
Why your Referral System Won't Work - gsaines
http://georgesaines.com/2010/07/21/why-your-referral-system-wont-work/
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michael_dorfman
I think that there are a couple of factors you are omitting from your
analysis.

First, if you take a look at Dave McClure's AARRR model (and if you haven't,
you really should [1]), you realize that Referral is something that you only
want to attempt after you've got ridiculously satisfied customers. You can't
expect people to spontaneously recommend your product on to others until it is
absolutely friction-free, and serving that sweet spot so sweetly that they
almost can't help it.

Second: not all niches are created equal. Are folks whose itch is scratched by
your particular product significantly more likely to be in touch with others
having the same itch? For some niches, yes. For others, no.

Finally, in the absence of a Freemium model, you definitely need to have a
well-organized Activation process; some way for people to get engaged with the
product prior to a commitment.

[1] [http://500hats.typepad.com/500blogs/2007/09/startup-
metrics....](http://500hats.typepad.com/500blogs/2007/09/startup-
metrics.html), for example.

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gsaines
Hey Michael, I've actually not heard of McClure's AARRR model, I'll check that
out. I've read read some of McClure's other articles, but not that one!

Your first comment about the referral only working in the sweet spot probably
did kill it for us. We still aren't at the sweet spot, and the process of
engaging with the product definitely isn't frictionless like it is for
dropbox.

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jscore
My good friend recently made me signup w/dropbox so he can get more space, and
I'll probably do the same with my friends.

The main reason why it works is because we're helping each other achieve
something; we're making an existing process easier/more convenient. It's a
MUTUALLY BENEFICIAL activity (ie, it's easy for us to share files with each
other).

Dropbox is a platform product like Facebook (ie, join this site, and we can
keep in touch together easier). This strategy would work for all platform
products.

As for your startup, you have to ask why would I would recommend someone a
product that eases remembering japanese/chinese chars, there's no process
after that at all. There's nothing MUTUAL BENEFICIAL here at all. If my friend
is using your tool, why do I care? It doesn't help me at all.

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gsaines
Very true, jscore, referring people to Skritter has no network effect at all.
We do offer extra subscription time to both the recommending party and the new
referral, and we spent a long time trying to figure out the right mix of
benefits for both, but I think you're right that without the networking effect
there's a lot less interest to recommend people.

As you say, it doesn't help you to recommend anyone to a site where the
primary activity is independent learning. Now, we could alter that and some
social features, but my best guess is that it's not just "social features,"
because tacking that stuff onto Skritter probably wouldn't help too much! To
get maximum gain, we would have needed Skritter to be more easily spreadable
from the get-go. :)

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drusenko
Just an FYI -- your page hung on loading "Waiting for
dev.visualwebsiteoptimizer.com..." for at least a good 60-75 seconds.

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gsaines
Hmmm, that's no good. I'll have to check that. Thanks for the tip.

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patio11
Just to chime in, since I discussed referral systems with these guys and on my
blog: mine has similarly been an utter failure, netting twenty trials and no
sales. Five bucks in AdWords would work better. YMMobviouslyV

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gsaines
Thanks for the comment patio! Our conversation about referral programs is what
actually prompted me to write this. If it had just been us, I would have
assumed that we were just doing it wrong, but when someone with a lot more
experience and skill tried it with similar results I thought "huh, I wonder if
there isn't a pattern there."

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ryanelkins
I think the analysis here is close but perhaps _slightly_ off.

1\. Your company has to have freemium pricing. - This is a factor that affects
conversion rate. It's not so much about freemium as it is about friction. I
think the idea here is that you have to have a more friction free offering for
the referral, specifically the offer that the person being referred sees. If
they get offered something a little extra than what they could get on their
own it should be more appealing.

2\. Your product has to have wide appeal. - I think what you really mean here
is that your customers need to have people they can make referrals to. This is
obviously a big factor in the number of referrals made. Who are your
customers? A businessman learning Japanese on his own might just not know
anyone that would use the product other than himself. Students might know lots
of other students who might be interested - which are you dealing with?

I also like the idea tomjen3 mentioned about incentives for both parties. This
helps encourage people to make the referral, do it through the system , and
helps the person being referred feel some form of obligation to the referrer
and see that they can get something out of it.

I'm not saying that "you're doing it wrong" or that if you make some changes
it will work, just that maybe there are some deeper reasons as to why it won't
work in your situation.

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gsaines
These are good points ryanelkins, especially about the distinction between
"having wide appeal" and having customers that know other customers in the
market. This was definitely a problem we faced early on. Essentially we
thought we'd be selling to students and instead we've done most of our
business with non-students.

Regarding the rewards, we did offer both the customer and the person being
referred free time on the site as a reward, but either we didn't do a good job
making that clear (very possible) or it wasn't compelling enough. To be
honest, we're still not sure which it was.

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usaar333
I definitely agree on #2, that your product needs wide appeal, but #1
(fremium) seems not to be the case.

You can find plenty of places out there that do a refer-a-friend in exchange
for the referrer receiving something in return. My gym (24 hour fitness) does
this and I have referred people to it before.

I suspect in this case the problem mostly lies in the product being too niche,
not that it costs money.

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jscore
I don't buy the theory that the product needs wide appeal at all (#2).

Gym referrals work because it's mutually beneficial, "hey, come join 24h
fitness, so we can workout together". I win, and my friend wins.

It's much easier to go the gym with a partner for motivation, etc. than to go
by yourself.

Now, let's take travel, which is also not niche. If I'm lonely planet trying
to sell travel books, referral won't work because it's not mutually beneficial
for both of us to have the same book, etc.

Good discussion going on. I'm actually brainstorming on a referral strategy
for one of my sites (travel based).

~~~
usaar333
Mutual benefit certainly helps. I just wonder if you have to have it.

The people I referred I actually never work out with. It was just a trivial
way to get $25 or whatever the bonus was at the time.

I believe Zecco (brokerage) also has a referral system going. Again, using it
is beneficial monetarily - I could care less though if my friends use it.

One thing that is probably true: If there is no 'network effect', you probably
need a much larger reward to get referrals.

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kingkawn
I also think that your main page is a lil visually busy, which if we're
contrasting against Dropbox, is a major difference that made me less inclined
to proceed with the free tour. Also, at the bottom of the page you introduce
the founders, which I think is better left til after you've proved the product
worth the attention in the first place.

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gsaines
Yeah, Dropbox has a wicked simple homepage, I love it. I'm actually
multivariate testing almost everything on that homepage, so it's possible you
got the variant with the animation (would make it a lot more busy).

Substituting out the founders bit is something we've played with, but the
previous test didn't get conclusive results one way or the other, so I need to
keep trying different things with that space.

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robryan
I think affiliate marketing that you mentioned can be really undervalued to.
Sure the business has a shady underside but on the good side of affiliate
marketing your paying for results only and hopefully attracting people who
spend most of their time marketing to see if they can sell your product.

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tomjen3
Also you forget point 3:

It has to have incentives for _both_ parties. I specifically didn't send my
mother an invite to dropbox because I didn't want to seem to do it so I could
gain something at her expense _.

_ Dropbox actually does give something to both sides, but if I miss that how
many others do you think does too?

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omaranto
I've recommended Dropbox to several people, but have only sent invites to
those I think wouldn't mind me getting something in return for the referral
(and even to those I've told about the extra space we'd get and that they
could of course sign up without my link).

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danielrhodes
The reason Dropbox works is simple: it's a carrot on a stick. Most invites
don't have that and provide no incentive, either for the inviter or the
invitee.

