Referral Marketing for SaaS

Why your SaaS business needs a referral program?

People influence people. Nothing influences people more than a recommendation from a trusted friend. A trusted referral is the holy grail of advertising.

In order to have a successful SaaS business, you need to have low acquisition cost, effectively convert leads into customers and maximize their lifetime value.

Referral marketing can help you achieve all these things. Let's have a look at the benefits of referral programs for SaaS businesses and then move on to very successful SaaS referral program examples to give you some inspiration for your own refer-a-friend campaign.

Referral Program Benefits for SaaS Businesses  

There are various benefits of having a SaaS referral program in place. Here is a short overview of the main benefits:

Increase the lead quality and quantity

Word-of-mouth is a very effective marketing channel. Leads that referral marketing brings are also higher quality than leads brought through other channels, which means you can save time on qualifying leads.

According to a study made by Software Advice, 78% of B2B marketers say referral marketing generates leads of good or excellent quality, while 60% say it generates a high volume of leads.

Lower the acquisition costs

Word-of-mouth has 54% higher marketing effectiveness while driving at least 5x more sales per impression, compared to other channels.

The referral program cost is the cost of rewards (which can be chosen by you and may cost you close to nothing, if you offer a free subscription for X period of time or other product-related discounts as reward) and the cost of the referral software you use to power your SaaS referral program.

Comparing referral marketing costs to other channels, it usually turns out to be the most cost-efficient marketing channel for SaaS, if done right.

Increase conversion rate

Referral marketing is a very powerful marketing channel, not only for bringing brand awareness but to actually get more conversions for your SaaS product. Referral marketing generates 3-5x higher conversion rates compared to any other channel, according to a study carried out by Extole.

Lower the churn rate

Churn rate is the annual percentage rate at which customers stop subscribing to your SaaS product. SaaS referral programs do not directly keep customers engaged with your product for longer. They can help you indirectly decrease your churn rate, as the customers brought through referrals are on average more loyal to your brand than other acquisition channels. According to research done by Deloitte, customers coming from referral have a 37% higher retention rate.

Increase the Customer Lifetime Value (CLV)

Each referral customer’s lifetime value is 16% higher than an average non-referred customer, according to a study made by the Wharton School of Business. Moreover, referred customers bring 25% higher profit margins.

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Top 5 Successful SaaS Referral Program Examples

In short, my top 6 examples of successful SaaS referral programs are:

• Dropbox
• Trello
• Evernote
• PayPal
• TransferWise 

Read on to learn what makes them the best, what is their refer-a-friend mechanism and what is their referral marketing strategy.

Dropbox Referral Program

Dropbox is a file-hosting SaaS that offers cloud storage, file synchronization, personal cloud, and client software.

Dropbox is well known for its rapid growth over a short period of time, largely attributed to their referral marketing strategy used when they were still a start-up. Before the referral program, Dropbox was using SEM and affiliate marketing, with a CPA of $288-$388, but their product was $99/year so the customer acquisition cost (CAC) was too high compared to the product pricing. They have released a referral program to lower the CAC and speed up the market acquisition.

Referral program mechanism:

• Double-sided referral program, where both referrer and referee gets a reward.
• Referrer Rewards: 500MB free space.
• Referee Rewards: 500MB free space.

Why Dropbox customer referral program was so effective?

• The referral rewards were extra storage space, something that was key to the usage and enjoyment of their product.
• They have rewarded both the referrer and referee, encouraging more referrals.
• The rewards were easy to get, immediately after the referee subscribes to the basic version of the product.
• The reward was the product subscription, encouraging users to try and fall in love with the product.
• The rewards were cheap for Dropbox, as they were offering free space as a reward, which on large scale did not cost them much.
• The program website made it easy to share the invitation to the program digitally, with one click. They offered multiple ways to easily share – via sending a referral email, email address book importing, posting link to Facebook or Twitter.

• The program rules were easy to understand.
• The referral process was built right into the onboarding process.  The signup process consists of six steps, the last being “Invite some friends to join Dropbox.”
• The referral program benefits were clearly stated “Get more free space”.

Results:

• Lower CAC.
• Referrals have permanently increased sign-ups by 60%.
• They have grown from 100 000 to 4 000 000 registered users in 15 months (3900% growth) thanks to launching the referral program.
• 35% of their daily sign-ups were from referrals.

The rules of the program have evolved since Dropbox became a multi-million business. The current rules of their customer referral program can be found on the Dropbox website.

Trello Referral Program

 Trello is a SaaS, Kanban-style, list-making application that has started off as a start-up and was acquired by Atlassian in 2017.

Referral program mechanism:

• Trello is offering a free upgrade to a premium plan for a month for every referred person who joined Trello thanks to referrals.
• There is a limit of 12 referrals a user can make.
• The reward never expires.

Why Trello customer referral program is successful?

• A high limit on the number of referrals (12) maximizes how many referrals a person makes for the service.
• Simple program rules – 1 month for each referral.
• The reward brings value for the referrer immediately and the reward is relevant for the users.
• This referral strategy rewards Trello's super fans for referring more users and gives them a chance to uncover the benefits of a paid subscription, which helps to convert them to paying users. For SaaS businesses, there is no better way to show the benefits of a paid subscription than to give the users a taste of it.

