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 full of competition. How do you increase positive word-of-mouth referrals concerning your company’s services? How can you incentivize customers to recommend your service to others?
Let us touch upon five successful customer referral programs for SaaS in recent history, and what methods worked for them. We will try to inspire you with your upcoming SaaS referral programs and recommend a referral software for SaaS. Customer referral program ideas are waiting for you!
What is a referral program?
A referral program is simply a system that gets customers to inform others 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 become possible 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?
When customers refer, those leads are more likely to convert to customers at a rate of 30%! 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 SaaS empire that currently costs $10 billion? 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 secret of a successful SaaS referral program is the combination of simplicity of the referral instructions and a direct message to new users.
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 reached $365 million 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 new 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 SaaS 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 new 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 go on advertising, Airbnb can afford to credit new and referring customers with up to $5000 in travel credit. Their customer referral program only applies to generating new business (you can be referred only once), 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 becomes obvious when someone thinks to themselves “well, hey, it worked for them, so…”
When you type “Uber” into a Google search, four of the predictions 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 doesn’t only contain word-of-mouth referrals but also their expanding workforce, as 78% of Uber drivers report that they are content 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.
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 a new user 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 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% came from the referral program. “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 extra product features, and monetary savings.
Referral software for SaaS? We have ideas
You already know how powerful and cost-effective it is to launch SaaS customer referral programs. If you don’t run one now, we want you to get familiar with 6 tools. They are specifically for this purpose – encourage more of your users to refer your software to others.
#1 InviteReferrals allows you to encourage word of mouth via multiple channels, including email letters, social media platforms, and SMS. You can create programs where you reward both the referrer and his friend (with a discount or something else). They provide both link and coupon-based tracking and have optimized the tool for all types of devices.
#2 If you are willing to tie your marketing success not only to SaaS customer referral but partner programs too, then Ambassador may become the right choice for you. You can automate the process of tracking and rewarding your users, influencers, and affiliate partners. Reward your users with gift cards (maybe for a Christmas campaign), coupon and voucher codes or custom rewards.
#3 SaaSquatch is for subscription services, the way most likely your company works. Not only SaaS customer referral but loyalty and win-back programs too are available with this tool. You can track analytics to discover which channels and members perform the best, test your rewards and rules. You can also offer different rewards for different actions such as sign-up, upgrade, etc.
#4 Referral magic can be helpful especially for SaaS companies, mobile app, and eCommerce store owners. With any of their plans, you can launch SaaS customer referral campaigns for different purposes and groups of users. You can design customizable widgets for your “Invite your friend” CTA. And of course, you can track conversion statistics, your referrals and see how your offers perform.
#5 TrueSaaS helps you attract new leads by sending personalized emails to your customers and inspiring them to refer your software. Of course, it also tells what your current user (and maybe his friend) will receive in return. This software integrates both into your website and SaaS product.
#6 AppVirality targets two buyer personas – mobile app and SaaS owners (or founders). You can define your own rules. E.g do you want to reward the referrer or his friend? On what event do you want to award (e.g. subscription)? How much do you want to reward? Analyze how many invites were sent, how many clicks/sign ups you earned, how much revenue you generated, etc.
While choosing referral software for your SaaS business, you should first consider what features you need. If SaaS customer referral is all you need, no need to pay extra dollars for affiliate marketing features. Because the more features, the more expensive plans.
So, got any good ideas?
Customer referral programs come in all forms and colors. In these five examples, you saw how different SaaS companies incentivized their customers to do the PR on their 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 extra 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.h2