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referrals

Skill5 starsChanged 36 days agoMITView on GitHub

Use when designing or fixing a customer referral program for an online store — the headline offer, who gets what reward, how big the reward is, cash vs gift, and the pre-filled share message — e.g. "design our refer-a-friend program", "should the reward be cash", "how much should we give per referral", "write the referral share message", "referrals aren't converting".

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The file

Files
SKILL.md

Referrals

Design a referral program that gets more customers to refer and keeps referred customers profitable. The lever is framing: people refer because they think the friend will like it, and a reward aimed at the referrer's self-interest works against that.

When to use

  • The referral offer and headline; reward size and type
  • The pre-filled share message
  • A program with many referrals but low-value customers

When not to use

  • Reviews, ratings, or complaints → the reviews skill
  • Loyalty rewards for repeat purchase → the post-purchase skill

Inputs

Collect, or state your assumption:

  • Current headline, rewards for referrer and friend, reward type, share message
  • First-order margin (to size the reward)
  • Goal: more referrals, more conversions, or better-quality customers

Procedure

  1. Make the friend's benefit the headline. "Give a friend $20 off", not "Earn $20 per friend". Keep a referrer reward, stated second and smaller. Altruistic framing made people up to 60% more likely to refer at least once; total referrals rose 86%.
  2. Pre-fill the share message with one signal. Either "I already bought this" (+11% friend conversion) or "you can earn a reward for referring" (+53% onward referrals). Pick by goal. Never both. Separately from the persuasion signal, if the sender earns a reward the message must say so — a brief "(I get a thank-you if you use it)" — because US/UK advertising rules treat an incentivized recommendation without disclosure as deceptive; the studies predate this expectation.
  3. Reward in kind, not cash. A free gift, upgrade, or other non-monetary benefit over cash or a cash discount; store credit as the fallback. †
  4. Cap the reward size. Higher rewards raise volume but pull in poor customers: when an online bank raised its reward from €20 to €50, profitability of referred customers fell 48%. Sizing against first-order margin is a conservative practitioner policy, not the study's finding — with strong repeat value a larger reward can still pay; if you use lifetime value, use incremental profitability of referred customers. †
  5. Pay out after the friend's return window closes. (Hygiene, not a study finding.)

Output

Program spec

ElementValueWhy
Headline"Give a friend $20 off their first order"Altruistic framing: +86% referrals
Friend reward$20 off / free giftFriend's benefit leads
Referrer rewardFree [upgrade/gift], shown secondNon-monetary; secondary
Reward sizeBelow the margin on a first orderHigh rewards → −48% profitability
Payout timingAfter return windowHygiene

Share message (one signal):

"I bought [product] and think you'd like it — here's $20 off your first order: [link] (I get a small thank-you if you use it)"

or, if the goal is chain referrals:

"Here's $20 off [product] — and once you've tried it you can give friends $20 off too (I get a small thank-you for sharing this): [link]"

Common mistakes

  • "Earn $50 cash per friend" as the headline — lead with the friend's benefit.
  • A share message with both "I bought this" and "you can earn too" — one or the other.
  • Raising the reward for volume — referred-customer profitability drops.
  • Cash payouts — gift, upgrade, or at minimum store credit.

Quick reference

ElementDo
HeadlineFriend's benefit first, referrer reward second
Share messageOne of: "I bought this" / "you can earn too"
Reward typeGift or upgrade > credit > cash
Reward sizeModest; cap against first-order margin
PayoutAfter return window

† No primary citation on file for this rule — a practitioner tip, not a measured finding.

Evidence and effect sizes: see reference.md.

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