Sourcing leads at any SaaS company is pretty damn crazy.

The product sales cycles are relatively long, user churn rate is extremely high and to add to the misery, there’s always a dearth of marketing qualified leads often resulting in dried up sales pipelines.

Quite clearly a SaaS Marketer doesn’t have it easy! But again, should getting qualified leads be too much to ask?

I’m sure that there’s no dearth of lead generation channels for SaaS Marketers, but very rarely does one find a tactic that has all the three virtues namely- easy to execute, have shown phenomenal results in the past or offer a long-term sustainable solution.

That’s where Referral Marketing steps in. This marketing hack has a long and successful track record (think of Dropbox here), has been known to induce virality and instill trust in the mind of visitors.

Even though Referral Marketing has a unique ability to fill up the cracks in the lead generation process, many marketers still sideline it as part of their SaaS marketing strategy. Either they never consider it or avoid it due to a general know-how around its concept.

As a referral marketing evangelist, I find this approach pretty silly (There I said it!). It’s high time that Marketers took notice and revived an evergreen marketing hack.

This article is an attempt to connect the dots, take a stand on referral marketing and prove why it is a bloody good hack for SaaS Marketers!

Let’s get started.

Understanding Referrals- Why Is It The Best Drain Cleaner For Clogged Sales Pipelines

Andrew Chen, an accomplished Marketer and the Growth lead at UBER makes a strong point about Referral Marketing in his latest essay. What’s more interesting is his vision about the future of growth and how it is twinned with referrals.

Andrew says:

“As practitioners in growth, marketing, entrepreneurship, and tech, we’re looking for the edge that’ll give our products a chance to succeed in an extremely competitive and dynamic environment.”

He adds that any tips or tricks that Marketers adopt today should have a present and future relevance. He goes on to say the underlying concept of referral marketing remains the same and it’s only the product that has witnessed a change over the years. Earlier it was chain letters and today we see referral marketing achieving the desired goal for brands like Airbnb and Dropbox.

Because people behave in the same way they behaved in the past, a referral marketing campaign will continue to grab a user’s attention.

That’s the biggest takeaway for SaaS Marketers here.

But again Marketers cannot base their decisions on assumptions, right?

That’s why I’ve listed a few concrete, statistics led benefits that prove its worth, more so for lead hungry SaaS Marketers like you!

#1 Referral Marketing Improves User Acquisition,  User Engagement & Retention

I’ve got two *pinch me hard* stats before I go ahead and explain how referrals can help you improve user acquisition and favorably impact positive user engagement and retention numbers (we’ll take a while to join the dots for you, so hold on).

• A report published by Gartner states that 80% of all your future company revenue will come from a fraction (20%) of your customers.

• Another finding by the authors of Marketing Metrics states that the probability of selling to a new prospect is 5-20% whereas the probability of selling to an existing customer is 60-70%!

The stats clearly hint that retaining customers and keeping them engaged is a bigger challenge for Saas Marketers when compared to customer acquisition.

Referrals have long known to ease the process of customer acquisition. After dabbling in many unsuccessful user acquisition strategies, Dropbox realized that most users found them via referrals and free space was just a trigger.

A Nielsen study also noted that 84% of users base their purchase decisions on recommendations from friends and family members.

That’s the first of the problem solved for SaaS Marketers via referrals.

Given that most referral campaigns revolve around an incentive (monetary or otherwise), it gives an extra push for a user to stick with the product for long, thereby impacting frequent repurchase. It’s the theory of reciprocity that comes into play here.

Remember that fun strip from the Big Bang Theory when Sheldon tells Penny the following:

The users feel a sense of attachment due to the incentive and thus feel obliged to make a purchase- in other words, return a favor.

Marketers that play with pre-loaded wallets in the mobile space hammer the same user psychology!

That’s the second cracked filled by referral marketing.

A customer success survey done by Totango found that cancellation of software subscriptions was almost always followed by a period of non-use. Which means that users were not engaged with the product. But that problem seems to be eliminated via referrals as discussed above.

