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Does every participant who refers at least one person to the website get entered in the Referral Contest? I would rather limit participation to people who bring in new signups.

No, only if you want it that way.  You can set up a referral contest that only credits someone with a referral when the referred person converts/purchases, or signs up on the site.  To do that you would just need to add the conversion tracking script to the thank you page, that way if they came from a referral link the participant would get credit for it.

 

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