A referral program works when it runs a tight loop — trigger moment, share action, convert the referred user, reward, repeat — with the ask placed right after an "aha" moment or milestone. Use referral programs for existing customers recommending peers; use affiliate programs (ongoing commissions) for third-party creators and influencers who aren't customers. Double-sided incentives, where both parties get value, typically convert better than referrer-only rewards, and in-product sharing beats email or social. Cap your reward at (customer LTV x gross margin) - target CAC; typical rewards run $10-50 for B2C and $50-500 or 1-3 free months for B2B SaaS. Referred customers tend to have 16-25% higher LTV and 18-37% lower churn.
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The playbook covers
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Help me design a referral program for our SaaS product. We're a $49/month project management tool with about 1,000 customers. We want to encourage word-of-mouth growth.
Give a friend 1 month free, get 1 month free when they subscribe. Share your link → they sign up → you both get the reward. (Reward clawed back on refund/chargeback; email verification required.)
Max reward = (LTV x gross margin) - target CAC = ($1,200 x 0.70) - $200 = $640 room per referred customer.
FAQ
What is the difference between a referral program and an affiliate program?
In a referral program the referrer is an existing customer recommending to their own network — higher trust, lower volume, usually a one-time reward. In an affiliate program the promoter may not be a customer at all (bloggers, YouTubers, newsletter writers) and earns an ongoing commission — higher volume, more variable trust. Use referral for word-of-mouth among customers; use affiliate to reach audiences you don't already have.
Should referral rewards be single-sided or double-sided?
Double-sided usually wins because both the referrer and the referred person get value, which creates a win-win framing and lifts conversion. Single-sided (referrer only) can still work for high-value products, but if your program is stalling, testing a double-sided structure is one of the first changes to try — alongside better placement and timing.
Only 5% of my customers ever refer. How do I fix it?
Diagnose the four common causes: awareness (are customers even aware of the program?), timing (are you asking at peak-satisfaction moments like right after an aha moment?), incentive (is it compelling and ideally double-sided?), and friction (is sharing one click?). Add prominent in-app prompts, time the ask to milestones, simplify to a single share action, and send referral reminders in email and in-app.
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