How to Leverage Referral Marketing to Scale Your SaaS Business

We all have networks, and referral marketing helps use the networks of your customers to expand your business. But what exactly is referral marketing and how does it work? Don’t worry, let’s go over all you need to know about referral marketing and SaaS referral programs. To be specific, we’ll cover:

• What is referral-based marketing?
  • How do you do referral marketing
  • The types of referrals
  • Is referral marketing legal?
• What is a SaaS referral program?
• The benefits of a referral program for SaaS
• How to create a SaaS referral marketing program

1. One-way referral

One-way referral marketing campaigns provide your current customers with incentives to refer your business. By exclusively investing in your referrers, you can focus your budget on more enticing incentives for your already loyal customer base. 

For some campaigns, this referral marketing strategy can make sense. The referral process is better at catching the attention of your current customers, so they’re more likely to refer your brand to friends and colleagues. You’re also providing them with a more engaging experience that builds long-lasting brand loyalty. 

2. Two-way referral

The two-way referral system incentivizes both new users and current customers. It’s also the most common and widely used technique. 

Implemented correctly, it leads to more effective onboarding of your potential customers. A successful referral only occurs when the referred customers purchase through or sign up with your company. 

This increases the chance of your potential customers moving through the sales cycle. Giving them a good incentive to follow through with the referral leaves them with a positive experience with your company. Providing them with this positive experience is the first step in producing loyal customers and decreasing customer churn. 

Using two-way referrals also makes your current customers feel good about referring you to their friends. They can refer knowing that they are giving their network access to a great deal with a company they believe in. Look at how PayPal runs its referral program.

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3. Social referral

Social media has evolved into one of the most advanced powerful marketing tools at your disposal. Think about the last time you discovered a company had no social media platform. How did you feel about them afterward? Building a social media presence is vital in appearing reliable and relevant to your prospects. 

Social referral marketing refers to the process of using your social media platforms to encourage sharing your landing page, social media page, or posts. With shares, likes, and comments, you can have your current customers and followers refer your business and brand to their friends. 

Social media referrals can benefit your brand by: 

• Growing brand loyalty
• Expanding your brand awareness 
• Increasing your chance of conversion
• Becoming more personal 
• Making yourself more visible 
• Increasing inbound traffic

4. Third-party referral

A third-party referral strategy focuses on bringing users to your network from beyond online platforms. In essence, teaming up with a different company or organization (a third party) to get referrals. 

This is a less popular option for SaaS products, but has been used successfully with Evernote. Evernote’s system gets referrals through Moleskin. This affiliate program allows people to use a Premium code and earn points. 

5. Material value referral

In the end, it’s not what our customers can do for us, but what we can do for our customers. Most referral marketing strategies use some form of incentive to gain referrals. Some SaaS companies have even used straightforward monetary incentives to gain new customers. 

Using cash incentives, gift cards, and products can be a great way to encourage your customers to refer your business to their network. 

You can also use influencers to expand your user base. Influencers always require some sort of material incentive to promote companies on their platforms. However, getting someone with a wide base to do your word-of-mouth marketing can be an extremely effective way to promote your business. 

1. Lower customer acquisition costs (CAC)

Acquiring new customers costs money. However, out of all your marketing channels, a referral program allows you to lower your customer acquisition costs (CAC). 

But why do referral programs lower acquisition costs? Well, aside from affordable pricing on software and low initial setup costs, they operate on a pay-for-performance marketing strategy. 

What that means is that—if you’ve set up the program properly—you only reward (or pay) your referral marketers when they deliver you new customers. If they don’t deliver, you don’t pay.    

While other ecommerce sites may have to set a budget for referral marketing, too, because SaaS offers a service, you can offer rewards, like a limited-time upgrade or a free month on their subscription. 

2. Boosted positive brand awareness

Whether you’re a startup or a well-established company, using referral marketing will allow you to boost your positive brand awareness. With a friend program, you are allowing your current customers to brag about your brand. 

