It used to be that every once in a while, I'd get an email from one of the vendors I use--a credit card, a SaaS app, a subscription service--letting me know that, for a limited time, I could score some quick cash for referring a new customer.
I never once dug into my personal contacts, or copied the choppy sample text they thoughtfully pasted in for me to use, or even gave the idea another thought.
But lately, I'm getting all kinds of referral offers from almost every third-party service I use. In fact, I'm now making a not-insignificant sum from Medium from their new reader referral program. I haven't even had time to look into the program yet, let alone send an email or put a link somewhere. Money just showed up.
That's pretty awesome.
It seems like overnight, every company on the planet suddenly realized that the best place to find new customers is through their existing customers. Or maybe they just all at once decided that they should start paying for those referrals.
When does a customer referral program make sense?
I've been toying with the idea of customer referral programs for my business, Teaching Startup, for a while. I have a partner program already in place for organizations to give discounts to their own members, and that's been working OK, not great.
I haven't yet embarked on anything where my customers get paid to refer their peers. It seems like it might be time. The plan is drawn up and it'd be pretty easy to implement, especially since I've already got the structure in place.
At Spiffy, the mobile, on-demand vehicle care and maintenance startup where I'm head of product, we've had a customer referral program in place since before I got there (I was busy helping build another startup, which I eventually exited). That referral program works great, but it's a different business model.
Or is it?
Multi-level marketing or gig economy?
The real reason I haven't implemented a customer referral program for Teaching Startup is because I just need to get past the Amway-ness of it. For those of you who aren't as old as I am, Amway is a multi-level-marketing company that sells beauty, health, and home care products.
It was fairly popular in the 1980s, so much so that it had its own 1980s version of a meme: "How would you like to make money just by getting your friends to buy household products that they already use every day?"
Everyone knew that pitch and the company behind it.
Amway is still around today, now called direct selling, and it has probably influenced most of the modern direct-selling companies.
Today's customer referral program doesn't feel like MLM, but more like an outgrowth of the gig economy and the creator economy.
Most people who refer customers, actually the vast majority, likely make a couple bucks a month, the kind of quick "thanks, I didn't even see that cash" reward like I'm getting from Medium.
But there are almost always some industrious folks who will work the system like a second job, and make substantial money, and that's what drives the program. A company needs only a couple dozen super customers to equal the output of one less-than-stellar salesperson. And automation costs less than commission.
So yeah, maybe it is time to dive into customer referrals as a legit sales channel, build my own small army of super-entrepreneurs, and further my mission by reaching folks who probably need the product more than most. Entrepreneurs tend to hang around with other entrepreneurs, and our startups all have problems for Teaching Startup to solve.
But there's still one small catch, one that actually originates with the gig economy. And as an entrepreneur, you should be aware of it.
Are your referrers customers? Or sales people?
I'm working on a post right now about why it's never a good idea to imply that the vendors on your two-sided marketplace can make a living being your vendor. Companies from Uber to Fiverr to Clubhouse have been burned by blurring the line between side gig and full time gig, and it's resulted in problems both small (creators complaining publicly about being misled) to large (legislation around limits on contract employees).
So make sure you explicitly state that your referral payment is a thank you, not an income.
Because again, money for nothing is always enough of a lure--even if it only lures 1 out of 100, or 1 out of 1000, people into thinking that they can make real money being an amateur influencer for your product. You won't hear from them until they put in a lot of hard work, hit a wall, and get upset. They'll blame you, which, like I said, can lead to anything from bad publicity to lawsuits.
What most amateur influencers won't realize is that when there's enough people busting their butts to push a particular product, there simply isn't enough of a customer population at the end of the day for everyone to make decent money, let alone get rich.
I'm not saying that will happen with something as innocuous as your customer referral program, but the same kind of headache in a lower form could creep up on you.
Drawing the line between thank you and income
So if I wind up doing a customer referral program for Teaching Startup, and I probably will, I'll start by knocking off part of a customer's subscription fee until they get membership for free (because show me the entrepreneur who doesn't like free).
Then I might pay them for what they bring in. But that's still a special case, because my customers are entrepreneurs. They're already working on their own ways to make money, so I can be pretty sure they won't be relying on my program to make money.
Can you say the same? If so, then a customer referral program can be a very good thing. Just make sure you're not leaning too hard into the gig economy, or else you might wind up with volunteer amateur influencers without you even realizing it.