Why Startups Need To Have An Aggressive Referral Marketing Program?

by Saad Khan  January 17, 2014

As I started writing more about startups this year after joining Cloudways, what I experienced and researched that a tech startup must have a referral marketing program.

During my research, I found this amazing quote by Maya Angelou that defined an interesting note about referrals.

Maya Angelou

It’s all about the experiences! Whatever we feel good about, we talk about it and share it with our friends and peers.

Whenever startups consult with me, I give them very common and close-to-life examples. Like, when I buy a pair of shoes, I expect three simple things: comfort, elegance, and style. If a brand gives me all of these qualities, I love to recommend it to my friends who are looking to buy shoes.

Almost every time, the referral works smoothly and the chain of referral starts connecting one with the other.

Brian Solis said it right:

“Now’s the time for an investment in something more than price, performance, or value. The future of business is about creating experiences, products, programs, and processes that evoke splendor and rekindle meaningful and sincere interaction and growth. At the center of this evolution—or (r)evolution—is the experience. And, the experience is everything now.”

I believe marketing provides a chance of sharing experiences.

As shared experiences are the future of business, I always try telling startups that a comprehensive referral marketing program is the best way to grow the business exponentially. I believe that “referrals” are the finest marketing tactics to gain maximum exposure to a right audience that actually wants to use a product or service.

Why I believe that a solid referral marketing program is the need of a tech startup?

First, read below this magnificent short excerpt by Seth Godin:

“Yes, we know that referrals are the very best way to grow your business. And we know that asking for a referral is both scary but apparently the most effective technique.”

Let’s look into some statistical data!

Let’s look into some amazing referral marketing program examples to get deeper insight.

3 Great Example of Referral Marketing Program You Can Use As Benchmarks

The following example can be a great source of motivation. These stories can inspire us to take risks and see for ourselves how wrong or right we can be. I have selected here are the best ones in the startup industry. These truly show how referral marketing can help you both in short-term customer acquisition and long-term branding building.

Dropbox

Dropbox provides one of the finest examples of smart referral marketing programs.

They offered their users with 500 megabytes (MBs) of free space for every successful referral they make. Who wouldn’t want to have some extra space in the cloud? This tactic worked well for the company and they saw the number of sign-ups grow by 60% and it stayed that way for months. Till today, a good chunk of sign-ups—approximately 35%—comes through the referral channel.

Don’t you think that’s huge? Yes, it is. This shows referral traffic helps you in building a strong foundation for your startup’s brand recognition. In Dropbox’s case, a strong referral start has resulted in a position where they are now synonymous with cloud storage.

Trevolta

Trevolta is an upcoming startup that aims to help people travel to their favorite destinations through crowd-funding. I found their referral marketing program extremely interesting. I remember that the first thing they did that they used Facebook Ads in a smart way to build a list of people interested in traveling the world.

Who doesn’t want to see the world on someone else’s money, right? I opted in right away and shared the same message with my friends who have similar interests.

Do you know why I shared it with my friends instantly? A visual below shows how they influenced me gently into getting an early access by sending invites to my friends. And, they made it easy to do that.

How? See the picture below.

trevolta

Web Summit

The Web Summit, formerly Dublin Web Summit, is a technology-industry conference held in Dublin, Ireland since 2010. In 2013, over 10,000 people attended the Web Summit where a vast majority was from outside of Ireland. Speakers included Elon Musk, Shane Smith, Tony Hawk, Drew Houston, and Niklas Zennström.

For the year 2014’s event, they started their invitation campaign right after the 2013 event. Paddy Cosgrave created a new web experience to invite more people.

They started with advertising popular talks of Web Summit 2013 and these stories usually appeared in Facebook newsfeeds. They chose Elon Musk and Gary Vaynerchuk for this purpose. On a blog post, they provide a call-to-action (CTA) where a visitor can register for the conference with a perk.

ticket

And, then comes a referral marketing program to reach more relevant audience via email.

Websummit

Through this smart referral program, Web Summit is increasing its base by giving applicants a fast-track route to the event. This will not only sell tickets for the summit, but it will also create a pool of email addresses. These email addresses can be used for next year’s event (or any future Web Summit related activities).

Smart, isn’t it?

8 Lessons To Learn From The Referral Programs of Dropbox, Trevolta, And Web Summit Referral

Here are some key takeaways that we get from these referral success stories.

