Think about the last time you were searching for an app. Then think about how you were shown at least ten apps to choose from for it – whether you’re on iOS or Android.

With the increasing number of apps getting launched in the app stores, a typical smartphone user has way too many options at hand. No matter how good your app is, another app might just take their attention away if its listing looks good!

In fact, app developers and marketers have been seeing a steady decline in their organic reach. What’s worse is that they have also noticed their cost per user acquisition rising by the day.

While some have the budgets for advertising on a mass scale, others struggle to keep up. While some are able to reach their ideal users, others see a lot of churn coming from the installs they were able to rack up.

Simply put, organic search and paid ads are important – but they’re losing effectiveness.

So what’s the one strategy that still works? Referral marketing. One of the most effective user acquisition strategies.

What is referral marketing?

Referral marketing, often referred to as word-of-mouth marketing, refers to nudging your existing users to promote your app in their network. The tactic includes them sending an invite to their friends and family to join them on an app they’re using, because they find value in it. But more importantly, the tactic involves offering these users a great experience so that they ‘feel’ like inviting their network over.

Let’s take an example. When Candy Crush came in, the game didn’t just hook your interest in a few weeks. It also resulted in you wanting your friends and family to join you in the game. So you would send them endless requests on social media.

While the requests did seem spammy after a point, the player and the app developer benefited from it two folds. The player got to enjoy in-app bonuses for sending referrals and the developer got word-of-mouth promotions without being too pushy.

In fact, the game’s referral marketing program has made it to the list of many growth hacks for apps.

Still wondering why you need a program of this type? Let me explain.

Advantages of having a referral program

1. Offers a low user acquisition cost

According to Nielsen, 92% of consumers trust referrals from people they know. So the recipient of an invite is more likely to install your app in one go – as compared to a new user who would need to be targeted with ads and retargeting campaigns. The only thing you do spend on or have to invest in, is offering a great in-app experience to your users and rewards to keep them motivated to invite more friends.

2. Reduces your app churn rate

No user would want to spam their friends and family. So you can be sure that most of your referral invites are going out to those who your users think will see as much value in your app. This addresses the most common challenge of user acquisition – reaching the right audience. Referral marketing uses word-of-mouth promotion to get you noticed by those who are more likely to install and enjoy your app, reducing your churn rate.

Referred users are 18% more loyal than those acquired through other channels of marketing. In fact, the lifetime value of a referred user is 16% higher than your average smartphone user.

3. Improves your retention rate

When your churn rate reduces, you get time to understand how users want to interact with your app. You get to learn about their expectations and how an in-app experience influences their interactions and app sessions. Using this data, you can actually improve the app’s experience for them, hooking them to what it offers.

This improves your app’s retention rate as well!

4. Creates a viral loop of acquisition

When your churn rate reduces, your retention rate improves. When your retention rate improves, it is indicative of how the users are enjoying the in-app experience. And when users enjoy what the app offers, they become more likely to invite their friends and family to it.

Simply put, you’re building a viral user acquisition channel.

But creating a high-converting referral program can be tricky.

Challenges in creating a high-converting referral program

1. Offering as many channels as the user wants

This is similar to how an online store offering multiple payment methods is likely to see more sales. If a user sees his preferred channel of communication with his friends and family in your referral program, he becomes more willing to send an invite. The easier it is for a user to send invites, the more active they are in sending them.

So your referral program needs to offer the usual social media channels like Facebook, Twitter, and even email. But more importantly, now it needs to also offer the ability to send these invites on chat apps like Facebook Messenger, WhatsApp, Kik, Kakao, and others.

2. Asking for referrals at the right time

Imagine installing an app just yesterday. And today the app is asking you to invite your friends and family. Are you going to participate in such a referral program? Absolutely not.

If you’re too pushy about getting users to participate, you risk losing them. But if you’re too subtle and wait too long, your referral program will not see much participation. The trick is to find a middle ground.

