Creating a Referral Engine for Your Startup

This post is recap on some of the highlights from a how-to created by Ilya Lichtenstein of mixrank.com. I feature some of the most impressive startup strategies we encounter at StartupPlays and share them free, here at StartupNorth.ca. Enjoy.

We recently did some work with a brilliant young guy named Ilya Lichtenstein from Mixrank.com, a company which has seen early investments from 500 Startups, Y-Combinator, and Mark Cuban. While in college Ilya was working side jobs with startups and getting deep into the affiliate marketing world. He grew a $300 investment into six figure revenue numbers in his first year. He has applied the behaviours and characteristics of major affiliate programs and adapted them to  smaller scale customer referral programs for startups, this is his “best practice manual for building a customer referral program”:

Major Affiliate Programs

Websites like Amazon and Netflix have elaborate affiliate networks anyone can join and receive an affiliated commission from a signup or purchase on their websites. This works because these companies have determined some of their most important baseline metrics, things like:

  • Cost per acquisition of a customer
  • Lifetime value of a customer
  • On page conversion rate
  • Variants between traffic sources
  • Cost of buying traffic within the industry
They use these metrics to determine what affiliate commissions they can set for the business to turn the channel into a profitable one. If affiliates can purchase traffic at a cheaper price than the payout (typically between $0.50-$4.00 per click) then the program is sustainable. You’ll need to determine what these numbers are for your startup, even if you ball park it, here is an excel template that will help you do it.

How Building your Referral Engine is Different

A customer referral engine is a lot like an affiliate program only scaled down and involves much higher participant engagement. Building a referral program is not for the light of heart but has massive payouts for everyone involved. When creating a referral engine you won’t want to label participants “Affiliates”, but instead something like “Partners”. Your “Partners” will be composed of two segments:

  1. Existing Users
  2. Content Producers within your Niche

Existing users are easy advocates since they’re already familiar with your brand and understand your offering. Incentivizing them to tell others what they may already be telling people is a win-win.

Content Producers within your niche have clout and often an engaged audience on the web, they may even be looking to monetize their content and this provides them with a non traditional medium that has higher revenue potential and that sucks a lot less than one site ads.

Compensating your Partners

As an early stage startup your base metrics probably wont warrant a direct flat fee compensation for a new lead, you’ll be compensating partners in your referral program based on a percentage of or flat fee per paid conversion. Be careful to avoid revenue share in perpetuity, this may hurt you down the road when approaching investors. Major Affiliate programs will payout anywhere from  $30-$40 for a credit card submit on their site (this is what you’re aiming for). If you have the ability to set up coupon codes on your website, give your partners a custom coupon code, this instantly creates a value add for their audience and makes it easier for them to share with people they know. (People LOVE sharing deals)

  1. You’re an e-commerce vendor: Give partners a commission on each sale they drive.
  2. You’re a SaaS vendor: Give partners straight cash per transaction, if your offering is tiered your affiliate commission can be as well.

When you setup an affiliate program you are effectively sharing the risk and the reward.

If your sales funnel is: visit page -> email submit -> purchase

You can compensate affiliates for either the page visit, the email submit, or the purchase. You will need to compensate the affiliate more for actions that are further into the funnel, as you are placing the risk on the affiliate to convert the user. If you compensate them at the start of the funnel, you can pay them less and the risk is on your side to convert them.

You will need to determine the right risk / reward ratio to determine which action will be most profitable – and attractive – for both you and the affiliate.

Tracking Referrals

You need to use a third party to track referrals, this guarantees no foul play on your side ands building confidence in your program into your program. It also helps limit fraudulent activity, you can review partners as they apply, and send payouts once customer payment has been confirmed on your end.

Here are some third party services you can use to set up a program like this:

  1. Zferral - I prefer Zferral to others because of its ease of use, and support. If you’re having issues with setting up you can use their support centre to screencast your issue and have it resolved within a few hours.
  2. HasOffers - Custom referral programs, easy setup.
  3. LinkTrust - This is a costly alternative, but is the undisputed gold standard within the industry.

White Glove the Entire Program

Send your partners a monthly recap, keep them updated on how other partners are doing, and how the program is a smashing success! It will keep them involved and give them a benchmark for how well they can do, and how much money they can make by being part of your program.

The customer referral engine is a win-win channel for driving online sales generally untouched by most early stage startups. If you have a startup that could benefit from a referral program, talk to us in the comments!

photo credit - armando cuéllar

CIX Top 20 – 2012

CIX Top 20 Canada's Hottest Innovative Companies

We’ve written about CIX Top 20 Follow @CIXCommunity in 20082009, 2010 and 2011. So you’ll be shocked to find that I’m writing about it again in 2012.

