Customer Referral Engine for Startups

This post is recap on some of the highlights from a how-to created by Ilya Lichtenstein of I feature some of the most impressive startup strategies we encounter at StartupPlays and share them free, here at 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 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
They use these metrics to determine what affiliate commissions will be in order to make them economical for the business to turn that channel into a profitable one. If affiliates can purchase traffic at a cheaper price than payout (typically between $0.50-$4.00 per click) then the program is sustainable.

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:

  1. Existing Users
  2. 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 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]