Customers who may have never considered your brand are now not only aware of your company but also trust it because they heard about it from someone they know. 

3. Increased, faster, and more reliable conversion rates

Because you’re offering an incentive for customers to refer their friends or colleagues, and most likely have an incentive waiting for prospective customers, you’ll have increased, faster, and more reliable conversion rates. Automation of a referral program will also boost your conversion rates. 

Prospects no longer have to research to make sure your company is reliable and secure. Your current customers will also know who’ll be interested in your service. The link they give their contacts will send them directly to your landing page or mobile app where they can get started with your service right away. 

4. Higher customer retention and customer lifetime value (CLV)

Using a SaaS referral marketing program is a proven way to increase customer retention and customer lifetime value (CLV). 

Referred customers even have a 37% higher retention rate compared to customers who were acquired through other marketing channels. This is even more beneficial considering most SaaS companies run on regular purchases and subscriptions. 

Make sure your customers love your product

For your customers to refer your product to others, you need to have an amazing service. You may get some initial buzz from incentives and rewards, but customers won’t become brand advocates unless they trust and like your SaaS product. 

Use customer relationship management (CRM) software to track your performance and overall customer satisfaction. Make sure your customers are satisfied with both the product and customer support they receive. 

Also, research your online reviews and utilize customer feedback. If there are areas you can improve, make sure you take steps to make the changes that will make your company and product better. 

The happier you can make your customers before and after the implementation of your marketing program, the more successful it will be. 

Decide on your referral models and incentives

There’s a lot of different ways you can implement a SaaS referral program. Look at templates and different models to decide what you want your program to look like and offer. It can be helpful to think of your referral message as an elevator pitch. Keep it short and simple. 

Your customers should know immediately what’s being offered and what they have to do to redeem it. Look at Wise’s referral program. In bold letters, customers know exactly what they need to do to earn the cash incentive on offer. 

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At this point, you should also consider what tools you’ll need for your referral model and if there’s an API you can use to allow your CRM and marketing tools to communicate with each other. This will make your program function more smoothly. 

Outline your terms and conditions

Making your incentive clear and simple doesn’t mean you can skip out on outlining your terms and conditions. You want to explicitly state whether you’re offering a referral bonus for every friend they refer or only upon successful referrals. 

In addition, you want to state who is eligible for a referral incentive and whether or not there’s a limit on the number of bonuses they can earn. It may be a good idea to run your terms and conditions past your sales, marketing, and legal team to make sure the verbiage and content cover all your bases. 

Determine when to ask for a referral

When asking for a referral, timing is everything. You need to make sure that your target audience is at the point in their customer journey that they can advocate for your product. 

If you ask too early, they may not have received enough experience with your company. If you ask too late, they may be less interested in doing the work to promote your product. You need to decide what time is best for your company to optimize your SaaS marketing.

But when exactly is the best time? Well, here are some suggestions: 

• After a certain amount of active time with your product. 
• After a certain milestone (i.e., after a customer’s six month anniversary with your company)
• After a customer has provided a positive survey response or testimonial 

Spread the word on your SaaS referral program

Now it’s time to promote your referral program. Having a referral program doesn’t mean that people will know it’s an option. You need to promote it regularly through all your marketing channels, including email and social media. 

You can: 

• Send messages to your customers through your mobile app
• Include it in existing drip campaigns
• Promote on social media 
• Link it in your email signature
• Build it into your website marketing automation

Track and measure your results

Finally, you need to be able to track and measure the results of your referral program. When you’re setting up your program, you need to decide what metrics and key performance indicators (KPIs) you want to track. 

Some metrics you may want to consider tracking are:

• Number of referrers
• Number of referrals sent
• Conversions
• Number of referrals sent per referrer
• Percentage of customers who utilized the referral program

From there, you can track KPIs and find actionable ways to improve your SaaS referral program.