DEEP DIVE

Growth via Referrals

Let’s first explore why investing in a referral program for your newsletter (or publication) is a worthy use of your time and effort. 

Aside from creating the best content possible (that should be a given), every newsletter’s next priority is growing their audience so more people can read their awesome content. The larger your newsletter audience, the more influential and prosperous the endeavor becomes. If you’re monetizing via ads or subscriptions, a larger audience more often than not correlates to more revenue. 

So we’ve arrived where most newsletters end up sooner or later—understanding the importance of growing your list and trying to determine the most effective and cost-efficient ways to scale your audience as quickly as possible. 

Popular options for growth include:

• Paid acquisition on social (think Facebook ads, Instagram, Google AdWords, etc.)
• Paid promotions (think influencer marketing, sponsoring other publications)
• Cross promoting your newsletter with other newsletters
• Content marketing (creating web content as lead gen)
• Requiring email sign-ups for events or E-books
• Word of mouth 

These are only a few of the more popular and scalable acquisition channels for newsletters, but you could realistically attempt anything from billboards, to podcasts, to sponsoring the NYC Subway Wi-Fi screen (I’ve tried all of these). 

Depending on the ambitions of your newsletter it’s likely you’ll delve into paid acquisition channels at some point, but you always want to remain mindful of the breakdown of paid vs organic acquisition. I’d consider organic primarily to be any subscriptions resulting from organic search or word of mouth.  Everyone knows how Google search works, so I’m going to focus the majority of this post on the latter—word of mouth.

Why Create a Referral Program

As a newsletter writer who spends a majority of your time creating the best content possible, the absolute best outcome could be readers recommending your work to others. In the sometimes opaque world of email, a referral shows a few things:

• The reader actually took the time to read your newsletter (opens ≠ reads)
• The reader genuinely enjoyed the content (otherwise why share?)
• The reader thinks others will also enjoy the content (indicating your audience has room to grow)

Not only is this a ton of positive affirmation, but that referral is another subscriber that you didn’t have to pay for. 

For the sake of simplicity, let’s ignore rewards (and their costs) and assume referrals are 100% free acquisition. If your average CAC is $2 per email, and you know 1 in 5 people go on to refer one person…that actually decreases your CAC 16% to $1.66. At scale, when you’re potentially spending thousands of dollars on paid acquisition, that makes a meaningful difference. 

I simplified that example in that each person who referred only referred a single person. Let’s say on average we keep the assumption that 1 in 5 people refer others, but of those who refer they refer an average of 3 people. That decreases your CAC 37.5% to $1.25. When normalizing and averaging your acquisition costs (combining both paid and organic) you’ve nearly cut your costs in half, i.e. each dollar is spent on growth is going nearly twice as far.

While that quantitative analysis is helpful, it’s truly only assessing the up-front acquisition costs, ignoring the actual quality of the subscribers. 

💡 Very important and necessary callout: Subscribers are just a vanity metric. Having 1,000,000 subscribers and 20% average open rate is much less appealing than 750,000 subscribers at a 40% average open rate. High level—the actual number of people opening (200,000 vs 300,000) obviously favors the latter, but there are also other externalities with respect to email deliverability where it’s in your best interest to prioritize a higher engaged email list.

When I was at Morning Brew, we performed a ton of cohort analysis breaking down the engagement (usually using open rates) for each individual acquisition channel over time. An oversimplified example to show what I mean:

• Facebook ads: 15% open rate
• Google AdWords: 22% open rate
• Referrals: 35% open rate

With rare exception, referrals were always one of the higher quality acquisition channels when measuring the actual engagement of the subscribers. It makes a lot of intuitive sense too—you refer people who you think would particular benefit and/or enjoy the content. As the social creatures we are, it also builds another web between you and the people you refer. Anecdotally, there are a few newsletters my friends and I all read, and we frequently discuss the content together. Not reading (or unsubscribing) removes that connection we have together and isolates me from future discussions. 

Examples of Successful Referral Programs

I’m partial to Morning Brew, where I spent 3.5 years of my life building cool tech and optimizing growth channels, primarily the referral program. The Brew’s referral program lead to well over 1 million subscribers, and continued to be one of the most consistent and effective acquisition channels month over month. 

If you take a look around at some of the largest newsletters today, almost all of them utilize a referral program turn incentivize their top readers to share: Axios, The Skimm, The Hustle, The Future Party, Punchbowl News, etc.

