleeves up, and start to dig :)

Sara’s attention was on the client. She sends out a message asking clients to participate in short interviews and asks them about how much of interest was the incentive for them.

Customers gave a lot of good insight and many examples of what they would see as the perfect incentive for them. After reviewing her notes, she plans out a brainstorm session with her team to answer 3 main questions about the incentive:

• Is my incentive useful for the client (useful)
• How easy can the client use the incentive? (liquidity)
• Will the client want more of this incentive? (value)

To answer these questions, the team had to draw a chart in which they assumed which segment of client would answer Yes/Maybe/No to their existing incentive.

The incentive: a bonus that can be used as a discount in the next top-up.

Through discussion many hypotheses were drafted such as, offering clients gift cards, discounts, free sessions, ebooks, premium consultation with a coach and entering lotteries for winning grand prizes. These hypotheses were then organized by the team, rated, scored, and assigned an order to be tested in.

Yet, there seems to be something missing. Sara looks at the numbers again and notices that not only have referral leads dropped, but also the referral conversion rate (lead → purchase). She slaps her forehead with disbelief, realizing that she forgot to assign a thank-you incentive. She rushes to address the issue. For a clean testing environment, the incentive for the referral remains the same — 10% off the first purchase — but the incentive for the referee changes.

She starts experimenting and observes different reactions from customers. She is more or less hitting her overall targeted KPIs, the sales plan is covered, and the management is for now content, yet expects better results from referral campaigns that are being executed.

Sara realizes.. This is a bit shaky, there is more to be done.

****
So let’s review what Sara learned for now:
1) Once world of mouth is monetized it becomes a referral program
2) Referral program has 3 main elements: Referral, Referee, Incentive
3) Clients want an incentive that is useful (no useless ebooks) has liquidity (can be used fast enough), valuable (hold financial, educational, or any sort of value)
4) Do not forget about the Referral.

Continue reading
Building a referral program from ground up: Part 2