What is CIX?

“The CIX Top 20 is an elite index of the most forward-looking companies in the Canadian innovation ecosystem, and connects the key players driving technology-based business both in Canada and beyond.”

Who should apply?

“The CIX Top 20 is open to any Canadian company working in Digital Media or Information and Communication Technology with annual revenues under $10 million.”

Why do you care?

These are some of the leading companies in Canada. Don’t believe me, past participants include:

Alright, there probably is a correlation between the success of these companies and their CIX submission and attendance. But CIX is an amazing opportunity for Canadian startups to generate attention, drive awareness with investors and media, get input and feedback in a safe environment and start to build connections.

You miss 100% of the shots you don’t take.” Wayne Gretzky

Nothing is foregone conclusion, as in past performance is not an indicator of future success. But you can’t win if you don’t apply (follow the directions on the bottom of the page).

We want you! – Looking for contributors

Finish Line, CopperDog 150, Calumet, Michigan by Lina Blair (linainyoop) on 500px.com
Finish Line, CopperDog 150, Calumet, Michigan by Lina Blair

I was talking to April Dunford . It’s was a private message, so I am hoping April will forgive me for sharing, but it indicated how Jonas , Jevon and I have felt about our role and the role of StartupNorth.

“We’re all making this shit up on our own when we should be sharing best practices.” April Dunford

We can talk about how Toronto is broken, as long as “this is not a complaints department, but a solutions playground” (great quote from Mark Kuznicki at the first TransitCamp in 2007). When we started StartupNorth in 2007 because there were not a lot of people talking about high potential growth, emerging technology companies and emerging business models (if it is easier, you can think venture backable technology startups). There was a lot of great technology companies being built in Canada. We wanted an easier way to bring together people who were interested in the new companies and the ecosystem to support them.

“We launched TechStars NYC with the goal of enriching the New York City entrepreneurial ecosystem; tapping into the rich resources and energy of NYC and galvanizing the community through mentorship.” David Tisch

We launched StartupNorth in 2007 after 2 years of a completely unorganized effort (that supposes that this effort approximates organized vs the anarchy that it is) of hosting events like BarCampToronto, DemoCamp, a public Skype chat, and a Google Group. We didn’t have a fund. This wasn’t our full time jobs. We’ve never thought of StartupNorth as a high potential growth technology business. We thought of it as a way to help other entrepreneurs like ourselves. We tried to build what we thought was missing.

  • Funding in Canada
  • Getting access to foreign markets
  • The amazing talent in Toronto and across Canada
  • Events that bring together others interested in the same space to enable collisions (finding cofounders, hiring employees, business relationships, potential mentors, etc.)
  • Events like StartupEmpire, DemoCamp and StartupCamp

We are contributors to both the solutions and the problems that exist. But that doesn’t mean we can’t contribute.

We are Canadian entrepreneurs.

Back in 2008, Jevon told us about “how startups will save venture capital in Canada“. You can look at the recent acquisitions (including Jevon’s GoInstant) are providing liquidity and bigger better investment opportunity. (OMERS Ventures has participated in rounds totalling >$112MM in the past 2 weeks alone: $80MM Desire2Learn, $20MM Vision Critical, $12MM Hopper Travel). Canadian entrepreneurs

We want you!

We are looking for new contributors to StartupNorth. We don’t want puff pieces. We don’t want press releases. We want to highlight Canadian startups, founders and technology. We want interesting stories. Let me help all y’all, launching is not an interesting story. I’d like to see posts on:

  • Cost effective solutions to common back office problems, tell us about how your financials, payroll, A/R works.
  • Look at the Upverter Under-the-Hood article and tell me about your infrastructure, personally I’d love to hear about Hopper’s Hadoop or Wave Accounting, etc.
  • Marketing automation and optimizing customer engagements. What tools are you using?
  • We’ve heard about Facebook’s Growth Team and their decision making, what about Freshbooks? Or Dayforce?
  • The impact that CRTC and Competition Bureau rules have on Canadian startups? I’d love to get Michael Garrity to tell the Community Lend/FinanceIT story. But there are more.
  • Examples of effective use of Facebook, mobile or other early customer marketing

This list is no way comprehensive. There are lots of interesting stories. Got an insight, tip, cobbling together of tools that can help startups save money, grow faster, go further. We want to share. As April said, “We’re all making this shit up on our own when we should be sharing best practices.” and we want to help share.

Just send me an email (davidcrow at gmail ) with a draft of your post. I will read, provide initial feedback, socialize with Jonas and Jevon and then we will set up an posting schedule.