Growth Newsletter #040

To get referrals to work, you need your incentives to check three boxes:

1. Your customer acquisition cost (CAC) must be less than the lifetime value of that customer (LTV). This is obvious.
2. The referrer's incentive needs to be desirable enough that your customers take action.
3. The referral's incentive needs to be desirable enough that they convert.

Different business models call for different incentives. Here's what we've seen work best:

• For B2B: Tailored personal rewards work better than discounts. A gift card to a local restaurant works better than 20% off your product since B2B customers are employees—they're more motivated by personal incentives.
• For Ecommerce: Discounts or cash offers work because there is a direct benefit to the customer. But your cash incentive needs to be significantly large enough to drive action. $5 off typically doesn't cut it.
• For SaaS: Offer greater access to your core product—that's what users come to you for. So give them more of it. E.g. Dropbox offers referrers more storage. 

If you run a subscription business, here's a tactic that can increase your LTV and ROAS (return on ad spend):

Offer discounts for groups.

Think of group discounts like Spotify family plans—users get a discount (say, 10% off) for joining your subscription together.

There are two key benefits:

1. Acquisition: Users are incentivized to bring in friends, since the initial users benefit from the discount. So the group discount becomes an acquisition mechanism.
2. Retention: Individuals within discount groups tend to cancel less frequently, since doing so would make their friends pay more. As a result, retention increases.

Bonus: If your store is built on Shopify, you can use an app like Skio to test this.

If you're building an audience on Twitter, consider this:

Growth on Twitter comes from retweets. Retweets get your content in front of completely new audiences, instantly.

We ran a poll to figure out why people retweet. Here were the top 3 responses:

1. To give kudos.
2. To signal which side of a debate they're on.
3. Save and bookmark for later.

So use this to build your audience on Twitter:

• Be concise and novel. People retweet to give kudos to novel, elegantly articulated ideas.
• State contrarian findings. People retweet to signal that they're on your side of the discussion.
• If you really know your subject, tweet step-by-step threads. People retweet to save longer-form content to reference again later.