Whether you know it or not, you’re playing a game of trust with customers. And if you’re a savvy marketer, you’ve probably unlocked a powerful cheat code – referral marketing.
According to a much-referenced Nielsen report, 92% of customer trust recommendations from friends and family above all other forms of advertising.
But you can’t just rely on word-of-mouth marketing. Even if your most ardent fans are willing to spread the gospel of your product, they don’t always follow through. So, you need to be deliberate in harnessing their praise.
This guide will show you how to achieve that by creating a successful SaaS referral marketing program.
What is a SaaS Referral Program?
A SaaS referral program is a marketing strategy software businesses use to reward existing customers every time they refer their products and attract new customers.
Referrers share a referral code or link with friends, family, colleagues, and social media followers and receive rewards when a new customer (referee) signs up for your product/service using their code.
Rewards vary, from discounts and free upgrades to cash and branded merchandise. We’ll delve more into these incentives later.
Launching a SaaS Referral Program: Pros & Cons
Although referral programs are mostly good, they also come with a few drawbacks. Here are the pros and cons of running a SaaS Referral program.
SaaS referral marketing is a cost-effective marketing strategy. Unlike costly online ads, you attract highly qualified marketing leads, reducing the number of resources spent on qualifying and converting the leads. Moreover, you only pay for successful conversions. This further reduces customer acquisition costs (CAC).
Customer retention is just as critical to SaaS business growth as customer acquisition. Referral programs reward loyal customers, keeping them happy and increasing their customer lifetime value (CLV). Retention rates also compound because referred customers have a 16% CLV rate higher than non-referred customers.
Referrers tend to recommend products to like-minded people, i.e., highly-qualified leads. The impact of this recommendation increases the chances of conversion significantly. A report by McKinsey says this can boost chances of conversions by up to 50 times compared to recommendations from strangers.
So, why do only 30% of companies have a formalized referral program despite these benefits?
Many startups and early-stage SaaS companies don’t have money to invest in and manage a robust referral program. On the other hand, established businesses may prefer to spend their software marketing budget on other activities because they have corned their niche market.
Another disadvantage of referral programs is the value of the recommendation decreases when referred customers know the business is rewarding the referring customer for promoting them. The quality of referees may also suffer if referrers are motivated by collecting as many rewards as possible.
What Are the Most Effective Referral Channels
The success of your customer referral program will depend on the marketing channels you choose to reach potential customers. Emails, social media, your website, and software apps are some of the best distribution channels for referral marketing.
Some referral channels are more effective than others depending on your business.
For example, marketing channels built for relationship building, such as account-based marketing and events, can help you spread the word about your program among enterprise customers. You can then provide them with convenient ways of making referrals, like email.
In-person events like SaaS conferences are also rated the most effective channels by B2B marketers.
For small to medium-sized businesses (SMBs) focused on growth, email, social media, and SMS may deliver better benefits.
How to Launch Your SaaS Referral Program
Launching a successful referral program isn’t that complicated using the following steps.
1. Conduct Preliminary Research
Research at the start will save you time and money. It’ll help you create a SaaS referral marketing program that aligns with your business goals and resonates with your existing customer base.
You should ask yourself what you hope to get out of the program. Are you looking to drive growth or customer retention?
The answer to this question will determine which metrics you use to monitor program success. Understanding your goal will also help you structure the program correctly.
An excellent place to begin your research is your competitors. What incentives are they offering and why? What referral channels are they using?
Take note of overarching industry characteristics. Let’s say you’re in an industry that requires relationship and trust-building. This may mean relying on your super users (loyal customers who understand your product extensively) to refer your software to their networks.
2. Who Will You Be Targeting
You can use super users or regular existing customers to promote your brand through referral marketing. Influencer marketing is another option, with 83% of marketing professionals believing it to be an effective form of marketing.
The target you choose will impact your program differently. For example, existing customers are familiar with your product and do a good job evangelizing to their peers. However, you’ll have to describe the type of leads you’re looking for so neither of you becomes frustrated.
On their referral page, Square specifies referrers earn rewards for new businesses that’ll start using the platform to process payments.
