Hi Folks,
I needed an opinion on how effective referral schemes are to make existing users to refer their friends to a website.
We had launched PapayaPost.com sometime back.
On PapayaPost.com one can buy, sell and rent out stuff (like apartments, cars, furniture), find roommates, carpool and do much more.The best part about PapayaPost is that only people with a verified company email id can join PapayaPost hence you meet genuine buyers and sellers on this site. Its like an extension of your company notice board.
The site has gained decent traction in the NCR region since its launch and now we are planning to spread the word. For this we are thinking of launching a referral scheme where every user will get a Steve Jobs mug on referring 10 friends.
This turns out to be roughly INR 20 for each new user acquisition.
How good are such schemes in getting users to the site ? Is it too eary for us to get into this game ?
Any insights from people who have successfully or unsuccessfully launched such schemes would be great.
Thanks
Garima
Co-founder, PapayaPost.com
https://www.facebook.com/PapayaPost
https://twitter.com/PapayaPost
Garima
Hey Guys….waiting to hear from you !
Lokesh Parakh
The cost, though low compared to industry benchmark, needs to be analysed on how it will be monetized and impact the number of users can create :
Nirav Parekh
Hi Garima,
Some points for you to evaluate, before taking the decision:
1) Estimate payback period:
Take a look at how much you earn per user (or post whatever you feel comfortable with). Next, make some projections on the time it will take you to earn this amount from each new user. Keep in mind that while more users build a community and increase their activity on the website many-fold, the new users will start with advertising and / or renting low ticket items.
2) Explore alternative channels:
Is it possible to reach more people using other media? Google AdSense? Ambient media advertising? SMS marketing? I don’t know. Ask your users. You might just get some breakthrough ideas on reaching your target audience much more efficiently.
3) Explore alternative prizes:
A coffee mug with Steve Jobs will cost a regular consumer about INR 300. Will he go through the effort of referring 10 users and getting them to sign up on your website, to get the mug free? Can there be better alternatives – something that money can’t buy? Something that they would be proud of, and would show off to everyone they know? A Google search will give you some great thought-starters.
4) Relook timing of different strategies for growing your market
I know MBA is not exactly liked by entrepreneurs. But check out at a grid called “Igor Ansoff’s Growth Matrix” on Google Image Search. Provides multiple options on growing your business. See if you would want to focus on making more money from your existing user base, and leave the job of growing userbase to work-of-mouth.
Hope this helps.
Regards,
Nirav
Rishad Mehta
Alternatively, you could also give the referrer shopping credit, which will get you sales as well as referrals. fab.com has a beautifully designed referral program which Im sure is very effective (Check it out).
If you do do a referral program, try opening up to a handful of customers and test the effectiveness by tracking your funnel. What ROI are you getting on each referrer (person who makes the referral)?
Simple Example:
Reward Spend: Rs. 200 on cup
Invites Required: 10
Average Revenue per customer invited: Rs. 134*
Margin on product: 25%
Therefore:
Total Revenue: Rs. 1340/Referrer (1340 x 10)
Net Profit: Rs. 335/Referrer (1340 * 25%)
Net profit/Referrer: Rs. 135 (335 – 200 cost of cup)
*This is the main number to test: How much revenue is a new customer bringing in? To get more detailed, you can look at the LTV (lifetime value) of that customers instead of just the first purchase.
So in this example while your ROI is low, it is still positive which means you won’t lose money on each referrer and will gain the new customers that the exercise is designed to acquire. Play with the numbers, see which rewards get the best response etc… Its an experiment after all.
Abey John
Garima, the referral scheme won’t scale rapidly. Here’s why: the mug is not sufficient incentive and it does not build on the theme of your site. The value of the mug is not large enough to want people to hunt down 10 people’s names to sign up. If you are going to bribe them you need to give a bribe that will kindle want. Maybe assured mug as a gift with a chance to win a holiday for two or something. Or maybe a personalized mug. Still, don’t just bank on referrals for user growth.
What you want is to do is penetrate the firewalls of people’s inertia. You’ll need to demonstrate value – get them enthu’d and excited. You have a good concept. Something that slashes down the crap in classifieds. Hunt down the stories that people build around the transactions on your site, highlight the stuff that people love. Reach out to bloggers, do a press release, request users to post to their FB and LinkedIn walls. Write a high value content piece on your blog about why your site rocks. Repost it here on rodinhoods too (am sure just this post has got you a bunch of sign ups too :)). Since you are looking at corporate signups focus on LinkedIn. Run ads on company profiles on LinkedIn/FB. etc etc.
Also reality check: cost per acquisition is going to be way higher than Rs. 20.
Garima
Appreciate the feedback & views from Lokesh, Nirav, Rishad & Abey…will keep fellow Rodinhoods posted on what direction we take and where it takes us !
Akshay
Hi Garima
One of the major pitfalls of the gratification driven referrals is the fact that it dies as quickly as it builds. Lots of people may just avail the gift never to come back – its always ideal that may be the user base is low for a while but then it builds organically purely on the basis of product experience and utility. Word of mouth around these sort of utilities really works wonders – having said that it may not be a bad idea to make a quick visits to what i feel are fairly close clusters of office spaces in Gurgaon and put some posters either through HR of a company or on the notice boards typically on the ground floor.
BTW your cost of acquisition wouldnt be 20 bucks but more as you have not factored in courier costs as also many breakages that would happen either at your end or while in transit and trust me ppl ask for a replacement even if it came free 🙂
Cheers – Akshay