  1. Perform comprehensive market research before stepping into a market. Create a detailed buyer persona. Know where they hangout online. Know what they like or dislike. Know what content they love to consume. This process will help you determine the success of your referral marketing campaign.
  2. Start building email lists right away. Don’t wait for the final launch! Allow participation by showing people your product and what kind of change it can bring in their lives.
  3. Utilize paid marketing channels for the first conversion. Google Adwords, Facebook Ads, media buying on relevant blogs, etc., will let you attract right people who are genuinely interested in using your product or service. However, you need to be smart about it. Startups usually are cash starved. While putting ad campaigns, use highly customized metrics and lists.
  4. After the first conversion comes the second one. Give your customers a perk, a discount, or an incentive in order to reward them for making referrals. People love discounts and value added add-ons.
  5. Engage with people (and your early adopters) via social media. Let them connect to you on all the social mediums. Recognize them publicly on all social mediums. People love recognition and appreciation. This will motivate them to share your message in their networks.
  6. Solve problems of your buyer persona by using content marketing. Use CTAs for conversions at the end of information page. Motivate them to refer a friend by an incentive.
  7. Run contests and sweepstakes. People love to participate in contests to prove themselves. I loved Gary Vaynerchuk’s sweepstakes contest he ran while promoting his latest book Jab Jab Jab Right Hook. I wanted to show you how it looks, but unfortunately the contest has ended. However, you can look at some great examples from this post of Social Media Examiner.
  8. Keep connected with them on email. Paddy Cosgrave emails me almost monthly and asks for feedback on different things related to Web Summit 2014. How they can improve it? What should be added? This will help you understand how much a person is connected with you and your service, product, or event.

OK, that was me only! Why not hear some advice from people who are helping many businesses through their smart referral marketing tool known as Ambassador.

When I asked Jeff Epstein on Twitter:

“What are your 3 tips for referral marketing campaign for startups?”

He said:

Similarly, Ambassador’s Minister of Marketing, Mr. Jordan Skole, sent me a comprehensive opinion as well:

    1. Find product/market fit first. An easy way to tell if you are there is by including the Net Promoter Score question in a transactional email. Referral marketing differs from affiliate marketing because ambassadors are motivated primarily by a love for the product. Ambassadors are actual users of your product and get real value from it. They love sharing this value with their friends.

 

  • Choose the right incentive structure. Spend a lot of time thinking about your user personas. What motivates them to share? Is it a “first finder” (early adopter) mentality? A lot of Ambassadors are motivated by generosity and by being able to provide value to their network. Consider things like a dual incentive structure where the ambassador is able to gift a discount to their friends.

 

 

  • Don’t forget about your other marketing channels! Be sure to promote your referral marketing program and provide marketing resources to help your ambassadors promote. Calculate the customer acquisition costs (CAC) of your other channels as well. You can use this CAC to set the budget for the incentive structure for your referral marketing program. Since you only pay on a conversion, your referral program is guaranteed to have a lower CAC than your other channels. We’ve found that CLTV of referred customers is generally much higher as well.

 

 

It would be unfair not to share an interesting answer by Tiago Albuquerque on a Quora discussion I started for the research about referral marketing programs. Read Quote of Tiago Albuquerque’s answer to Referral Marketing: What are the best referral program examples for startup user acquisition and growth? on Quora

Conclusion

For startups, it’s extremely essential to not only grow but grow fast. Consequently, a solid referral marketing program is what they need in order to control the CAC.

What are some benefits of a referral marketing program for startups?

  1. If a satisfied customer tells a close friend about a certain business, then their trust is immediately transferred to the business, irrespective of if he has heard about it or not.
  2. Referred customers are typically less price sensitive. Most referrals can be sold at full price because they’ve been presold on your client’s trust and credibility.
  3. Referral marketing allows you to filter out your real customers. It provides you high quality data which you can use to make your product better.
  4. Referrals help in reducing your investment on sales activities.
  5. Referral marketing establishes a bond trust with your customers. This creates a snowball effect where positive influence grows with every referral.

In the end, it would be lovely if you, my great friends, share your best advice in the comments section below and convert this post into a source of motivation for startups who are considering the referral route. In this discussion, everyone’s invited!

 


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About Saad Khan

Muhammad Saad Khan is Growth Hacker & Content Marketing Strategist at Cloudways. He is a columnist at VentureBeat and a full stack marketing advocate. He works on business growth, influencer engagements, and innovative content strategies.

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  • Wonderful piece. This is a well thought-out and important contribution.

    • Thanks a million Sir. @businessesgrow:disqus. Its indeed an honor for me to have an assertive comment from your side. You are my mentor and the go to person when it comes to Marketing and Social Media.

