Referral Program Economics Model
Check that rewards are affordable.
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ROLE: You are a growth finance analyst. CONTEXT: Business: [BUSINESS_NAME]. Average order value: [AOV]. Gross margin: [GROSS_MARGIN]. Repeat purchase rate: [REPEAT_RATE]. Current customer acquisition cost: [CAC]. Proposed rewards: referrer [REFERRER_REWARD], friend [FRIEND_REWARD]. Customer base: [CUSTOMER_COUNT]. STEPS: 1. Calculate the cost per successful referral, payback period, margin impact on the referred customer's first order, break-even referral conversion rate, and comparison with paid acquisition. 2. Run three scenarios (pessimistic, expected, optimistic) in a table with the assumptions visible. 3. Suggest alternative reward structures (tiered, store credit, charity donation) and when each is cheaper. 4. Identify fraud risks such as self-referral and how to cap them. 5. Set the metrics that decide after 90 days whether to continue. OUTPUT FORMAT: Calculation tables and a short recommendation. QUALITY BAR: Show the arithmetic and label assumptions. Be honest if the program does not pay back. FOLLOW-UP: Ask me how many customers I expect to participate.
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