A few strategies that always help time your referral nudge well include:

• Focusing on engagement first: Remember that only an active user will feel the need to invite their friends and family to the app. So you need to make sure that you’re offering a great in-app experience to them and are noticing a higher number of sessions every day/ week.
• Introducing your program during onboarding: A lot of your users may not even discover your referral program. So consider including it in your onboarding – very subtly. For instance, let them know how to unlock a new feature, collect more coins, etc by inviting their friends.
• Incentivizing the referrals: Asking for referrals is like a give and take. You can’t expect your users to do something for you without doing something in return. So when you do ask for a referral, make sure you’re offering something of value to them. Unlock a special feature or a new level in return for instance.

3. Tracking the source of referral acquisitions

Another big challenge that most app developers and marketers face is being able to track their referrals in two ways. One, associated with users and which user is bringing them the most number of installs. Second, associated with which channel is being used the most, attributing which is the most effective and which they should be paying attention to the most.

Not being able to track this data is leaving an opportunity on the table for bagging more word-of-mouth promotions! Not being able to identify active participants and reward them can de-motivate them.

How to create a referral program that converts

1. Choose the right in-app referral program software

The very first step to creating a high-converting referral program, is choosing the right software. It shouldn’t just enable you to create a campaign in minutes, but also offer your users the ability to send invites across social media and the most popular chat apps.

You may also want to consider a software that at the same time, also enables you to track the performance of referrals closely. The insights provided should include understanding who and what drives organic installs for your app, invite channel performance, conversion through invite funnel, retention uplift and more.

Remember, the referral marketing software you choose should enable you to understand users and what motivates them to send more invites.

2. Promote your referral program proactively

Setting up a referral program isn’t enough. You need to be promoting it proactively to get your users to participate more. Be it through in-app promotions, online or offline promotions, you need to ensure it gets discovered by users.

A few tactics that have proven to work wonders for most apps include:

• Sending push notifications to existing users
• Promoting the program on the landing page
• Sharing the referral program details on social media
• Creating custom messages for social sharing via the app
• Setting up in-app prompts
• Promoting via email marketing campaigns (PS: You should try this Email Marketing Chrome Extension!)
• Running an SMS campaign for referral promotion
• Using mobile advertisements to reach a wider audience

Note: Your job isn’t over at promoting the referral program. Remember to also continually remind your users of the program to maximize participation using the above channels.

3. Maximize participation by offering value

A referral program is effective only when users are participating in it. But the only way to get them to participate is to make them see value in it – what they gain out of sending invites to their friends and family.

You could offer in-app points, coins or cash that a user can avail to unlock features or new levels. You could even set up a mechanism where a new level automatically unlocks when a user sends a specific number of invites – similar to how Candy Crush did it. To challenge your participants further, you could set rewards on the number of successful installs they drive in.

Note: If your referral program rewards users based on installs, you need to keep them in the loop to see their success.

4. Engage referred users from the beginning

While referred users are a qualified audience, you want to ensure they experience the app in a similar way as their friend did. The more personalized their experience is, the more engaged these users become and the WOW factor hooks them to your app instantly.

Here are a few ways to do this:

• Personalize the onboarding: Introduce the user to all the features of your app and how they can progress through different levels. Make sure you’re making it easy for them to discover features that they can put to use immediately.
• Leverage users’ relationship: Involve the referred user with your app immediately by connecting the dots between the user who sent an invite and the user who installed the app through the invite. This helps you create gamification instantly between two users, engaging them on a deeper level.

5. Analyze performance and optimize your program consistently

Don’t follow a ‘set it and forget it’ approach for your referral program. Remember to continually track its performance, understand what is working and getting you maximum participation and installs. This data helps you further improve your program based on user behavior and what motivates them.

A few quality checks that you must run simultaneously to track performance include:

• Number of participants
• Number of invites sent
• Number of installs generated
• Number of influencers engaged
• Status of incentives offered
• Fraud detection

Conclusions

Remember, setting up a referral program is easy. But promoting the program and getting your users to participate can be a challenge. So keep testing different strategies, measuring their impact on participation and installs, and optimizing your approach!