Here's How Dropbox Copied Its Referral Program From PayPal

In its latest round of fundraising, Dropbox raised between $250 to $400 million dollars, which put the company at a valuation of ten billion dollars. $10,000,000,000!

At the time of writing, that makes it worth just slightly less than Pinterest + Snapchat + Uber combined.

Dropbox is often cited as the canonical example of successful referral marketing.

It's sometimes thought of as the greatest growth hack of all time... but they weren't actually the first kids on the block.

Just as Shakespeare imitated his predecessors, Dropbox wasn't actually being original with its referral program.

(They were actually following in PayPal's footsteps.)

But they did it so well that it would become what all other referral programs now aspire to.

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With referrals, Dropbox went from 100,000 to 4,000,000 users in 15 months.

According to founder/CEO Drew Houston, referrals increased signups by SIXTY percent, PERMANENTLY.

That's a 40x increase, or a doubling of users every 3 months.

In April 2010, Dropbox users sent 2.8 million direct referral invites!

Just try to imagine putting that sort of high quality reach into monetary terms. It would look like... ten billion dollars? :p

Referrals allowed Dropbox to bypass traditional ad spend ($233-$388 per customer for a $99 product).

If AdWords were their only means of customer acquisition, the business would've failed.

Not only did referrals allow Dropbox to escape death, it allowed them to avoid all traditional ad spend.

That in turn which would have allowed them to focus their resources on making a better product – further cementing their competitive advantage.

(NOTE: Want a referral program like DropBox? Try ReferralCandy, the referral program software trusted by 3,000+ businesses, including Jay-Z's Tidal.)

Here's Drew's take on their broken acquisition model:

http://www.slideshare.net/gueste94e4c/dropbox-startup-lessons-learned-3836587/18

Dropbox's clever incentive structure; was inspired by PayPal.

According to Drew, the referral incentive program was inspired by PayPal's refer-a-friend program.

While PayPal rewarded its users with cash, Dropbox gave extra storage space to both the referrer and the referees.

This was clever, because it invests the users in the product. It made sense for PayPal to give cash, because they're a payments company and need users to use their service to make financial transactions. Dropbox is a storage company, and they need their users to use their service to store stuff.

In both cases, the optimal currency is the lifeblood of the product. In World of Warcraft, the reward is in-game social currency, in the form of rare Mounts that can be shown off.

And in all cases, not only do referrals introduce new users to the product, they facilitate conversation which strengthens the brand.

A referral is a way of talking about a brand AND a valid excuse to talk about it more.

(NOTE: Want a referral program like DropBox? Try ReferralCandy, the referral program software trusted by 3,000+ businesses, including Jay-Z's Tidal.)

The Finer Details of Dropbox's Referral Program:

1. Bake your referral program into the onboarding process

The referral process was built right into the setup/onboarding process.  The signup was 6 steps, the last being "Invite some friends to join Dropbox".

2. Frame your referral program in terms of the benefit to the user

It wasn't positioned as "Invite friends" but "Get more free space". This is the key to some of the most successful referral campaigns we run at ReferralCandy.

3. Make it easy for your customers to help you help them.

Multiple ways to easily share: Via sending a referral email, email address book importing, post link to Facebook, Twitter.

4. Make the referral CTA visible and accessible.

The Social sharing was prioritized as the first option (above email in the UI).

5. Showcase the referral (and reward!) status clearly:

Everybody's a sucker for progress bars. User dashboard allowed users track the status of their referrals, which makes it fun rather than tedious.

6. Keep the viral loop strong – Ask for referrals in the "successful referral" email:

Did you mean recursion? Email confirmation of new free space when successful referrals were made had a call to invite more friends in the email.  Keep the viral loop going strong!

7. Appeal to influencers.

Power users loved publishing their invites to their online followers- it made them look benevolent and cool.

Airbnb's referral program, for example, had a single celebrity bring in over thousands of signups within the first month.

Always have a clear answer to "What's in it for ME?"

Read next: 24+ examples of marketing with influencers

Remember: referrals don't invent demand, they amplify it.

It's important to realize that the most important element of Dropbox's success is that it works really well.

In CEO Drew Houston's words, "Building a bulletproof, scalable, cross-platform cloud storage architecture is hard."

Dropbox eliminated all the unnecessary complications and clutter and focused on delivering its core competency really, really well.

Hey! Read our informative article on How 22 Successful Companies Fought For Their First Customers.