When looking at successful companies like Airbnb or Dropbox, it’s easy to forget that they too were once a burgeoning startup. Like any other business, they started from obscurity and had to establish themselves in front of customers before making a splash. But what was their strategy? It’s called referral marketing, and it’s something your business needs to try.
The Airbnb case study
As of March of this year, Airbnb is valued somewhere around $20 to $25 billion. That’s nearly double what it was worth this time last year -- impressive for a company that didn’t even exist a decade ago. But more impressive is how they achieved such staggering growth in the matter of a few years.
The answer is simple: referrals. Airbnb took a straightforward referral approach by sending email invitations to existing participants. The offer was enticing: referrers would receive a $25 travel credit when new members took their first trip. Then, they would receive an additional $75 credit when they hosted a guest for the first time.
From Airbnb’s perspective, the referral program was a no-brainer. After all, they were only paying for referrals after new users made a purchase. This ensured that they weren’t wasting any money on unprofitable referrals. The program worked (and still does), helping Airbnb to achieve incredible growth, in which the total number of users has practically doubled each year since 2012.
The Dropbox case study
Dropbox also encouraged growth by starting an incentive program. They did so out of necessity more than desire, but the rewards were incredible. With PPC ads too expensive and long-tail search terms too competitive, Dropbox decided to launch a double-sided referral program, with both the referrer and the referred having incentive to take action.
In addition to the referred member getting benefits, the referrer was given extra storage space (a key component of product enjoyment). The program permanently increased signups by a whopping 60 percent, with more than 2.8 million direct referral invites taking place in the first 18 months. In fact, 35 percent of all signups now come from the referral program.
How entrepreneurs can apply this strategy to their startup.
While these two case studies are great, they’re useless if you can’t apply anything to your business. After all, a case study is only valuable if it helps you to improve or to change. Here are some tangible takeaways from these two examples:
Target the right customer segment. Despite what you may think, a referral program shouldn’t necessarily target your entire customer base. Instead, you should go after your most active customers. The reasoning is that your most loyal supporters are more likely to give positive recommendations to their friends. Coupled with an official referral, these personal anecdotes make the program exponentially more powerful.
Offer benefits for both sides. Jason Wei, co-founder of the Los Angeles-based startup Taggler says, "The problem with many referral programs is that they only benefit one side. It creates an issue in which one side of the equation has little motivation to take action. Two-sided referral programs, on the other hand, encourage existing users to share, while simultaneously mitigating risk for new users. For example, for new customers we offer a $20 promo code and also give $20 in real cash to the referrers."
Select the right rewards. Furthermore, it’s important to select the right rewards. Dropbox did this by giving both parties extra storage space. This is a key component of the core product and is seen as invaluable by users. You have to give up something if you want users to jump onboard.
Streamline the CTA. You can’t launch a successful referral program unless the program is easy to understand. In other words, the call-to-action needs to be integrated into the signup process and website. If you can’t clearly explain the program in a few bullet points, it’s too complex. Break it down into actionable steps, and make it as easy as clicking one or two buttons and typing in an email address. Additionally, the email that the referred individual gets needs to be simple and personable. They should understand who is sending the referral and what the value is after reading the first couple of sentences.
While you can’t create a carbon copy of another business’s referral program and expect the same results, you can learn a lot by studying some of their components and strategies. Use Airbnb and Dropbox as examples, and think about how you can develop your own referral program starting today.
Related: Are Paid Referrals Worth the Cost?