pay referrers in cash, the way paypal did

the play

Pay both sides of a referral in something with a known value, like cash or more of the product. The person referring knows exactly what they’ll get, and the friend has a reason to say yes.

what happened

PayPal paid people to join and paid them again for every friend they brought. Peter Thiel in Zero to One: “We gave new customers $10 for joining, and we gave them $10 more every time they referred a friend.”

PayPal
the bonus	$10 to join, $10 per referral. PayPal’s IPO filing says bonuses ranged from $5 to $10 each side
users	100,000 by early February 2000. 1 million by mid-April 2000
growth rate	Thiel has described it as about 5 to 7 percent a day, compounding
the wind-down	the bonus dropped to $5. the filing says new US customers then had to verify a bank account, fund it by bank transfer and sign up for PayPal’s money market fund to get it

Dropbox copied the idea with a twist. Drew Houston’s slides say the referral program was “Inspired by PayPal $5 signup bonus”. Dropbox paid in free storage for both sides, a reward its users could put a value on.

Dropbox
users	4 million by January 2010
referral invites	2.8 million sent by users in the 30 days to April 2010
the reward	free storage for both sides. 500MB per referral on the free plan today

why it works

lever	what it does
a known value	$10 is $10. the referrer knows what they’re getting before they send the link
both sides win	the friend gets paid too, so the referrer is handing over a gift
it compounds	each new user can refer, so every cohort brings in the next
you can do the maths	a fixed bonus is a fixed acquisition cost. you can compare it to what a user is worth

from my calls

figure out how to get more referrals without incentivizing them with points.

whoever signs up they get 10% discount and you get 20% commission.

Points have no known value: “people can expect anything in points”. Nobody knows what a point is worth, so everyone assumes it’s worth more than you’ll pay.

A trading-tools team got its first paying users from the founders’ own trader groups, plus a paywall after a few free queries. Free enough to try, paid once it proved useful.

Middlemen and agencies are referrers too. I tell founders: “don’t tell them to do your dirty work… what are they getting in return?” Give them a commission they can see.

cost vs payoff

	what
cost	real money per user, on both sides
cost	fraud. people sign up fake friends to collect the bonus
payoff	PayPal went from 100,000 to 1 million users in about ten weeks
payoff	a fixed, known acquisition cost per user
payoff	users who recruit for you

how to steal it

	crypto app	consumer app
the reward	USDC or a fee rebate to both sides, paid once the friend deposits or trades	cash, credit or a discount to both sides
the split	e.g. the friend gets a discount, the referrer gets a share of fees	e.g. the friend gets a discount, the referrer gets a commission
the trigger	pay on a real action, like a deposit above a threshold or a first trade	pay on a real action, like a first purchase
for middlemen	a commission per user they bring that stays active	a commission per paying customer
measure	referrals per week, cost per retained user	same

Run it like this:

Pick a reward with a known value. Write it in dollars.
Pay both sides.
Pay only on a real action, so fake signups earn nothing.
Track cost per retained user, and cut the bonus once the network sells itself.

watch-outs

watch-out	what to do
fake referrals	pay on a deposit, trade or purchase. PayPal later paid only users who linked a bank and funded the account
it gets expensive fast	set a budget and a date to step the bonus down. PayPal went to $5
points with no clear value	people “can expect anything in points”. price the reward in dollars
bonus hunters (crypto)	require a minimum deposit and a holding period before payout