referral-incentive-design

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---
name: referral-incentive-design
description: Design the reward structure of a customer refer-a-friend program - who gets rewarded (referrer, friend, or both), reward type (cash, account credit, discount, product value, status), how much to pay against LTV/CAC and gross margin, when the payout fires, and whether to build a tiered reward ladder. Use whenever the user mentions referral incentives, refer-a-friend rewards, referral bonus amounts, give-X-get-Y offers, double-sided referral rewards, or asks how big a referral reward should be, even if they never say incentive. Covers end-customer rewards only. Do NOT use for commission rates paid to professional affiliates - use mbfinotti/partnerships-skills@affiliate-commission-structure instead.
license: MIT
metadata:
  author: Maya-Beth Finotti
  version: "1.0.9"
---

# Referral Incentive Design

Design the reward structure of a customer refer-a-friend program. No canonical named framework exists for this discipline - referral is one letter inside measurement funnels like AARRR, not a design method. What exists is four decision variables, each with its own evidence base, worked through in order because each shapes the next:

1. **Sidedness** - reward the referrer, the friend, or both (the Reward-Me / Reward-You / Reward-Both taxonomy, Ryu & Feick, _Journal of Marketing_ 2007).
2. **Reward type** - cash, account credit, discount, product value, status, or donation.
3. **Reward size** - anchored to gross margin, LTV, and CAC, with a floor set by non-monotonic response (a too-small reward performs worse than none).
4. **Payout trigger and tier structure** - when the reward fires, and whether rewards escalate with cumulative referrals.

## Interview

Ask before recommending anything. One question per message; offer multiple-choice answers when possible. Skip a question only when the user already gave the answer.

- Is the business B2B or B2C? Subscription or one-time purchase? Self-serve or sales-led?
- What are the gross margin, average LTV (or first-year revenue), blended/paid CAC, and entry-plan price?
- Do customers already recommend the product organically? Roughly what share of new customers arrive that way?
- Will the referrer plausibly buy again (account credit has value to them), or not (only cash-equivalents do)?
- For B2B: is the likely referrer the buyer, or an employee whose company pays?
- By what date must this show results? A hard quarter-end date promotes the fast rungs - a flat reward on a first-purchase trigger - and rules out ladders and retention-gated triggers, which need months to read.
- One-off acquisition win, or a compounding asset? Compounding promotes in-kind and status rewards, a tier ladder, and a retention-gated trigger; a one-off win promotes a flat friend-side offer.
- What is the effort ceiling: who builds and administers this, how many hours do they have, and can a published reward be withdrawn later? A low ceiling deletes swag, sweepstakes, and staged payouts outright; a dedicated owner puts the ladder back on the table.

## Workflow

1. Run the Interview above; collect every answer the structure depends on before designing.
2. Check the disqualifiers before designing. A referral program captures existing word-of-mouth; it does not create it. No organic referral signal, or an LTV too low to fund a meaningful reward, means the honest answer is "not yet" - say so and stop. Confirm the question is about end-customer referrals, not external affiliates or channel partners (different economics, different tooling; B2B programs tend to migrate from the former to the latter as ACV grows).
3. Decide sidedness, working from [references/sidedness-and-triggers.md](references/sidedness-and-triggers.md). Efficiency order: **friend-only > double-sided > referrer-only** - effort is identical across the three arms, so the value evidence decides, and field experiments found recipient-only rewards matching double-sided rewards that cost twice as much. Lead with fr