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Thomas is the Founder of Ariyh, a platform that helps businesses grow through 3-minute practical marketing insights based on top business school research.
Positive word-of-mouth acclaim is the most prized form of feedback a business can hope for.
Having satisfied users recommend your product to their family, friends, and colleagues proves that you’ve created something great, something literally worth writing home about.
Referral programs are a great way to capitalize on user satisfaction: they are both highly effective, and an extremely resource-efficient type of campaign. This type of marketing requires almost no budget nor labor.
It does, however, require strategy.
(For clarity’s sake, we’re not referring to paid sponsorships, endorsements or affiliate marketing kickbacks. The focus of this article is primarily on non-financially motivated recommendations, though we will be discussing referral bonuses, too.)
Why referral programs are important for startups
Word-of-mouth renown is the greatest equalizer for marketing in the tech industry.
If you’ve ever run a comprehensive advertising campaign, you’ll know how quickly those costs add up. Start-ups will always be at a disadvantage in the paid advertising space, as larger companies have the budgets at their disposal to purchase top-shelf SEO, run TV ads during the superbowl half-time, and hang branded banners off skyscrapers.
If you’re a small-to-medium sized SaaS business, how do you compete with that?
If you can’t go big, go personal.
Here’s the thing about referrals. Recommendations are intimate in nature, something that as a business, you might feel you cannot possibly influence or control.
There is, of course, some underlying truth to this notion. No one is going to make an unpaid recommendation for a product they don’t believe in.
The absolute best thing you can do to get users to recommend your product is to make them feel like they’re getting great value. The value trifecta looks like this: your product solves a problem the user faces in their business, their experience with your service and your team is positive, and it comes at a good price.
These criteria are of course inherent to your product itself. So how do you encourage word-of-mouth recommendations purely through marketing?
Here are 3 tips on how to create a highly effective referral program.
Tip 1: create a referral process that is fast and easy to use
If you want someone to recommend your product, make it simple for them! There are a number of ways to make your referral process more accessible to your users.
There’s a reason why companies that rely on word-of-mouth, views, engagement, or virality display the ‘share’ button so noticeably. This serves both as a suggestion and a reminder. Without such an accessible share function, memes such as this one arguably wouldn’t exist!
In contrast, many SaaS websites make the mistake of hiding their referral program somewhere deep in the bowels of their system.
Naturally, you don’t want to distract your users from work while they’re using your software. However, any tasks you want them to complete need to actively stay on their radar. Essentially, the referral prompt should be visible within the viewer’s peripheral vision, but not distract from the functionality of the page.
You should also send reminders to complete a referral, such as through email prompts or a small pop-up message on the user’s dashboard at given time intervals.
It’s critical that the entire referral process is fast and streamlined so that the user’s workflow isn’t interrupted. The more you can minimize friction during this process, the more users will complete their referrals.
There are several ways to stream-line the referral experience:
Have the referral screen pop up or be embedded, so that the full action can be completed without clicking away from the user’s current work page.
Keep the entire process to a single page.
Allow users to send a referral to multiple people at once.
Make the process compatible across all popular platforms such as email, Facebook, Twitter, Instagram, Discord, Slack, LinkedIn etc. to maximize potential reach.
Offer message templates users can choose from and customize, and also provide the option to input a personalized message of their own. Here are some examples of effective pre-filled template messages.
Be specific about what you’re offering in one glance.
If you’re offering a referral bonus or discount, give it a specific $ value. In other words, ‘$150 off your annual subscription’ is much more effective than ‘-10% discount’ or ‘get 3 months’ free’.
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Tip 2: tailor your messaging to the recipients
The gift of a painless process should extend to the person receiving the referral.
This person often differs from your typical prospect, and therefore has different needs to cater for. It’s possible that this is their first exposure to a solution like your product, in which case they might require more up-front information and handholding than prospects who have already done some market research before arriving at your doorstep.
There are a few ways in which you can reduce friction and incentivize referred prospects to sign up for a trial:
- Present a simple introduction to your service.
- Reiterate the message the referring user sent, notably why they thought this product was a good fit for this person.
- Link a video tutorial of your software and explain what forms of support will be available to them during the trial and adoption phase.
- Emphasize the one-off sign up discount or referral bonus, if you’re offering these.
Tip 3: Pick your message
Effective campaigns don’t contradict themselves.
This might seem like a no-brainer, but in reality it’s a very common mistake to attempt to cover all bases within a single campaign. As a result, the overall message loses its integrity.
There are various approaches to soliciting referrals. For maximum potency, it’s essential to pick one and stay consistent to its values.
Type 1: Product value-driven referrals
In this type of referral, the user recommends your product simply because they think it could be of value to the person they’re referring it to. There’s no bonus or other material gain to be had, other than the gratification of sharing a great service with someone who could equally benefit from its use.
Having your product recommended through value-driven referrals is also a great test for how well you’re doing in your field. There is no financial motivation, so if you’re achieving this type of referral, you know for sure that you’re delivering an exceptional service.
The added benefit of this type of referral is that it costs you nothing.
Type 2: Reward-driven referrals
On the flipside, there are reward-driven referrals. The message to your user is, ‘refer us and gain X’. The ‘X’ in question can be anything – a cash prize, a gift card for an affiliated product, a discount on your services.
Reward-driven programs are more effective if the user can rack up multiple referral bonuses. Some companies even create a multi-level system in which person A not only receives a bonus for referring to person B, but also gets a kickback if person B refers to person C, etc.
This system is popular because it can show fast results, however it has a number of significant drawbacks:
- Because there is a financial incentive to send referrals to as many people as possible, many of those referrals will target people who are not suitable clients, and will quit after the initial trial.
- You are bound to lose money if you provide bonuses for trial conversions instead of paid service subscriptions.
- The more trial conversions you have, the more work you create for your team, who will have less time to take care of your most valuable users.
- User churn and failed trial conversions will inevitably spike. This is a potential red flag to investors.
- Multi-level marketing and pyramid schemes have a terrible rep, and with good reason! Caution is advised for any campaign using secondary kickbacks in order to protect your brand reputation.
- According to this 2020 study, high referral rewards actually lower profitability overall.
Type 3: generosity-driven referrals
If you’re finding that despite optimizing your referral process, value-driven recommendations aren’t occurring organically, and the risks of reward-driven referrals outweigh potential benefits to your SaaS company, consider a third option: generosity-driven referrals.
Studies into word-of-mouth marketing such as this 2019 experiment have demonstrated that the most successful referral programs emphasize the benefits to be gained not by the referring user themselves, but the person they are referring a product to.
Why? For most of us, capitalizing on the attention span of friends and colleagues seems a bit ‘icky’. If there is something concrete for them to gain, however, this transaction feels less like asking for a favor and more like extending an offer.
The same experiment shows that referral programs offering bonuses to both the referrer and the referee are highly effective, as long as the wording emphasizes the benefit of the referred person. In other words, ‘invite a friend to give them $20 off, you will get $20 off too’ is by far the most effective version of this message.
Growing your SaaS business with a referral program
Whichever approach you decide to opt for, remember the key elements to creating an effective referral campaign: simplicity, immediacy, consistency.
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