Fair Referral Programs for a Startup
#1
Fair Referral Programs for a Startup

I was looking into some good marketing strategies for a brand new company with a new product launch, and I read about referral programs for customers. I hadn't considered that before and actually does sound like a good way to get word of my company to spread while on a small budget. But I have some concerns about them that I can't seem to find answers to with Google.

What does a fair program look like? For the customer and my business? The money gained from the sale of products go first into paying off the debt and restocking the small inventory. Afterwards I need to shovel it into my other designs and product lines I want to start, which is expensive too ($1k for 2 prototypes per product line, over $5k for first 100 units). And that's just with the neighboring products (I develop and sell muzzle brakes), I have other ideas in both suppressor territory and ammunition that I want to work on. Long story short, money is going to be in very high demand to expand the company into many different lines that are proven but not currently met with an exceptional solution.

In terms of product cost, it will cost ~$50 to make the product and the sale price will be $90, so decent margins. Factoring in a referral program is where this gets messy. Instead of making $40 per unit ($4k per 100 units), I will be taking a drop in revenue to increase sales volume (which I have no idea on the volume of it to begin with, my local SBDC could not dig up any information). How do you balance the drop of revenue per product with increased sales? Like, say it is $20 off for the buyer, that means between 2 sales I made $60 instead of $80, while at the same time this product is a lifelong one that people only need 1 of per gun. So effectively two customers are crossed off the potential sales list (overly simplified and excluding multiple guns owned, future gun purchases, etc).

I was thinking about a $15 off your next purchase for a referral of a new customer that leads to a purchase and $15 off the order. But how fair is that deal? Would it be better to have $10 off the order while maintaining $15 off the next order? Or would the other way around help encourage the referral to buy it? Then what about the possibility of customers exploiting the system? Such as using alternative email addresses to keep getting discounts? Is there a counter to it, preferably that doesn't put a strain on an already tight budget?

I know this is a lot of concerns and questions, but any insight you can offer to making this a success is greatly appreciated!

submitted by /u/Homeboi-Jesus
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