  • jordanskole

    Hey Saad! Great article on a great topic, but of course I am biased 🙂

    I think Dropbox is of course a fantastic use case. They are a prime example of how they were able to discover their ‘currency’ and leverage that for more referrals. They realized that dropbox is great for sharing space, and that a dual-incentive structure would motivate referrals better than a purely financial commission structure.

    Cheers!

    • Hey @jordanskole:disqus — Good to see your comment here brother.

      First, I would like to Thank you for your amazing three pointer advice plus a great contribution on Quora as well.

      Second, As i have also written that DropBox is a bench-mark example of referral marketing. In cloud industry, the paid marketing cost is far too high. Adwords are too expensive. So, the program was designed for two kinds of conversions.

      First — Paid Conversion.
      Second — Referral Conversion.

      Only looking at this equation we can easily see that how they cut the customer acquisition cost by half. And on a long term, the cost will go down as the referral chain started to build.

      Would love to know more about Ambassador, and how you guys are helping your customers build referral marketing programs. It would be interesting to hear your side of the story. 🙂

  • Saad, your article really motivates me to use referral marketing for some current projects. Startup usually have limited financial resources therefore, any marketing program that can provide them leads without eating up cash is a big YES.

    In the starting lines, when i was reading quote of Maya Angelou, i read the last line as “…But people never forget what others say what you and your product”. Although i completely agree Maya Angelou as well.

    • Hi @TatheerHanif:disqus 🙂

      Thanks for the positive comment. Yes referral marketing is Contagious. Only, if the product is market hungry and it HAS Quality. A good quality product is always prone to word-of-mouth but referral marketing plan guides a customer on how to share and where to share.

      Do let me know if you apply any of the above mentioned tactics, and what results they brought in.

  • Hi Saad,
    Thanks for this excellent well researched article about referral programs. I work for an online diagramming start-up and will definitely try some of the things you have mentioned here.

    • Hi @rumbling:disqus,

      Thankyou for liking my effort. You have been a part of this research as well. I think we have met in a Google+ community where i have asked a question about the same topic and you came up with some great resources. And it really helped me.

      So, i am honored for all your help.

      Let me know if i can be of any help…anytime 🙂

  • A convincing and authoritive article on the benefits of using referral marketing programs! As a local marketing consultant I understand the power that these types of programs can have on even the smallest businesses. I frequently hear from business owners who have implimented such programs that they get as much as 50% of their business from a program they put in place years ago. As a consumer, I’m still getting Dropbox space for referrals I made very long ago and I still love getting the email telling me I’ve earned more space! Thank you for providing such extensive research and defining the benefits of a referral program so effectively.

    • Hi @leighabaer:disqus 🙂

      Thanks for such an encouraging comment. I would love to quote John Jantsch, he said, “People trust the recommendation of a friend, family member, colleague, or even stranger with similar tastes over anything thrust at them by a faceless company.”

  • Great stuff as usual Saad.
    as someone who lives and breathes contests, I feel compelled to add ny thoughts. I can tell you that while sweepstakes are great, they tend to be a low quality referral driver.
    The fortune is in the follow up

    • The fortune is in the “Follow Up”. Golden words @kierapedley:disqus. Thanks for all the encouragement. Social referrals can be pronounced as soft referrals, but if you connect with all those people who are talking about you, build relationships with them, THEY BECOME YOUR BUSINESS and eventually refer more people towards you.

  • Another well researched and a persuasive article Sir Saad. I wish more business owners realize that referrals are the finest marketing tactics to gain maximum exposure of your brand. I am definitely going to suggest my boss to start a “Referral marketing program” as a first priority. Thanks!

  • Thanks Saad, this was really interesting, and I really love Maya’s quote. She was a clever and poetic lady! I’m also learning how important it is to manage expectations around how many referrals and new customers the average referral program is capable of generating (less than might be hoped for, but enough to still be worthwhile). Some of the more academic research seems to indicate that the average is just over one referral made per customer, with a highly satisfied, influential customer, who finds your product personally relevant generating ~four referrals. Of course conversion rates would then need to be applied to figure out how many new customers can be expected.

    I really love how much social psychology factors into successful referral programs! Anyways, as I learn more about referrals, I’m documenting the process in my blog. My most recent post is here: http://www.gotapir.com/blog/2014/12/18/all-men-are-created-equal-all-customers-are-not

    Looking forward to staying in touch, Saad!

    • Hi Alia 🙂 I read your blog and it was really interesting. I believe satisfied customers escalates the referral conversion rate, why? Because he or she will advocate your brand every where around the web with all the emotions of success. They become your testimonials. You can also accelerate the process by giving those customers an incentive, a gift etc.

      • Thanks for the response Saad! I’ll be seeing you around twitter 😉