Since time immemorial, word-of-mouth has been essential for growing a business. A company’s reputation may speak volumes, but it does not build out of thin air; a customer informs a potential customer that the product or service they have bought or used provided a positive result.
Remember how you got in trouble when you were young, because you followed the lead of one of your friends and participated in some naughty activity? What did your mother say to you?
If so-and-so jumped off of a bridge, would you too?
Hopefully you would not, but the same principle applies to the business sector. Customers rely upon the word of other customers that have told them that going with a company is a good idea.
People trust their friends and family (even strangers online) when it comes to making purchasing decisions. 84% of consumers say they completely or somewhat trust their friends and/or family’s reviews of a product or service. In this day and age, nobody simply enlists a service without conducting online research into the company.
Software as a service (SaaS) has become ubiquitous, and thus the market is flooded with competition. How do you increase positive word-of-mouth referrals concerning your company’s services? How can you make customers incentivized to recommend your service to others?
Let us touch upon five of the most successful customer referral programs for SaaS companies in recent history, and what methods worked for them.
What is a referral program?
A referral program is simply the implementation of a system that gets previous and existing customers or clients to inform potential customers or clients that your services are worth using. It is them saying “Hey, I bought from these guys, and you should too!”
An astonishing 84% of business-to-business transactions are conducted at the behest of a referral.
Starting up your own customer referral program, without hassling your customers, can seem like a challenging endeavor. How do you get your customers to do your own job for you?
Referred leads are more likely to convert to customers at a rate of 30% compared to plainly marketed leads. Take a look at these five examples of SaaS companies that have seen their revenues explode due to their extraordinary customer referral programs:
Dropbox, the cloud-based storage service, is hardly a sexy SaaS company. Yet, amazingly, they went from 100,000 users in 2008 to over 4,000,000 in just 15 months. That is a 3900% increase in users in less than a year and a half! And, Dropbox kept on going, with a 60% growth in users in 2010.
What built this currently valued $10 billion SaaS empire? It is so simple that it’s painful. Look below:
Dropbox did not do anything novel, but by incentivizing users with an increase in personal product value, they were able to engage their existing users’ word-of-mouth value and bypass the expense of traditional advertising, thus saving on marketing costs.
The best part about Dropbox is how simple and direct their referral program’s message is: for every person you tell about the usefulness of Dropbox, you get more storage space. Their website even provides users with a five-part step-by-step list of instructions on how to refer their service to others.
The combination of simplicity of the referral instructions and a direct message to users is shared between each of the examples of a successful SaaS referral program mentioned throughout the rest of this article.
Dropbox’s breakneck growth, due to their customer referral program, was initially inspired by Paypal’s program, though using a different method of incentivization. While Dropbox relied on enhancing the value of their product to gain customer referrals, Paypal used good old-fashioned cash to build their customer base. Paypal’s growth, as seen below, has been steady and amounted to a tremendous value of $365 in net annual income.
Paypal’s customer referral program began by literally paying people to refer their contacts to sign up for an account. Here’s how it worked:
Paypal started off by paying $20 into each user’s account each time they referred a contact. As they gained more users through referrals, they dropped the incentive to $10, and eventually down to $5 as it became evident that their service was not only convenient, but publicly accepted as a trustworthy means of financial transactions.
Once Paypal reached a critical mass of market importance, they were able to phase out their referral incentives entirely, without having invested much at all on advertising. By investing in a customer referral program during the early years, Paypal was able to increase their profitability sooner to offset the initial $60 million that they spent the first few years to incentivize referred leads.
While it may seem like a hefty investment, and it certainly was, it paid off in Paypal’s number of users after a few years. According to a Nielsen poll, 92% of consumers trust referrals from people they personally know. Paypal used this to their advantage to gain a customer base, and quickly, to the point where their name was already selling itself through word-of-mouth without advertising.
To say that Airbnb’s growth through their customer referral program is a success story is like saying Babe Ruth knew a thing or two about how to swing a bat; 47,000 people used Airbnb in 2010, and 17,000,000 used Airbnb in 2015. Yes, you read that correctly; 17,000,000 after five years! How is that type of growth even possible? Well, take a wild guess...their robust customer referral program.
These numbers mean that Airbnb has grown by 353 times the customers over the course of five years. Their referral program is also akin to that of Paypal’s model; customer referrals are monetarily incentivized, though not direct cash. When an Airbnb customer refers a friend, not only do they get a travel credit toward future Airbnb stays, but the referred customer receives a discount on their first trip.
