Referral Programs Power the On-Demand Economy (so why don’t we discuss them more?)

Every on-demand app I know generates substantial volume from their referral program (let’s lump word-of-mouth into this as well, since it often involves sharing a referral code). You know the, “sign up a friend, they get $x off their first use and you get $x too.”

I can tell you that Shyp’s referral program drives a significant amount of high value signups at an effective CAC much lower than app promotion on Facebook (and the Facebook, Twitter programs are still ROI positive).

If one can assume that referral programs are ultimately rational spend — that is, the programs are sustainable and aim to generate acquisition of a customer worth more than the freebies given to both the new customer and the referrer.

A referral programs’ terms actually tell you a lot about the margins, frequency of use and loan-to-value (LTV) of each market.

For example, Uber — with what I guess is a HUGE LTV — can afford to give free rides up to $20 discount to new customers and their referrals. Boss.

Shyp does a free shipment for each side up to $30 in value — that should tell you a little bit about how valuable an active customer is for them.

Massage services also high value because high pricepoint — UnwindMe is Give $25, Get $25. Zeel is the same.

The food guys have a little more divergence among themselves and generally less value because margins are so low. Munchery is Give $10, Get $10 (although currently doing a $20 promo). Doordash is Free Delivery/$5 (I think). Sprig is Get $10, Give $10.

Some analysis of these referral programs would probably make for a good tech blog post.
  • Crafty strategies by customers to rack up referrals. I’ve seen people use SEM for their referral codes, create fake social media profiles.
  • How do the companies prevent abuse?
  • How do they experiment with value props to optimize CAC:LTV?
And so on….

UPDATE: ask and the internet delivers. Here are some links to more referral program thoughts:

  1. Thoughts on Referral Programs by Josh Yang
  2. Airbnb Teardown by Jason Bosinoff
  3. Dropbox’s Referral Program’s Genius by Sean Lineham
  4. How to Optimize Referral Programs by Ina Herlihy
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