Building a referrals program

Lenny Rachitsky answers a reader's question about building referral programs for marketplaces, drawing on his experience leading supply growth at Airbnb, where the host referral program became the biggest driver of attributable supply growth. He explains what a referral program is, why it is efficient and scalable, and who should invest in one, noting it works best when word-of-mouth is already strong, users know many potential users, incentives are meaningful, and the product requires trust. He walks through Airbnb's three phases of building the program, the metrics used to track it, levers for optimization, and practical pro tips around pitching, cannibalization, data science, incentive plateaus, and fraud. The piece matters because it gives a concrete, experience-based playbook for a growth channel that many teams underrate.

01Key takeaways

• Only invest in referrals if word-of-mouth is already strong; referrals amplify existing momentum rather than creating it.
• Do the math on conversion rates against your user base to confirm a referral program can drive meaningful growth.
• Offer an incentive users actually care about, possibly non-cash, and check it against your CAC and LTV.
• Repeat the referral pitch across the product experience instead of relying on one-off campaigns.
• Account conservatively for cannibalization, since many referred users would have signed up anyway.
• Make fraud more expensive than its payoff, especially as incentives grow larger.

02Key sections

What and why referral programs

Referral programs reward existing users for bringing in new ones and are typically self-service and built into the product. They can drive a large share of growth at the right companies and are often more efficient than paid acquisition.

Who should invest

Referrals work best when word-of-mouth is already strong, the user base is large, incentives are compelling, users know many similar people, and the product needs trust. Enterprise-focused products are less suited.

How Airbnb built its program

Airbnb evolved its program in three phases: launching a simple incentive, optimizing discoverability and messaging for guests, and then expanding to hosts with a stronger cash incentive and personalized rewards based on expected lifetime value.

Metrics and optimization levers

The team tracked output metrics like new listings and bookings from referrals alongside input metrics like invites sent and invite-to-signup conversion, and optimized eligibility, discoverability, motivation, conversion, and efficiency.

Pro tips and pitfalls

Pitch referrals at every touchpoint, be conservative about how many referred users are truly incremental, involve data scientists early, expect incentives to plateau, and design against fraud.

03From the post

“Hello and welcome to another edition of my weekly newsletter! My name is Lenny, and each week I tackle reader questions about building product, driving growth, working with humans, and anything else that’s stressing you out at the office. Send me your questions (just reply to this email or DM me) and in return I’ll humbly share actionable free real-talk advice. 🤝 Q: I was wondering if you had any advice for building referral programs for a marketplace. I haven't found great content on this and I’m guessing you have some advice to share on this. I do indeed! I love referrals programs so much. While leading the supply growth work at Airbnb, one of the teams I oversaw built and scaled the host referrals program. The team (made up of folks much smarter than I) took it from a nascent half-functional program to the single biggest driver of attributable supply growth. Not only that, it quickly became the most efficient paid-growth channel AND drove the highest quality supply. So, yeah, I love referral programs. Since I haven’t written much…”

04Frameworks mentioned

Summary and takeaways written by PM Atlas; quotes are short excerpts. © the original author.