You should specify how the program works and when the referrer gets their reward.
If you pursue strategic partnerships with industry influencers, you can piggyback off the trust they’ve built with their followers. Industry influencers can be super helpful if they’re already using your platform.
For example, an email marketing platform may target an industry leader who uses its platform. Think about the partnership between Shopify and Mr. Beast, for example.
The challenge here is you may need to come up with a different reward system for them.
Industry leaders and influencers have a much larger influence and a well-established reputation. Chances are they’ll need more than just subscription discounts, credits, and free upgrades. Cash compensation may be in order.
3. Determine the Referral Process
With your goals defined and suitable advocates identified, you can create a process to manage referrals. In other words, what are you going to do with the leads?
It isn’t a foregone conclusion that referrals convert on the word of their peers. Remember, your existing clients are doing you a favor by pitching your product to their network. It’s not their job to convert leads.
You have to figure out how referrals fit into your sales funnel. What kind of content will you include with the email or social media links? How will you follow up on referrals? Is an inbound marketing strategy enough, or do you need a hybrid approach like ABM to close the deal?
Ultimately, most of this comes down to your customers. If it’s enterprise customers, you want to use account-based marketing. This should help you handle the customers much better to win those big contracts.
For SMB customers, ABM might be too expensive. So you can rely on content marketing, landing pages, and email marketing to nurture the leads, make the necessary follow-ups, and convert them.
4. Set Incentives
Effective referral programs provide valuable incentives to referrers. Common rewards include:
- Subscription discounts
- Extended free trials
- Free upgrades
- Software credits
- Branded merchandise
- Referral fees
After your research from the first point above, you should know your customers and what motivates them. But don’t forget your revenue goals. Incentives like unlocking new features can help you get more value from the program. Besides being a valuable reward, such an incentive also increases the chances that your customers will upgrade their plans eventually. This is what Trello does. I’ll take you through their program in a bit.
After you’ve decided on the referral incentives, build a reward model that defines who gets rewards and when. We’ll touch on this in the next section.
5. Promote the Referral Program
With the key elements in place, you can now launch your program. Create a landing page where users can learn the details of your program.
Check out this example from our friends at GetResponse.
The page outlines how the program works and includes an FAQ section to clarify the details.
Your website is a great place to promote your program. Add the landing page link to your website footer or attract users’ attention to the program using alerts when they’re logged into the software.
Don’t forget other marketing channels that work, like email marketing and social media.
6. Track and Reward Referrals
Tracking referrals allows you to monitor the performance of your program. How else will you know if your referral campaigns drive referrals and the channel with the best ROI?
Referral program software tools like Referral Candy and Mention Me help you create, automate, and analyze referral programs. They track links and measure conversions. When paired with your CRM software, they help identify conversion opportunities.
While referral software shows where your referral program falls short, it doesn’t necessarily tell you why. Talk to referrals to understand what converted them. Was it the advocates’ reputation or the video in the link email? You also want to figure out any challenges or pain points they might be experiencing.
Referral Reward Models
Below are four referral reward models you can execute in one of two ways: one-sided or two-sided.
One-sided rewards incentivize either the referrer or the referee. Two-sided rewards incentivize both the referrer and the referred customer.
Standard reward program
The standard reward model offers the same incentive each time a referee successfully converts. For instance, for every referral, the customer gets 5% off their monthly subscription. This model is easy to implement and track but can lose its novelty and effectiveness.
Tiered reward program
Tiered programs offer different rewards for different referrals based on certain actions.
For example, you can reward the referrer with different discounts based on how much the referred friend spent. So it could be $10 if they signed up for basic plans, $50 for a team plan, and $100 for a business plan.
You can also switch the rewards the other way around. That is, give rewards based on the plan the promoter is on. So if they’re on the cheapest package, they’ll get a lower reward compared to someone else on a high-tier plan. Dropbox is using this reward system at the moment.
Another option is to provide tiered rewards based on how many referrals the promoter makes. So you may have $40 worth of software credit if they make 5 successful referrals and $100 if they make 15 referrals.
