The Marketing people don't want you to know about what I will reveal in this article. Referral Systems are not what they seem to be, and this information what I will reveal to you here will shock you.
Referral Systems stand at the root of many scams, ranging from MLM schemes, to HYIP schemes, to Ponzi Schemes, and pretty much all other dirty marketing websites. And not just scams, but legitimate businesses rely on Referral Systems as well, although they might not give you 150% commissions, but only like 1 or 2%, still most online businesses rely on them.
In the crypto world, everyone knows about Referral Systems, almost all Bitcoin websites offer them. Also many gambling websites enjoy this feature, not just cryptocoin gambling but even real physical casinos offer them.
It is technically an advertising/marketing technique, where the business website relies on free advertising to promote themselves. Many fools will start spamming their Facebook and twitter with affiliate links, and the business website will get free and good traffic, possibly new customers, so they will reward the promoters with a % share of the profit they make off their referred users.
In my opinion referral systems are scams, or in best case scenario high risk gambling where a lot of promoters lose their money. (I will explain why, in this article)
The business website basically outsources advertising costs and relies on fools to promote their business instead of them. Now if they just spam Facebook with their affiliate links, then the worst that can happen is that they waste time, and their account gets banned.
However social media spamming is so 2008-ish, that it won't last very long and you will get banned quickly. Instead the promoters will spend their, own money to promote their affiliate links.
And this is what you see on major Bitcoin advertisers: mellowads.com , bitmedia.io , a-ads.com , btcclicks.com and the rest of it.
Everyone is promoting their affiliate link of scam websites, and even if it's a legitimate business, they still get screwed over. The only people that make money in the referral business is the advertiser networks mentioned above, and possibly the websites being advertised (since they spend 0$ on advertising, and rely on others to spend it for them, so they can only gain and not lose).
This is the truth, many people get sucked into this, the 70% commissions/referral sound juicy, and everyone starts spending money to get as many referrals as possible, not knowing that they will probably get few referrals, and lose all their money.
How do I know this for sure? Because I did the same. I used to advertise referral links of Bitcoin gambling websites, and about 2 BTC of my money went down the toilet, I barely got 0.05 BTC profit from the referrals. It is a deadly business.
Now of course there are exceptions, I have heard some people making big money (5000$+/month) by advertising cloud mining websites with appealing Youtube videos and and a "review" website. Yea, you might get higher conversion rates there. But still, in my opinion this is a scam, either you get scammed, or the people you refer will be (if the website itself is a scam).
Let's just take this casino for example: https://bitvest.io
They offer a multi-tier referral system with 3 levels, where the first level earns 20% commission, second level 10% and third 5%. And if you are a novice, you will think:
Hmm, if I recruit only 50 people and everyone else below me recruits another 10 people with him, then I will have 50,000 referrals, and I will become rich :D
Yes it would be exponential growth:
Your Total Referrals = Your Recruits * ( Their Recruits ^ Referral Level )
But reality will bite you in your arse, and your grandiose plans will fail, since there is an
Exponential Decay at every level, and you can see this perfectly at Bitvest's statistics:
| Type | Numbers |
|---|---|
| Level 1 Referrals | 15,401 Users |
| Level 2 Referrals | 2,523 Users |
| Level 3 Referrals | 865 Users |
| Level 1 Profits | 1.31448429 BTC |
| Level 2 Profits | 0.38843161 BTC |
| Level 3 Profits | 0.07847713 BTC |
So the number of referrals at each level does decay significantly, and so does the profit that you earn from the lower tiers.
The exponential decay formula:
Where N0 is the first value, e is Euler's constant, t is the number of the referral level in our case, and λ is the decay rate, which is a custom number, the Eigenvalue of the function.
So by computing it in a spreadsheet (I assume λ=1 since I'm lazy to estimate it): =FIRST_LEVEL*EXP(1)^(-REF_LEVEL)
We get: 2084.29 refs for LV2, and 766.77 refs for LV3, which is a pretty close estimation.
And for Profits: 0.1778 BTC for LV2, and 0.0654 BTC for LV3, which is a decent estimation.
So in conclusion we see that referrals decay exponentially at every level, and one has to be very naive to think that your referrals will just multiply out of thin air. You would have probably wasted a lot of BTC for advertising in vain, hoping for big referral profits, but as you can see profits shrink at every level, and the quality of referrals is also questionable.
These advertising networks serve you a healthy dose of bot traffic, or just simple wrong target audience, or just people who are not interested in it.
In my opinion advertising your referral link is not profitable, I have tried it and failed multiple times, I have seen people make money from it, but for all I know it's just gambling.
You are free to disagree with me, this is just my opinion, so let me know what you think in the comments below!
Image Credits:
https://duckduckgo.com
http://btcclicks.com
https://bitvest.io
https://en.wikipedia.org