Better than Free Money
If you click this link and sign-up for a free Wealthsimple Cash account, you'll get $5 deposited into it, no strings attached... and I'll also get $5 deposited into mine. Free money!
Want to try something different for dinner next week? Use this link to sign up for a Goodfood account, and you'll get a whopping $40 off your first box (which is about a 55% savings)... and I'll also get $25 credited to my account. Free food!
Tired of running out of ink for your HP printer and thinking about giving HP's ink subscription service a try? Using this link to sign-up will give you (and me) a free month of service! Free ink!
Okay, that one is a bit weird... but printer ink is expensive, and free is free!
All three of the offers above are real and valid, and if you wanted to take advantage of any (or all) of them, I certainly wouldn't stop you... because we will both personally benefit should you decide to do so.
That's the beauty of a referral program: you provide an incentive for your existing customers to bring you more customers. Your customers get a sweet introductory offer to share with their friends, and a reward in exchange for referring them. Win-win-win!
The problem is that typical referral programs can get expensive. Wealthsimple is giving away $5 for every new account opened. They've almost certainly done the math and calculated this is an appropriate Customer Acquisition Costs (CAC) for them in the long-run. But in the short-run? They have to have enough money to pay out a lot of $5 sign-up bonuses. And not every company has that kind of cash lying around.
But what if you could get people to actively refer your service to their friends and family for free, and have them be delighted to do so?
Clubhouse is an audio-only social network that I've heard described as "a podcast you can participate in instead of just listen to". It only launched in April 2020, but reportedly, 8.1 million people have already downloaded the app, which is especially impressive given it's currently only available to iPhone users.
If you clicked that link above thinking that you might like to give Clubhouse a try, you would have noticed something unusual: you're not able to sign-up for the service.
To join Clubhouse, you need to be invited by a current Clubhouse member.
And it's not like existing Clubhouse users can just invite everybody they know: each new user only gets two invitations when they join... so when you become a Clubhouse member, you actually need to think about who deserves one of your limited invitations!
Clubhouse certainly isn't the first technology platform to use an "invite-only" approach to generate excitement for a new service and drive new user growth: I clearly remember Gmail launched the same way back in 2004... and stayed "invitation only" until 2007!
Clubhouse is simply the latest to leverage a simple human truth: scarcity is a powerful motivator.
So powerful, in fact, that according to this Guardian report, in China, on platforms like Xianyu and Taobao, Clubhouse invitations are being sold for between 150 – 400 yuan ($23 – $61).
The fact that many well-known people have started to use Clubhouse certainly helps with its appeal. You could join a room and find yourself chatting with Elon Musk, Mark Zuckerberg, Mark Cuban, or Shopify-founder Tobias Lütke... all of whom have already used the platform.
But having an appealing product is an absolute must when it comes to having a great business, nevermind having a great referral program. If I thought Goodfood was terrible, I'd never share my referral code with you, because a $25 bounty wouldn't be worth the relationship cost of having you think I tricked you into using a bad service for my own personal benefit. (For the record, I think Goodfood is fantastic, it's just impractical when you have four children who would prefer to eat cereal every night for dinner if we'd let them.)
If you want to drive growth for your business, offering an incentive for your existing users to get their friends and family to sign-up can make a lot of sense.
Just remember that exclusivity -- and the prestige that comes with being able to provide your friends with access to something that's seen as valuable -- can often be an incredibly powerful incentive to offer.
Perhaps even better than free money.