Building a Referral Program for SaaS: Best Practices

Referral programs are one of the most effective ways to acquire high-value customers. Why? Because 92% of people trust recommendations from friends and family more than traditional ads. Plus, referred customers tend to convert 30% better, churn 18% less, and have a 16% higher lifetime value.

Here’s how to build a great referral program:

• Set clear goals: Track metrics like referral conversion rates and revenue impact.
• Offer the right rewards: Use double-sided rewards that motivate both referrers and new customers.
• Make sharing easy: Provide tools like referral links, pre-written messages, and one-click sharing.
• Automate the process: Use tools like Tetriz to handle tracking, rewards, and re-engagement.
• Promote strategically: Ask for referrals at key moments, like after positive feedback or milestones.

Why it works:

• Examples like Dropbox and Morning Brew show referral programs can drive exponential growth.
• They’re cost-effective, with 54% of companies reporting lower cost-per-lead compared to other channels.

Start by creating a program that aligns with your audience’s needs and integrates seamlessly into your product. With the right strategy, you can turn happy customers into your best advocates.

B2B SaaS Referral Programs

Building Your Referral Program

Setting Goals and Success Metrics

Did you know referred customers tend to spend twice as much and stick around 27% longer? [4] To measure the success of your referral program, focus on metrics like referral conversion rates, social shares, and usage rates [3][4]. Use a dedicated dashboard to track these numbers, spot trends, and fine-tune your program as you go.

Selecting Rewards

Offering the right rewards can make or break your referral program. Research shows that non-monetary incentives can boost participation by up to 30% and improve how people view your brand by 24% [5]. Consider double-sided rewards - DigitalOcean, for instance, gives new users a $200 credit and rewards referrers with $25 once spending thresholds are met [2]. Another example is GetResponse, which offers a $30 reward and a digital marketing certification worth $200 after three successful referrals [2].

The key is to pick rewards that fit your goals and resonate with your audience.

Making Referrals Easy

Even when people love a product, sharing it isn’t always simple. While 80% of people say they’re open to recommending a service, only 29% actually follow through [5]. To solve this, make the process as effortless as possible. Provide tools like unique referral links, social logins, one-click sharing buttons, and pre-written messages. A great example is Jobber, which embedded referrals directly into their platform. This allowed users to send invites without leaving the tool, leading to a noticeable boost in participation [6].

Launching Your Program

Adding Referrals to Your Product

Incorporate referral touchpoints at strategic moments, like after users complete tasks or achieve milestones, to encourage sharing [1]. For example, Trello allows users to send invites directly from boards and workspaces [7], while ActiveCampaign provides an easy-to-use click-to-copy referral link [1]. Once these touchpoints are set up, automating their management can make things much simpler.

Using Automations

You can automate repetitive tasks in your referral program. This can include actions like enrolling users after signup, tracking referrals in real-time, distributing rewards when specific triggers are met, and re-engaging inactive users.

“Automating your referral program can be one of the best choices you make. It will help you save time, and put a million other tasks into motion” [8].

Pro tip: The best is to embed the referral program into your main email onboarding automation. That is the best way to scale your referral pool.

Marketing Your Program

Once your automation is in place, the next step is spreading the word about your referral program. A great example is Morning Brew, which grew its subscriber base from 100,000 to 1.5 million in just 18 months. Referrals accounted for about 30% of their 2.5 million total subscribers [9].

Choose the Right Moments to Ask

Promote your referral program when customers are most likely to engage - after a positive review, a recent purchase, or glowing feedback.

Use Multiple Channels

Reach your audience through different platforms, such as in-app notifications, email campaigns, customer portals, social media, and your website.

Keep Users in the Loop

Provide updates on referral progress and celebrate milestones. As Will Fraser from impact.com/advocate puts it:

“Transparency is key to an effective referral program… when customers know the status of their referrals, it helps them understand the value of their participation” [6].

Measuring Results

Key Performance Metrics

Once your goals are set, it’s time to dig into the numbers. These metrics help you assess how well your referral program is doing:

Share Rate and Conversion

Keep an eye on how many customers are sharing referrals and how often those referrals turn into paying customers. A good target? At least a 10% conversion rate[12]. Focus on:

• The percentage of customers actively sharing referrals.
• The conversion rate of referred leads into paying customers.

Revenue Impact

Evaluate the financial benefits of your program by tracking:

• Revenue generated from referred customers.
• How referred customers compare to non-referred ones in terms of Customer Lifetime Value (CLV).
• The program’s overall ROI, factoring in reward costs and operational expenses.

Numbers are important, but they don’t tell the whole story. For a complete picture, combine them with direct customer feedback.

Using Customer Feedback

Customer feedback is just as important as the data. With 83% of American consumers frequently making recommendations[11], understanding what drives them can help fine-tune your program.

“Referrals are so effective because they come from trusted sources. You are much more likely to trust the word of a friend or family member than a complete stranger.” - Kim Schmidt, Project Manager at Essay Writing Service[11]

Solving Common Problems

Every program faces challenges, but addressing these can keep things running smoothly:

Tracking Accuracy

Use reliable tools to ensure all referral activities are recorded. This avoids missing valid referrals and ensures rewards are distributed fairly[13].

My main recommendation would be to use a dedicated tool like getReditus or rewardFull.

Fraud Prevention

Be on the lookout for signs of abuse, such as:

• Multiple referrals coming from the same IP address.
• Sudden, unexplained spikes in referral activity.
• Quick sign-ups followed by immediate cancellations.
• Most referee using free or disposable email adresses

Program Optimization

Test different reward structures and messaging through A/B testing. This helps you figure out what resonates most with your audience[12].

Conclusion

Key Steps Review

To build a referral program that works, focus on these essential elements:

• Strong Foundation: Your product needs to deliver genuine value. People only recommend what they believe in. Use customer feedback to pinpoint your strongest selling points.
• Strategic Rewards: Offer incentives that benefit both sides. Dropbox nailed this with their dual-sided rewards, which played a big role in their growth.
• Seamless Integration: Referrals should feel like a natural part of your product. Smooth integration encourages users to participate without feeling forced.

With these steps in mind, you’re ready to turn ideas into action.

Getting Started

Follow these steps to kick off your referral program:

• First Steps:
  • Survey your customers to find out what rewards motivate them most.
  • Create clear guidelines and an FAQ page to address common questions.
  • Set up tracking to monitor share rates and conversions.

“Referred customers buy faster, spend more, are more loyal and are more likely to make referrals, resulting in more new and recurring revenue for less costs.” – SaaSquatch [10]

• Program Protection:
  • Verify new acquisitions before issuing rewards to prevent misuse.
  • Keep an eye out for unusual activity that might signal abuse.
  • Introduce tiered rewards to keep users engaged over time [14].