Build a Referral Program That Works

Description

When done right, a referral program is your unfair unfair advantage when it comes to membership growth.

Topic

AcquisitionGrowth

Type

GuidesTemplate

Created by

Michael Gillespie

A referral program can help grow your membership - as long as it’s structured correctly.

Below is a guide on how to successfully motivate and incentivize members to generate referrals to your membership so you can tap into an organic, cost-free method of acquisition.

The Big Picture: Referral programs have the potential to boost your revenue by up to 15% (and that’s revenue generated by your existing members).

The Statistics:

Roughly 10% of your paying members would immediately and enthusiastically share about and promote your program
Incremental revenue generated by referrals can compound year after year, becoming a powerful and reliable income stream

🚀 The Action Plan:

Use the referral structure below to create a referral program that works, again and again.

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📘 Table of Contents

What’s a Referral Program?

Through the lens of membership, a referral program is an incentive-based structure that rewards members who share your product with others so they can learn about it and ultimately sign up. Your referring members are rewarded with referral discounts that provide them with savings on their subscription.

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If you’re not running a referral program, you’re leaving money on the table.

Without a referral program, happy members don’t have an efficient, low-friction way to promote your membership in a way that produces additional income for you, the membership operator.

The Philosophy of Referral Discounts

Nearly all membership operators who have a referral program are too conservative with the rewards they offer referring members.

Any discount you provide in a membership effectively influences the amount of time a member stays with you. When you begin to view the discounts you provide through the lens of time rather than income, you’ll build a more stable membership business.

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You see, any membership program performs its best over time when it creatively finds ways to secure more members for as long as possible - even if that means discounting in order to extend the member lifecycle. Time is powerful in a membership business. A primary focus should be how long members stay with you, not how much they spend. If you’re generating long member lifecycles, then the income will certainly follow.

Referral discounts are simply another tool in the box that you can leverage to reward referring members with discounts and, effectively, extend the amount of time they remain in your program due to the amplification of value that takes place.e

That’s the philosophy of referral discounts.

How a Referral Discount Appears in the Real World

Below is a typical, real-world example of how a referral discount would be administered:

A member shares their unique referral link (online, via text message, email, etc.)
A non-member clicks the referral link and ultimately purchases a membership
The referring member receives a reward (in the form of a membership discount) based on the milestones you create

Creating Your Referral Milestones

When setting your referral milestones, keep in mind that the milestones are the same for all members regardless of what type of plan they’re on (month, annual, quarterly, etc.).

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In order for a referral program to be successful, it must be aggressive.

There are a few key points I always suggest to membership operators when it comes to creating their referral milestones:

Reaching the first milestone reward should only require 1 referral
The first milestone reward should never be less than 30% off
Members should always have a path to achieving a free lifetime membership if they generate enough referrals

Sure, the above criteria are aggressive. However, without a sufficient level of incentives, members simply won’t be motivated to refer your product.

That’s the price of admission when it comes to generating membership sales for free. And the overall economics of referrals will always be in your favor if you follow the below guidance on referral milestones.

👉 Suggested Referral Milestones

Referral Count	Discount Amount	Discount Type
1	30%	Recurring
2	50%	Recurring
4	70%	Recurring
6	100%	Recurring

From the above, you’ll notice there’s a milestone that provides a 100% off recurring discount - that’s essentially a free lifetime membership.

Most importantly, since only 6 referrals are required to earn that lifetime membership, it’s within reach.

And that brings us to a critical element of a successful referral program…

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All referral milestones must be perceived as being achievable and within a member’s reach.

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A quick note about Discount Type: I typically suggest recurring discounts (i.e. permanent discounts) since they allow you to “lock-in” attractive pricing for referring members. However, the type of discount can always be tweaked if your program contains unique characteristics where limited or one-time discounts are more appropriate.

Using the above referral scheme will give you a straightforward referral program that’s not only effective, but lucrative.

The Takeaway

Referral programs should be an integral part of most memberships. Without them, membership programs simply cannot take advantage of the incremental revenue to be generated from happy members.

Additional Resources

Referral program help documentation.

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