The tiered reward model appeals to a wide range of users, boosting engagement with the program.
Multi-step reward program
Multi-step reward referrals are similar to the tiered model in that different referrals trigger different rewards. The main difference is that multi-step programs reward referrers based on specific touchpoints on the sales funnel.
For example, when the referee books a product demo, the referrer receives three points; when the referee purchases a plan, the referrer gets ten points. This model works well for SaaS enterprise businesses with long sales cycles. It helps keep the referrers motivated and engaged with the program as the long sales process plays out.
Gamified reward program
Gamifying your reward program makes referrals fun by incorporating gaming elements like accumulating points, advancing levels, or competing with other customers.
For instance, adding a leaderboard to your standard reward program encourages friendly competition, boosting engagement.
You can also create seasonal contests, rewarding the top performer or challenge promoters to collect a specific number of badges to earn a big reward.
4 Examples of Successful SaaS Referral Programs
Let’s look at four successful referral programs and see what we can learn from them. The one recurring trend you’ll notice is keeping the rewards in-house. This reduces referral costs and increases customer loyalty and product engagement. It also lowers the general cost of running the referral programs.
Dropbox is the granddaddy of SaaS referral programs. You see them in almost every referral marketing article. Here’s why.
The file-sharing software company grew 3900% in 15 months thanks to a referral program.
For every referred installation, you get 500MB of extra storage space (up to 16GB) for basic accounts and 1GB of free space (up to 32GB) for premium accounts.
Key takeaway: The program is two-sided, with the referee receiving the same rewards as the referrer. That incentivizes both parties to participate in the program.
Airtable helps users create databases for custom applications like visualization, workflows, and integrations.
The referral program gives users $10 credit for every verified account sign-up.
Existing customers find the referral link under their account page. They can view available Airtable credits and share a unique code via email or social media.
Key takeaway: Although Airtable’s referral program is one-sided and standard, it is effective because it gives users options with credits. They upgrade specific workspaces or use credits towards monthly charges. The platform also makes it easy to share codes with one click.
Evernote is a note-taking software that helps users create and organize digital files across multiple devices.
Its one-sided referral program gives customers points for referrals -10 points for the first three referrals and 5 points for subsequent referrals. In addition, if any of your referrals convert to a premium plan, you earn five points.
Key takeaway: Users can redeem points to obtain special features and upgrades. Furthermore, customers keep earning rewards from referrals that upgrade to paid plans.
Trello is a collaboration platform that helps users organize tasks and track progress. Trello offers another one-sided standard program that gives customers one month free of their premium plan, Trello Gold, for every signup (up to 12 months).
As shown above, you can share the referral link via email and social media. Trello also incorporates referrals in its workflow. You can invite collaborators via links to your boards or workspaces.
Key takeaway: Many users are satisfied with the basic version. The referral program helps promote the premium version and convert existing customers into paying customers.
Essentially, Trello is getting two wins from one program – they acquire new customers and introduce existing customers to their value-packed premium packages.
Also, you can quickly share the link through Facebook, Twitter, and Email right from the referral program page. This reduces friction, making it even easier for users to share the link.
SaaS Referral Program FAQs
A SaaS referral program is a marketing strategy that leverages existing customers to expand your customer base by incentivizing them to recommend your product or service.
The average referral fee ranges from 5 to 10% depending on the account value, business size, and the referral model.
Leveraging the enthusiasm and trust of a happy customer is a powerful marketing strategy for growing your user base. Too many brands leave money on the table by forgoing a SaaS referral marketing program. Don’t be among them.
Creating a referral program isn’t difficult. It comes down to forming strategic partnerships, offering attractive incentives, and developing a frictionless process. I broke down the necessary steps and shared examples you can copy.
You have a product worth sharing, and this guide will help you create a successful SaaS referral marketing program that generates record conversion and retention rates.
Nico is the founder of Crunch Marketing, a SaaS marketing agency. He works with enterprise SaaS clients like Writer, Right Inbox, and Surfer SEO, helping them scale lead generation globally across EMEA, APAC, and other regions.