How to build a referrals feature

Working notes on building good viral loops in a digital product

3 min readApr 12, 2024

Large existing user base to employ
Large untapped market to grow into
Users know a lot of potential users
Product needs high trust for adoption. Ex…
Users are price sensitive. Ex: students, supply side of hyperlocal platforms like drivers.

0–1. You’re probably still figuring out the contours of the core product offering
100–1000. You’ve probably reached market saturation or you’ve got enough growth happening organically that you don’t want to drive up CAC and have to deal with Cannibalisation.

V0 — Users love your product and word of mouth is already happening. Maybe .1 to 1% of new users activate this way.
V1 — A successful referral coupon program. It’s also a good V1 if you’re thinking of building a referral program. Maybe 1–5% of new users activate this way.
V2 — Referral program with a balance of coins, earnings, etc. Maybe 5–15% of new users activate this way.

Pick a reward type. Dropbox rewarded with space. Airbnb rewarded with dollar amounts. Waking up rewarded with free access to content.
A simple two-way structure makes it easy for users to understand, remember, and share without feeling selfish. Ex. you and your friend get $x
Make it easy to redeem and use. Ex. Storage space got auto added on Dropbox. Credits can be used on next booking. This increases touchpoints and recall as well.
Time the reward credit well. Too early and you might get junk users. Too late and participation might be low. Ex.
Tackle Fraud. Limit total collection of reward “upto $y“. Ex. on Dropbox: Get 500MB per new user upto 16GB.
Tackle Cannibalisation. Limit applicability to new customers, not repeat customers.
There will be pareto distribution — 1–10% users will be active referrers. Optimise discovery and activation of such users for this feature.

Reduce time to referral and Increase number of referrals. Ex…
Identify natural points in product flows to invite friends and family. Ex. When users on DropBox are trying to get more space. One of the options can be to Refer a friend. Waking Up places referral on home page to keep it top of mind for users.
Framing — Altruistic framing performs better globally. Ex. Gift your friend xx — vs — Earn yy by referring a friend.
Show friend’s’ redemption progress encourage involvement. Optionally give option to remind friend to complete signup.
Show referrer’s rewards balance with a progress indicator to encourage sharing with more friends.
Encourage usage of rewards balance. Ex. Dropbox auto credits the additional storage space.
Reduce friction to inviting more people. Ex. Payment Apps like Revolut ask to sync contacts to send multiple invites with one click

% of MAU seding invites
Number of invites sent per MAU
Conversion rate of users who get referred vs not. When wildly successful, it can be upto 20–50% of acquisition mix.
Cannabalisation will happen. Have a way to estimate it.