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I don't quite understand the economics of referral programs. I'm dealing with levels of customer support to get signed up for a $120/paying signup referral prog

I don't quite understand the economics of referral programs. I'm dealing with levels of customer support to get signed up for a $120/paying signup referral program (cash not credits). I don't understand a) How does this possibly make them money? b) If they want signups that much, why is the flow for joining the referral program so buggy? (It's Mailgun, btw)

WrtCdEvrydy 7y ago
a) You make money on people building large architecture on it, and running out of credits and relying on laziness to move it somewhere else. b) Because as long as some signups happen, noone is testing it.
- iudqnolq 7y ago
  > a) You make money on people building large architecture on it, and running out of credits and relying on laziness to move it somewhere else. My interpretation of their marketing pages is that they pay out referral payments in cash (actually SWIFT, but...) once a signup has something charged to their credit cards. So they can't rely on unused credits. And they lose money on every referred signup that makes them less than $120 in profit. This seems insane to me, because someone sending tens of thousands of emails to hundreds of people a year gets them less than half that in revenue.
jjeaff 7y ago
Simple, there is a lifetime value for a customer. As long as the referral payout doesn't exceed the lifetime value, it should be profitable. Although some undoubtedly pay more than the lifetime value of a customer as a "growth hack". This of course can't go on forever.
- iudqnolq 7y ago
  My point was it seems insane to me that the lifetime value of a customer who has billed something to a credit card would be over $120, especially in the space of Email as a Service. I would guess (without any knowledge) that it'd actually be closer to $12 because of all the people who try it out and then never continue. They take in less than the referral payout in revenue for a customer who sends tens of thousands of emails a year for five years based on their pricing page.
  - robryan 7y ago
    The big customers are probably so big that it makes the whole thing worth it.

WrtCdEvrydy 7y ago

a) You make money on people building large architecture on it, and running out of credits and relying on laziness to move it somewhere else. b) Because as long as some signups happen, noone is testing it.

iudqnolq 7y ago
> a) You make money on people building large architecture on it, and running out of credits and relying on laziness to move it somewhere else. My interpretation of their marketing pages is that they pay out referral payments in cash (actually SWIFT, but...) once a signup has something charged to their credit cards. So they can't rely on unused credits. And they lose money on every referred signup that makes them less than $120 in profit. This seems insane to me, because someone sending tens of thousands of emails to hundreds of people a year gets them less than half that in revenue.

jjeaff 7y ago

Simple, there is a lifetime value for a customer. As long as the referral payout doesn't exceed the lifetime value, it should be profitable. Although some undoubtedly pay more than the lifetime value of a customer as a "growth hack". This of course can't go on forever.

iudqnolq 7y ago
My point was it seems insane to me that the lifetime value of a customer who has billed something to a credit card would be over $120, especially in the space of Email as a Service. I would guess (without any knowledge) that it'd actually be closer to $12 because of all the people who try it out and then never continue. They take in less than the referral payout in revenue for a customer who sends tens of thousands of emails a year for five years based on their pricing page.
- robryan 7y ago
  The big customers are probably so big that it makes the whole thing worth it.