Similar to Dropbox, the simplicity and ease of the Airbnb referral program is made abundantly clear, and dangles the carrot in front of the customer from the get go. Also, Airbnb has incorporated social media buttons for first-time customers to share their referral code with friends and followers on all major social media outlets. Can you say “clever”?
By foregoing the expenses that would be typically used on advertising, Airbnb can afford to credit referred and referring customers with up to $5000 in travel credit. Their customer referral program only applies to generating new business (if you were referred once you cannot be referred again), but existing customers can continue to generate new business for the company and reap the travel rewards.
According to Airbnb, word-of-mouth is vital for their business, as much of their business model seems like a foreign concept for many people (not everybody is cool staying at a stranger’s place). By using their word-of-mouth referral system, potential customers are not only monetarily incentivized, but the business model’s credibility is immediately verified when someone thinks to themselves “well, hey, it worked for them, so…”
When you type “Uber” into a Google search, four of the predictions listed contain the word “referral” after “Uber.” Uber has built their reputation upon their rewarding customer referral program, in which a referring customer earns credit towards free rides.
As you can see, Uber is growing at a breakneck pace, adding more and more drivers every day, and expanding its presence in more and more cities across the globe. The success of Uber’s business model is not limited to word-of-mouth referrals to other customers, but also to their expanding workforce, as 78% of Uber drivers report that they are satisfied working for the company.
Much in the same way as Airbnb, Uber faced the initial challenge of seeming foreign and possibly untrustworthy, as not everyone would initially feel comfortable getting in a car with a complete stranger without a professional taxi license; Uber lacked the familiarity of the yellow cab. Further challenging, there were even protests in cities such as London and Paris against the company, by taxi drivers that felt the company was threatening their vocations.
Yet, the company continues to grow. By incentivizing their customers to refer and recommend the service, Uber (and similar concept models such as Lyft) is likely to soon be the primary method for private, third-party transportation.
According to this poll by bizjournals.com, In one short year, the company had almost become as frequently used for rides as taxis. The cab drivers certainly had cause to protest!
A key feature of the Uber customer referral program is that referring others to use Uber is profoundly simple for customers, being that it is already an app in their hand. Uber even built their “Free Rides” referral program into the main menu of the app. Not only does the referrer receive a ride credit when the referred party signs up for an Uber account, but the new customer starts off with a free ride credit as well.
While Uber is still fighting a costly, multi-million dollar legal battle in many cities and American states, its public popularity continues to grow (71% of all third-party rides in San Francisco!) through its referral program, keeping the company afloat while they spend millions on lobbying expenses.
Like Dropbox, Evernote is not an inherently sexy SaaS enterprise. The note-taking and organizing software (wow, it’s boring just even typing the words “note taking”) does not exactly scream “hey, look at me!” So how did the company leap from 100,000 users at launch in 2008 to over 100,000,000 users and a current valuation of $1 billion?
According to CEO Phil Libin, the customer referral program they designed has been a major asset to the company’s profitability. Out of the 100,000,000 users of Evernote, 13% were referred by other users. “We don’t pay money for users,” says Libin. No money is spent on advertising or SEO, dramatically cutting costs. Libin is quick to point out how word-of-mouth has been primarily responsible for the company’s sizeable growth and financial success.
Evernote is a free SaaS tool, with an Evernote Premium version available, that has enhanced features and storage, which users can pay $5 a month to access. However, with every referral a user makes, they amass credits towards accessing the premium level free of charge.
The way that Libin and his team planned Evernote is what they refer to as “freemium,” with the goal of 99% of users using the software for free, and 1% paying for the premium level. At present, approximately 5% of users are using the premium level. The referral program for Evernote, like Dropbox, incentivizes users with a mix of enhanced product features, and monetary savings.
So, got any good ideas?
Customer referral programs come in all forms and colors. In these five examples, you have learned how different SaaS companies have incentivized their customers to do the PR on the company’s behalf.
Take a moment and realize that your customers already like your company. Otherwise, they would be going with somebody else! Pat yourself on the back for having customers in the first place, but every CEO is on the hunt for larger profits than last quarter. Why not put your customers in charge of building a strong reputation for your company, and attracting new business?
By giving a little bit back to your customers, whether through a discount, cash, or enhanced product features, you are empowering them to spread positive word-of-mouth PR for your SaaS company.
Do you have any personal experience with incentivising customers to make referrals? Share them in the comments below.