Results:

• They grew from 500 000 users in the first year (2011) to 50 million users in October 2019, their main marketing strategy being referral marketing.

Evernote Referral Program

Evernote is a SaaS designed for note-taking, task management, and archiving. The app allows users to create notes, which can be text, drawings, photographs, audio, or saved web content.

Evernote used a similar referral marketing strategy to Trello’s back in 2013 when they still needed the word-of-the-mouth to boost their acquisition rates. Word-of-mouth helped them gain brand awareness, increase customer base and win their market share. As they have become the leading company in their niche, their program has evolved. Nowadays, it offers a much less attractive (from the customer’s point of view) loyalty program, point-based and effective only if the referred friend purchases premium services. As the needs of Evernote evolved (they already have a huge “basic” user base and now need to work on conversions), they have changed their customer referral program rules. Rules of the current program can be found here.

Referral program mechanism:

• Double-sided referral program.
• The referee gets 1 month of Evernote Premium.
• The referrer gets 1 month of Evernote Premium (10 points) for each referred friend, up to 3 referrals, who starts using Evernote (registers) and then 5 points for each referred friend beyond the 3 first ones, that can be used later on to "pay" for Premium (10 points = 1 month of Premium).

Why Evernote customer referral program was so successful?

• Their reward, subscription upgrade to Premium, gives users a taste of the Premium features, that encourages them to convert to a paid subscription in the long run.

Results:

• 1 million users in 14 months since launch.
• 11 million users in 3 years since launch.
• 25% of Evernote users who use the service for 3 years upgrade to Premium.
• 13 million users came to Evernote through their referral marketing campaign.
• Evernote has $0 user acquisition budget, they do not pay at all for user acquisition, apart from their referral marketing strategy. 

This is what Phil Libin, Evernote CEO, said in one of his interviews:

“It’s just driven by word of mouth. We don’t spend any money on user acquisition, we don’t do any SEO or SEM. There’s no tricks. We don’t pay money for users. We don’t pay for incentive downloads or any of the stuff you hear people talking about, we don’t do any of it. It’s all just word of mouth and people finding Evernote because of friends who love it and are recommending it.”

Paypal Referral Program

PayPal is an online payments SaaS present in the majority of countries that support online money transfers and serves as an electronic alternative to traditional paper methods like checks and money orders.

Paypal had a very brave referral marketing strategy. They literally gave away free money for referrals, and it worked out great for them. And this was before social media!

Referrals helped PayPal achieve 7 to 10% daily growth, catapulting their user base to over 100 million members. According to David Sacks, original COO of Paypal, Paypal used to literally pay people to invite their friends. It turned out that referral marketing yields better ROI than traditional marketing channels.

Once they achieved a critical mass of early adopters they dropped the refer-a-friend bonus, but they kept it for Merchants. Then they dropped the Merchant bonus, once they reached their target numbers.

Referral program mechanism:

• Double-sided referral program.
• Referrer Rewards: $10 for referrals.
• Referee Rewards: $10 for signing up.

Why Paypal customer referral program was successful?

• They understood their target audience and provided the reward that was giving the highest value to their users – direct cash benefits.
• Simple program rules.

Results:

• 7-10% daily growth.
• Growing their user base to 100 million members.
• Barely 15 months after the company was founded, in 2000, they were valued at about half a billion dollars by WSJ.

Transferwise Referral Program

TransferWise is a UK-based money transfer service launched in January 2011 by Kristo Käärmann and Taavet Hinrikus with headquarters in London and offices in a number of cities. Transferwise, being a new company in the “banking” sector, following the success of Paypal, has adopted a pretty extensive refer-a-friend program. As Transferwise states:

“Inviting friends is key to the TransferWise revolution. The more people send money with TransferWise, the better it is for everyone.”

They have copied Paypal's idea to give away cash but they have changed the rules, to protect themselves from fraud and not to overspend.

Referral program mechanism:

• Double-sided referral program.
• The reward for referees: a free international transfer of up to €500.
• The reward for referrers: a free international transfer of up to €500 for each recommended friend and a €50 cash reward if all 3 recommended friends transfer over €200.

Why Transferwise customer referral program is successful:

• Similar to PayPal, they are giving away the most valuable reward for their customers – cash or free transfer.
• They do not just give cash in bulk like PayPal did back in 2000's. Instead, they have refined the rules of the program. The benefits for referrers can be ripped only if they invite 3 friends and those friends make transfers of at least €200 total value. This ensures only some people qualify for the cash reward.
• They do not give cash to referees, they give them free international transfer. This kind of reward encourages them to use the product and get hooked on it. It also ensures people won't use the referral just to get the money. To get the benefits from the referral program they need to transfer money. If they need to do international money transfers, it means they are Transferwise's target audience. This type of reward pre-qualifies the referees the referrers refer. Also, it is cheaper than just giving cash.
• The type of rewards and limitations of the referrer rewards helped Transferwise prevent fraud. Referrers can't just create 3 fake profiles to get the reward as these 3 referees have to transfer money as well.

Results:

• Transferwise reached 5B$ valuation in 2020, 9 years since launch.

Customer referral program software

If you are looking for software to run your referral programs with, Voucherify is an API-based customer retention software that enables you to run personalized, single- and double-sided SaaS referral programs.

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