Understanding Referral Incentive Structures

What’s your plan?  Are you going to use a one-sided or two-sided incentive for your referral program? We can help you think that through.

Two key metrics

What you’ll be observing and optimizing, as your program evolves and A/B testing is underway, is the sharing rate and referral conversion rate.  The sharing rate is the percentage of people who share when presented with an opportunity to do so and the referral conversion rate is the percentage of referred visitors who convert.

Offering a reward for sharers can boost your sharing rate 2x to 10x.  Furthermore, providing their friends with an incentive, such as a promotional discount, can boost referral conversion rate from 2x to 10x.

Three types of referral incentive structures

  • No incentive (sharing for the sake of sharing)
  • One-sided
  • Two-sided

No incentive

This is pretty self-explanatory; it simply means you present your share widget without a reward or bounty.  This is pure social sharing. Sometimes your company is just hot and your customer’s love for your product or service is share-worthy on its own merits. Starting your program without incentives is a great way to benchmark your performance for sharing rate and conversion rate. Rewards are not always required to create a successful program; sometimes customers just love to share for the sake of sharing.

One-sided incentives

Here, you offer rewards — like cash or store credit — to the referrer or their friend.  For example, you can offer a bounty to your customers if they successfully refer friends to your web site (who convert).  Alternatively, you can offer no incentive to the sharer, but create an incentive for their friends, such as 10% off a first purchase.  Meaning, your customers send an offer to their friends without a bounty for doing so. One-sided incentives offer something to either the sharer or referrer, but not both.

Two-sided referral incentives

Here, you offer rewards to sharers while simultaneously offering the referred visitor (their friend) a reward, such as a discount, for buying now.

Symmetrical and asymmetrical, two-sided referral incentives (that’s a mouthful!)

Furthermore, if you love marketing jargon, you’ll love what we’re gonna say next: Two-sided incentives come in two flavors, symmetrical and asymmetrical.  Offering the same reward to each party, such as a $10 store credit to the referrer and $10 off to their friend, is known as a symmetrical two-sided incentive.  The rewards match.   Offering different rewards, say $5 in store credit to the referrer and 10 percent off to the friend is an asymmetrical two-sided incentive.   Meaning, the rewards are different for each party.

Tony Mariotti

Tony Mariotti is COO at Friendbuy, the marketing platform that makes it really easy to launch a customer referral program. A/B test and optimize your refer-a-friend campaigns without developer headaches. You can follow him on Twitter.

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