4 Surprising Benefits of Referral Marketing When Launching SaaS Businesses

When it comes to launching a Software as a Service business, there are no shortcuts.

But that doesn’t mean it’s all hard work and no reward. 

In fact, with the right marketing strategy deployed in just the right way, you can make your business seem like an overnight success — no matter how long it took to get there.

And one of the sharpest tools to have in your SaaS marketing toolkit? Referral marketing.

In this guide, we’ll touch on what referral marketing really is, how it works for SaaS companies like yours, and what you need to do to get your referral program up and running right now.

What is referral marketing (and how does it work)?

Let’s begin at the beginning: just what is referral marketing?

In simple terms, referral marketing is a program which asks users to recommend a product or service to others and have them sign up via a dedicated link or code. When the person they referred signs up or purchases, one or both of the parties receives some form of reward.

But referral marketing is not the same as affiliate marketing. While similar in terms of goal, referral marketing takes the form of a personal recommendation between people who know one another already. Affiliate marketing, on the other hand, is a commission-based sale program which casts a far wider net.

Why referral marketing works for SaaS companies

According to Nielsen, 92% of people would trust a friend or colleague’s recommendation more than an advert. That’s one of the reasons why referral programs are so powerful, especially when it comes to Software as a Service.

Just look at Dropbox.

When it first launched, the Dropbox SaaS platform struggled with its position and failed to stand out against its competitors. In September 2008, the platform had only 100,000 registered users. That may seem like a lot, but just one year later Dropbox had amassed a whopping 4 million users.

So what happened?

The answer is simple: they implemented a referral program.

And, in fact, it’s the simplicity of the program which may have been the secret of its success. For every person a user referred to the service, Dropbox gave both of them an extra 500mb of storage space. This dual reward is known as a two-way referral program, (more on this later), and it’s a large part of what propelled Dropbox into becoming the household name it is today.

3 more ways referral marketing can help you grow your SaaS business

Aside from expanding your pool of prospects, referral marketing can also help your SaaS business in these three key ways:

  1. Referral marketing supercharges brand awareness

As with any marketing effort, you can’t expect every referral to pay off. But even if the recipient doesn’t act on the referral right away — or ever — you’ll still have got your brand message out there in front of them. They may remember you again a few months later, or mention your service to another friend or colleague.

  1. Referrals increase the Lifetime Value of your customers

Because the trust is there from the get-go, referred customers tend to have a 16% higher Lifetime Value than other sign-ups. And this is a benefit you pass on and on and on, with every new user referred.

  1. Referral marketing brings down the cost of acquisition

The best bit? All of this happens organically and with very little marketing spend. That’s money you can direct to other business activities.

How best to use referral marketing when launching your SaaS business

While it’s clear that referral marketing can be one of the most powerful means of rapidly scaling your SaaS platform, it will require a little effort.

So here’s how you do it:

1. Choose the right referral model for your program

The basis of any referral program is essentially the same: recommend a friend, get rewarded. But the structure of each program can differ somewhat, meaning you’ve got a choice to make about what yours will look like.

  • One-way referral. As the name suggests, this model benefits one person the most: the referrer, e.g. refer a friend and we’ll give you a specific reward.
  • Two-way referral is similar to the first model, but with a twist. Rather than just the referrer receiving a reward, the referee does too. This is probably the most common referral marketing model, (as in our Dropbox example), and it’s the most compelling, too.

2. Don’t limit your referral program to existing customers

The size of your audience is the key to a truly successful referral marketing program.

The truth is that, as a business, you want as many people as possible to see your referral offer and take advantage of it. There’s a temptation when first building your referral program to open it only to existing users. This may seem like the most logical solution, but it’s not always the most effective.

After all, what happens if someone comes across your platform and knows someone who’d absolutely love it? They have no real incentive to make a referral, but if you open up your marketing program to anyone, that’s another customer in the bag.

3. Give your audience a strong incentive to make referrals

People respond better when they’re incentivized. Think about it: would you have any reason to recommend a product to someone if you’d never used it? Probably not. But what if you’d earn $10 by making that recommendation? That’s an offer you can’t refuse.

Financial gain is the most effective incentive, but more intangible rewards — like the free storage space from Dropbox — can work well, too. Or you could even blend the two together and offer percentage discounts on your subscription packages. As a SaaS company, you may be able to create these intangible rewards at a very low cost to your business, so think carefully about the value vs. cost of the rewards you offer.

Don’t forget that you can always adjust incentives as the program goes on. Start with something really irresistible and work your way down from there as your user numbers build.

4. Keep it simple, keep it frictionless

If the Dropbox example has taught us anything, it’s that sometimes the simplest of solutions can create the best results.

If you’ve ever come across referral marketing programs from other SaaS companies, you’ll know that they can get really complicated. If you find yourself building out your program with multiple reward tiers, or complicated formulae for calculating incentives, or too many hoops to jump through to actually make the referral… then it’s time to rethink.

The golden rule applies: keep it simple.

You should be able to summarize your offer in just one sentence, and it should be so appealing (and easy to do) that users don’t have any reason not to do it. Manage that, and you’ll really be on to a winner.

Is your referral marketing program ready for launch?

It’s easy to see why so many SaaS platforms choose referral marketing as a means of quickly growing a user base.

Once those numbers start ticking up, though, you’re going to need a way to track performance, optimize attribution, and manage the program at scale. That’s exactly where LinkTrust comes in. Our powerful referral software really works for SaaS, and it’s designed to take care of every aspect of referral marketing management across multiple channels.Want to see for yourself how LinkTrust could supercharge your business? Get in touch today and schedule a free demo with our team.