How to build a referral program for your app
Tips for implementing a successful referral engine
David BarnardOctober 25, 2022
Referral programs for subscription apps are still very much in the early days. While, in theory, the model sounds like a promising lever for growth, there just aren’t many examples of great referral programs out there to study.
But there are examples from other industries that app developers can borrow from. It sounds simple, but the only way to create a successful referral program is to create a model that offers and appropriately balances referee and referrer rewards and incentives.
Andreessen Horowitz General Partner Andrew Chen says that “a successful referral program can be 20-30% of your acquisition mix.” RevenueCat’s David Barnard and Branch’s Head of Product and Market Strategy Alex Bauer agree. That’s no small fry. The duo discussed the wide-open world of referral programs and the future possibilities for app developers willing to embrace the strategy. (Listen to the full conversation here.)
The business case for a referral program
“Referral programs have always been a good option” for multiple industries, Alex says. “They’re fairly intuitive, and you’re leveraging your existing user base. You don’t need to invest in ad campaigns — users simply invite their friends.”
Learn lessons from other spaces
Because referral programs for subscription apps are still in their early stages, tapping into what app referral programs, in general, have to offer is a logical move for app developers. With paid advertising down, apps look for different avenues to boost user acquisition and engage existing users.
A referral program, however, is not a silver bullet: Subscription app developers can’t expect explosive growth just by implementing a referral program. They also need to contend with Apple’s restrictions on promotions and its in-app purchase API. (Thankfully, this is RevenueCat’s bread and butter.)
Realistically assess the referral funnel
If you have 10,000 active users and want to maximize new subscriptions, be sure that your call-to-action is in a place users can see it — not hidden away in settings. “The problem is it’s not building the referral program into the product experience,” Alex says. Don’t be shy with the CTA, but don’t make it feel like an ad.
The most effective referral programs — like Dropbox, Uber, and Robinhood — “bake into the product experience in so many places and so tightly that there’s no way a user doesn’t know it’s an option,” he says. Users feel more engaged when incentives are aligned with product use.
Developers should always weigh the implementation cost of a referral program against work on the product or other marketing efforts. It’s also important to consider a referral program’s lifecycle: Dropbox’s high of 35% of users gained via referral waned as word-of-mouth spread, and it went viral.
“Referral-sourced users are some of the highest quality users you can get,” Alex says. “The leakiness of your funnel after the acquisition event depends on the channel, and referrals are one of the best ways to get users that are actually going to stick around.”
Creating a good referral program
Incentivize both referrer and referee, and pick the right incentives. Financial reward is a natural starting point, but there’s also giving app users some meaningful value for free — rather than making them pay — on par with Dropbox’s free storage. It has to be integral to the product and difficult to game.
A referral program must be a better deal than customer acquisition costs (CAC), established early in the user journey. Gamifying the process engages and respects the current user base without alienating them.
Attracting the right kinds of users — protecting against fraud and abuse — means triggering completion events at the right time. “Pick a conversion event that is far enough down your acquisition funnel [so] that it’s too much pain [for a user] to do repeatedly,” Alex advises. Incentivizing the initial purchase also discourages fraudulent users from attempting to replicate or automate the program to their own benefit.
“[It’s] the ultimate cost-per-action campaign,” Alex says. Developers need to ensure they’re gaining equal value to the giveaway incentive and establish how long this takes.
Let’s talk about rewards
A successful program needs to reward the referee and the referrer, though not necessarily in the same way. Because there’s no industry standard, it can be tough to establish mechanics.
The referee reward is the easiest of the two. There are four potential routes.
- Separate SKU with an introductory offer: The most straightforward minimum viable product-based way to reward the referee is to create a separate SKU with an introductory offer different from any rendered in the app: a free one-week SKU (as displayed on the paywall), with a separate SKU offering a free month.
Flexible introductory offers mean they can be free, pay-as-you-go, or periodical in the form of discounts and extended free trials. (The one downside is that they only apply to new subscribers.)
- Stripe: The next easiest is using Stripe. App Review is sensitive to direct users away from in-app purchases for obvious reasons, but Apple can’t prevent communication initiated outside of apps and the App Store. Emails from existing users to friends — referrals — fall into this bracket.
