Alan Draper
This post is recap on some of the highlights from a how-to created by Ilya Lichtenstein of mixrank.com. I feature some of the most impressive startup strategies we encounter at StartupPlays and share them free, here at business2community.com. Enjoy.
I work with hundreds of startups every week who are taking their business idea to market. It’s an exciting time for them, and there is always plenty to keep founders busy.
Here are some the high level things a founder has to think about:
- How do I test my idea in the market
- How do I create my product or service offering
- How do I create a website to market the product or service offering
- How do I drive potential customers to my website
- How do I generate partnerships
- How do I interact with customers on social channels
- How do I optimize messaging to help convert traffic
- How do I optimize funnels to the website
When working with startups I like to focus primarily on one of these aspects: Finding new traffic channels channels and optimizing those traffic sources.
If we treat a website like a funnel, this is the entry point for most. It’s also the first touch point for someone who has never been introduced to your brand. The first move for most startups is to put some dollars down on Facebook Ads or in Google Adwords, look for press coverage, fool around with some SEO, and do some social bookmarking.
I recently did some work with a brilliant young guy named Ilya Lichtenstein from Mixrank.com who has an alternative early step, one he discovered while doing affiliate marketing during college working for startups on the side. Ilya applied the behaviour and characteristics of major affiliate programs to smaller scale customer referral programs on small to medium websites.
Major Affiliate Programs
Websites like Amazon and Netflix have elaborate affiliate networks anyone can join and receive an affiliated commission from a signup or purchase on the website. This works because these companies have determined some of their most important baseline metrics, things like:
- Cost per acquisition of a customer
- Lifetime value of a customer
- On page conversion rate
- Variants between traffic sources
- Cost of buying traffic within the industry
How Building your Referral Engine is Different
A customer referral engine is a lot like an affiliate program only scaled down and involves much higher participant engagement. Building a referral program is not for the light of heart but has massive payouts for everyone involved. When creating a referral engine you won’t want to label participants “Affiliates”, but instead something like “Partners”. Your “Partners” will be composed of two segments:
- Existing Users
- Content Producers within your Niche
Existing users are easy advocates since they’re already familiar with your brand and understand your offering. Incentivizing them to tell others what they may already be telling people is a win-win.
Content Producers within your niche have clout and often an engaged audience on the web, they may even be looking to monetize their content and this provides them with a non traditional medium that has higher revenue potential and that sucks a lot less than one site ads.
Compensating your Partners
As an early stage startup your base metrics probably wont warrant a direct flat fee compensation for a new lead, you’ll be compensating partners in your referral program based on a percentage of or flat fee per paid conversion. Be careful to avoid revenue share in perpetuity, this may hurt you down the road when approaching investors. Major Affiliate programs will payout anywhere from $30-$40 for a credit card submit on their site (this is what you’re aiming for). If you have the ability to set up coupon codes on your website, give your partners a custom coupon code, this instantly creates a value add for their audience and makes it easier for them to share with people they know. (People LOVE sharing deals)
You’re an e-commerce vendor: Give partners a commission on each sale they drive.
You’re a SaaS vendor: Give partners straight cash per transaction, if your offering is tiered your affiliate commission can be as well.
Tracking Referrals
You need to use a third party to track referrals, this guarantees no foul play on your side ands building confidence in your program into your program. It also helps limit fraudulent activity, you can review partners as they apply, and send payouts once customer payment has been confirmed on your end.
Here are some third party services you can use to set up a program like this:
Zferral – I prefer Zferral to others because of its ease of use, and support. If you’re having issues with setting up you can use their support centre to screencast your issue and have it resolved within a few hours.
HasOffers – Custom referral programs, easy setup.
LinkTrust – This is a costly alternative, but is the undisputed gold standard within the industry.
White Glove the Entire Program
Send your partners a monthly recap, keep them updated on how other partners are doing, and how the program is a smashing success! It will keep them involved and give them a benchmark for how well they can do, and how much money they can make by being part of your program. We’ve employed this strategy at startupplays.com and seen the program drive 15% of our monthly revenue numbers, converting at well above 3% for our partners.
The customer referral engine is a win-win channel for driving online sales generally untouched by most early stage startups. If you’re thinking of setting a program like this up, feel free to email me, I’d be glad to help. mike [at] startuplays.com.
This article was written for Business 2 Community by Alan Draper.
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This is a great look at using performance marketing for customer growth. Beyond the tips you suggested, I would also examine a few additional things.
Look at lifetime value of a customer and pay referral fees based on lifetime value, not on some arbitrary number you feel is “fair”. For a SaaS product with a monthly recurring fee, the affiliate program for GoToMeeting may be a better guide for how to payout referrals than looking at what Amazon or Netflix do.
While I’m a big fan of coupons, I would think very strongly about whether you offer them or not. They can be a fabulous way to drive sales, but they can also be something that puts you in the position of having potential customers actively seek out a coupon. I know that anytime I see a coupon code box on purchase page, I instantly open a new browser tab and look for a coupon.
Also keep in mind that you want to establish a system that prevents people from signing up to refer you business just so they can save on their own subscription. That happens more frequently than you might think.
In terms of tracking – be sure you’ve got a system in place that actively prevents fraud. You may also want to offer conversions for things other than a purchase, particularly if you are relying on existing users and niche content creators. Some types of actions to reward could be signing up for your newsletter so that you can engage on an going basis, tracking when your referrers direct people who later tweet or share content about you on Facebook.
Some great additions, thanks Jake. I like the idea of being wary of coupon codes, we set this feature up and had to constantly re-issue codes because of coupon code listing sites. I think your point about cutting affiliates off at the email submit is a valid one. If you’ve proved that paying 3.00$ for an email is profitable then this will generate more revenue in aggregate than a commission on a credit card submit.