Why don’t more newsletters leverage a referral program to grow? Based on the countless conversations I’ve had with creators, I’d say it boils down to two primary reasons:

• Unsure what incentives and rewards align with their reader’s interests 
• Don’t have the bandwidth, experience, or skillset to build the tech to support a well-working one

Incentives and Rewards

Believe it or not, it’s very possible readers aren’t interested in wearing t-shirts and hoodies with your newsletter’s logo on them. Far too often I think people get lazy and immediately jump to the simplest thing Vistaprint has to offer—stickers, mugs, t-shirts, keychains, etc. Admittedly, Morning Brew benefited tremendously by building a brand their loyal readers identified with, resulting in a genuine interest in wearing Morning Brew swag.. but I’d argue that’s not the case for most publications. 

I’d recommend taking a step back and understanding why your subscribers signed up for your newsletter in the first place. From there, what tangential benefits can you provide readers that are a true value-add and something that would appeal to your audience. 

• If you were a finance and investing newsletter—perhaps you could offer “exclusive stock picks” for readers who have achieved 10 referrals
• If you’re a sports newsletter—maybe 25 referrals earns you 2 tickets to a game to see your favorite team
• If you cover crypto and NFTs—maybe you offer community tokens or early access to exclusive drops 

People signed up for Morning Brew because they were interested in staying up to date on the latest business stories, and benefited both personally and professionally from the content our team curated. If content is what they were extracting value from, why not offer more “exclusive” content as an incentive. We offered an exclusive Sunday newsletter only to readers who had at least 3 referrals, and it was a massive success. Before leaving Morning Brew, that exclusive list included well over 125,000 readers (that’s 375,000 referrals at a minimum). 

While you can hypothesize what your audience may be incentivized by, it’s also super helpful just to ask. Whether you include a few surveys in your newsletter, or identify your top 50-100 readers and ask them directly, there are plenty of ways to learn from your audience and understand what would entice them to share your content with others.

Position Yourself for Success

While our referral program acts as an extension of your team, providing the tech and infrastructure to help you actualize the true growth potential of your newsletter—simply flipping the switch and turning it on doesn’t guarantee success. You still need to:

• include rewards and incentives that align with what your audience wants
• be able to fulfill rewards in a timely manner to keep readers confident and engaged
• educate your reader’s about the existence of the referral program and close any knowledge gap 

Another common misnomer is that all referrals are free. While technically possible, if you have any physical rewards in your milestones, you need to account for those costs + shipping. 

One thing that we were very cognizant of at Morning Brew was ensuring our referral program was incredibly cost efficient:

• at 3 referrals we added people to an exclusive newsletter (zero marginal costs)
• At 5 referrals we sent readers stickers (sticker costs + shipping was sub $1)
• At 10 referrals we extended an invite to an exclusive Facebook group (zero marginal costs)

It wasn’t until 15 referrals where we shipped a more expensive good (either a coffee mug or a phone wallet). Meaning a reader who made 14 referrals costed us ~$1 (or roughly 7 cents per subscriber). Not only was 7 cents per subscriber a bargain, but as mentioned earlier, the quality of these readers were much higher than our average new reader. 

So what should you prioritize when building a referral program?

If you can offer digital goods (community access, tokens, more content, NFTs), you’re removing most of the costs associated with the referral program. 

If you’re offering physical goods, there are two primary approaches we’ve seen work best:

1. Handle fulfillment yourself. In the automated email reader’s receive when they achieve an award, have them complete a Google Form or Typeform to collect their address. Then whether you’re shipping from your house or using a 3rd party, you just handle the fulfillment yourself. Our fulfillment dashboard will help you manage and keep track of this. This is the workflow we utilized at Morning Brew.
2. Set up a Shopify store and sync with a dropshipping company like Oberlo or Printful (dropshipping means you have no inventory, rather when someone orders something these companies will print-on-demand and ship it directly from the factory). When a reader achieves a milestone, include a promo code in the automated email so they can select the reward in your Shopify store and checkout with the promo code. If you go this route, our automation settings allow for you to automatically mark an a reader as “fulfilled” given no further action is needed by you (since the promo code was included in the triggered email). 

Final Notes

Referral programs aren’t necessarily for everyone, and they’re not a silver bullet for growth. To be successful, it takes really understanding your audience and committing to continuous testing and iterations.

I’ll leave you with two last resources: 

1. At beehiiv we recently launched a fully integrated referral program for newsletters to take advantage of. It seamlessly integrates into your newsletter stack and is best-in-class. You can learn more about it here.
2. If you’re more technical and interested in custom building it yourself, here is my initial deep dive on referral programs and how we built and tested ours at Morning Brew.

Lastly, follow me on Twitter @denk_tweets for more content about tech, media, growth, and more.