Logically, if a user is interacting with your product on an ongoing basis he is clearly engaged! Such happy and satisfied users will never shy away from spreading a good word about your product and in turn, will get you more business.

Key Takeaway: Whatever stage of growth you might be at, adding referral marketing to your repertoire can help you at all levels of a sales cycle. What’s more important is to know when to launch it.

#2 Referral Marketing Leads To Higher Sales, Faster Deals & More

A lot of SaaS Marketers we’ve known, often complain about the long product sales cycles and would give anything to speed up things.

Influitive and Heinz conducted research, where they interviewed over 600+ B2B professionals from across North America – including sales, marketing, operations and executive leadership. They also included professionals from the front lines to the C-suite to gain insights on referral marketing.

The research report has some interesting statistics for SaaS Marketers (sic.). If you are averse to the idea of referrals, these stats are for you.

• They found out that 70% of companies with formalized referral programs were on pace to meet or exceed their revenue goals (2015)– far exceeding those without a referral program in place then.
• More than half of those with formalized referral programs ranked their sales efforts as highly effective, compared to only 35% of those without referral programs in place.
• Another 51% of companies with referral programs rated their effectiveness at maintaining sales pipelines as very effective vs. just 32% of those without referral programs.

Apart from the findings mentioned above, the one’s that most interesting is the fact that Marketing-led referral programs were found to be the most effective.

 

Key Takeaway:

The research clearly draws parallel and benefits between ‘having a referral program’ and not ‘having one.’ There’s no doubt that SaaS companies that have adopted a formalized referral program are bound to gain more from it.

#3 Referral Marketing Brings In High LTV Users

Converting a trial user to a paid user is always a challenge for SaaS Marketers. But what’s more challenging is their c onstant battle to keep the CAC less than the LTV while doing so.

Keeping a check on CAC is extremely crucial. Failure to do so has caused many a startup deaths. Referral Marketing creates a warm introduction between your existing users and trial users and subconsciously nudges them to quickly move from a trial to a paid account. This invariably happens because they’ve already seen a paid customer reaping its benefits and they want to do so as well.

An external word of mouth clubbed with a formal referral marketing program is a win-win for every SaaS business.

The Wharton School of Marketing did research in which they found that referred customers have approximately 25% higher customer lifetime values than non-referred customers, even after factoring in the referral costs.

They also found out that referred customers are 18% less likely to churn than non-referred customers and this difference remains over time.

Key takeaway:

The Addition of a referral marketing program can help you in significantly increasing  CLTV. If you are an early stage startup with tight budgets, cash less incentives can come to your rescue while implementing a referral marketing program.

#4 Referral Marketing+ Net Promoter Score = More Users

A lot of SaaS businesses do not value NPS (Net Promoter Score) as much they should. Obviously, we have opposite view around it.

Net Promoter Score is a sign of happy customers and tells us a great deal about whether they are willing to refer a service or product to their friends and others in their network. The folks at Airbnb studied this metric at length and found out that higher NPS does, in general, correspond to more referrals and rebookings.

That’s a massive and natural free flow of word of mouth! Now imagine if we add the power of a formal referral marketing software to this mix. Apart from asking the users ‘whether they will refer the product’, what if we Marketers also provided them with an instant platform to do so?

Jason Bosinoff, a member of the Airbnb growth team talks about how their team clubbed both these aspects together in this podcast below (Check convo starting 9.10)

Let Referral Marketing Play Its Magic

SaaS Marketing is all about experiments and referrals are a great channel to test.

By introducing your users to a referral program, you aren’t just empowering them to spread a word about your product, you are also paving a way for a consistent revenue model.

We are of an opinion that Referral Marketing is grossly under-utilized in the SaaS space and that’s where we are helping brands.

After a lot of trials and experimentations, we’ve recently launched a referral marketing software exclusively to suit SaaS businesses requirements. So do check it out.

Does your SaaS business offer referrals to users? If yes, what benefits have you reaped so far? If not, what’s stopping you from investing in one? I’m very excited to know your opinions on this topic.