The course of true love never ran smoothly, as Shakespeare once said. The fact that there are over 8,000 dating sites around the world dedicated to bringing people together is testament to the fact that – even in 2021, with the most advanced matching algorithms – finding a partner isn’t easy.
But while dating app users are often looking for that special someone, the marketing managers of these apps need to attract millions of people. And like many network businesses, dating sites face a dilemma: grow the network or increase revenue? A networking business must be successful, of course, but to attract new users, dating sites often trade revenue to increase membership by trading access to premium features as a sort of commission for a successful referral.
Unfortunately, the value of these referrals is not always clear. Although dating app algorithms are good enough that in 2019, 39% of all couples in the US said they met online and in 2020, 270 million adults worldwide subscribed to a dating site (almost double the number from five years ago), most sites do not have a clear idea of the profitability of referred customers versus friends who invited them to join the site. Ironically, given the data-driven nature of the business, dating app marketers typically have to guess whether new members recruited by friends who already belong to the site will be less active on the site and less interested in paying. for premium features.
But that can change. As a dating site for young professionals, we’ve often faced this trade-off too – and we’ve decided to tackle it in a novel, data-driven way that takes the guesswork out of striking a balance between revenue and the scope.
Fix the freemium flaw
Like many network companies, the site operated on a freemium model – free use of basic functionality, subsidized by users who pay for premium plans. But to encourage growth, the site has also encouraged users to introduce friends to the site in exchange for free access to those special features which are ultimately intended to be the site’s profit center.
This creates a dilemma for most dating sites. A social referral offer generates referrals from users who would not have paid for the premium features, thereby increasing the number of users of the low-cost platform. It also attracts referrals from users who would have paid but had the option, prefer to work for their subscription, generating more referrals but fewer paying users. Additionally, the number of successful referrals users must complete before they can access premium features (known as the referral threshold) can have significant effects on user behavior. For example, if referrers end up inviting people who are less likely to subscribe to premium features, their addition to the platform could harm the value of the community in the long run.
We wanted to know if it would be possible to design referral programs so that they could balance growth without reducing the profitability of their user base.