Once in Stripe, it’s easy to establish an extremely flexible relationship with users. (But if you haven’t already implemented Stripe, consider if it’s worth it just for the referral program due to the associated taxes and global compliance.
- RevenueCat promotional entitlement: RevenueCat provides easy-to-implement backend subscription app infrastructure that maintains user subscription status. When promotional entitlement expires, users appear unsubscribed and hit a typical app paywall.
The downside is the lack of auto-renewals. This is a business decision for app owners to make: Users either sign up to an introductory offer-based free trial that automatically converts unless it’s turned off, or receive a free month with a paywall at the end of that period.
- Offer codes: Offer codes are another potential reward if you can get them to work. A simple link is sent to the referee for use as they see fit. However, using one of the above methods may be more straightforward.
Referrer rewards can get tricky. Some of these avenues are similar to referee rewards, albeit with different mechanisms.
- Stripe wins: Stripe remains the most straightforward way to reward referrers, with a very accessible and interactable API. “Stripe has some of the best APIs I’ve ever seen,” Alex says. It’s great for existing customers — because it’s programmatic. Both an in-app reward-claiming button and an automatic offer banner work equally well.
Communication outside of the App Store via email makes Stripe billing and rewarding very easy. It also allows for adding remaining time from Google Play and Apple’s App Store to Stripe if users cancel their app subscription on either platform.
Assessing the drawbacks of Stripe for referrer rewards is also important. Apple sometimes doesn’t get enough credit for the way it handles grace periods and delinquent payments so that developers don’t have to — but might with Stripe.
- Promotional offers: In the App Store, only 10 active promotional offers are available simultaneously. You also must be a current or prior customer, and every reward requires a confirmation dialogue with Apple and its payment flow. In addition, they’re hard to implement — between initiation and verifying eligibility, there’s just more work — so they’re not really an MVP.
- Subscription extension API via Apple: One way to get around promo code issues is with a new server-to-server API Apple created for subscription extensions — automatically. However, there’s a catch: It’s limited to two uses a year and a maximum of 90 days for each period (a consecutive 180 days isn’t possible). However, it is a better MVP as it allows accrual.
- RevenueCat promotional entitlement (again): Similar to Stripe, RevenueCat’s API is very easy to use for referrers, but — again — it’s not auto-renewing. That said, relying on a marketing force of free users who won’t subscribe could be a perfect strategy: It rewards free users without chaining them to the payment flow.
- Offer codes: Referrers can also benefit from offer codes, with limitations. There’s one code per active offer and up to ten active offers, for 150,000 codes a year. (A single-use offer isn’t a truly effective incentive.)
What you need to consider when building
When building your referral program for a subscription app, keep in mind the following:
- Start with an MVP, not the ideal end state: Remember, you want to get your app out there — use the rewards that are MVP-friendly first.
- Display the CTA in the right way: Avoid hiding the CTA in the settings, but don’t make it feel like an ad.
- Ensure App Review can test the flow: This especially applies to whatever flow you’re building. Make sure App Review can test it — especially for separate SKUs not visible in the app, which should be explained in the notes.
- Keep the referral program and its rewards limited to your own app: Don’t even flirt with offer-wall-type “referral” programs, which encourage rewards through downloading another app. Keep the referral program and its rewards limited to your app.
- Deferred deep linking is not tracking: Apple is clear that tracking entails a user downloading and installing an app based on an ad (if matched together). But if a user clicked a link from a friend for something inside an app they had to install to receive the linked offer, this isn’t gated by Apple.
- Generate a link that’s associated with the referrer: Use a deferred deep link, store data in subscriber attributes and as analytics events, and make it easy to share the link.
- Make the referee feel special: When they open the app, they should want to take advantage of the offer.
- Manual reward claiming: Forcing referrers to manually claim the reward prevents abuse and fraud and encourages investment and acquisition.
Always remember that referral programs should be implemented with other marketing efforts. While they can represent a sizable proportion of your acquisition mix, they need to be balanced as a whole to make your app a success.
This article is based on a webinar presentation between RevenueCat’s David Barnard and Branch’s Alex Bauer.