4 builders who never spoke to each other

Treat referrals as a paid channel

Put the programme head to head with your advertising on both cost and quality of user, because it can win on both. Watch invites sent, invites per user and invite to signup as the inputs, referred signups and what they go on to do as the outputs, and discount the whole thing conservatively for people who would have joined anyway. Break revenue down by referring source and expect referred users to refer at a higher rate themselves.

The method

1. 01

   Treat referrals as a paid acquisition channel and compare it head to head with your ads, because it can beat them on both cost and quality of user.

2. 02

   Track invites sent, invites per user and invite-to-signup rate as your input metrics, with referred signups and their downstream transactions as the outputs, plus cost per acquisition for the programme overall.

3. 03

   Discount your referral numbers for the users who would have signed up anyway, and be conservative about the size of that haircut.

4. 04

   Score a channel's return on how many further subscribers the people it brings in go on to refer, not just on what a signup cost.

5. 05

   Work out how many extra users one existing user brings you today, using the share of direct traffic in your analytics as a stand-in when true attribution is impossible.

What it returned

• Airbnb's host referral programme went from half-working to the single largest attributable source of new supply, and became both the most efficient paid channel and the source of the highest quality supply.

• Airbnb's host programme watched referral landing page traffic, total and per-user invites, invite conversion, cost efficiency, then new listings arriving via referral and the bookings those listings received.

• Morning Brew rated a subscriber as valuable when they tended to refer others, and used that behaviour to measure channel return on investment.

• Direct traffic, meaning arrivals with no search and no ad click, is offered as the practical proxy because B2B users often see a product before they need it.

Sources

• Track revenue, not trafficJustin Jackson · justinjackson.ca · Track revenue, not traffic · undated
• Two things that kill bootstrapped companiesJustin Jackson · justinjackson.ca · Signs you're on the right track: · undated
• The Secrets Behind Morning Brew's Growth to 2.5 Million Newsletter SubscribersJenny Rothenberg · sparkloop.app · 3. Track Your Referrers · undated
• Product-led marketing - by Kyle Poyar - Lenny's NewsletterKyle Poyar · lennysnewsletter.com · 2. Product virality for PLG products · 2023-03-28
• Building a referrals program - by Lenny RachitskyLenny Rachitsky · lennysnewsletter.com · 2020-03-03