Finding sustainable ways to grow is a challenge for SaaS companies today. There are many growth strategies, tactics, and tools available to experiment with. So let’s explain why SaaS companies need a referral marketing program like Rewardful.
It’s a myth that SaaS growth is complex. Businesses don’t need numerous marketing systems working in sync to drive growth. You just need a sales channel that works well. That’s not to say that SaaS companies should use just one marketing channel.
But it makes sense to build a strategy around a marketing channel that has proven itself. In this article, we’ll explain why your SaaS business needs a referral marketing program.
What is referral marketing?
Referral marketing is one of the easiest and most effective ways to acquire and keep new customers. It relies on the proven technique of word of mouth.
When one person recommends a product to another, the referrer is 4x more likely to buy it. Overall, word of mouth improves marketing effectiveness by 54 percent.
This is how a referral marketing program works
You give your existing customers a special link to share with their friends. If their friends sign up for your SaaS through this link, the customers will receive credit for the referral. This reward can come in the form of credits in your app, enhanced features, usage opportunities, or a free month.
Referral marketing programs like Rewardful usually provide an incentive for existing customers as well as new ones. This is called a double-sided reward and is the most powerful incentive you can offer referrers.
Reasons for a referral marketing program
Here are three reasons why every SaaS company should use a referral marketing program.
1. Lower customer acquisition costs
There are countless ways to acquire new customers, but each of them comes with a cost.
Your Customer Acquisition Cost (CAC) is a number that calculates all the expenses you spend on acquiring, converting and retaining new customers. They include all the costs you spend to acquire new customers for your SaaS system.
CAC is an important metric to track, but many SaaS companies don’t. They may lose money as a result.
Your CAC largely depends on the tactics and tools you use to acquire new customers. If marketing channel A produces as many customers as marketing channel B, but for half the cost, it is wiser to abandon channel B and invest more in channel A.
Unlike most other marketing channels, referral marketing has extraordinarily low customer acquisition costs because it relies on your customers to spread the word. Crucially, these costs are fixed and predictable.
Referral marketing gives you a clear picture of what it costs to acquire new customers, in contrast to other marketing channels such as content marketing, email marketing or influencer marketing.
2. Healthy Customer Lifetime Value
Your Customer Lifetime Value (CLV) is a prediction of your net profit from the entire relationship with your customers. Basically, it shows you how much money you make from each customer.
To drive growth and profitability, your CLV needs to be higher than your customer acquisition costs. The bigger the difference between your CLV and your CAC, the faster you can grow.
A study by the Wharton School of Business found that referred customers are more valuable than unrelated customers. Namely, the CLV of referred customers is 16 percent higher than that of non-referred customers, which is attributed to higher profit margins and lower churn.
At the same time, the likelihood that referred customers will leave the company is 18 percent lower.
This allows you to conclude that referral marketing programs like Rewardful not only bring in more customers, but also bring in better customers who spend more money.
3. Higher conversion rate
It is not enough to attract visitors to your website. You also need to convert those visitors into paying customers. This is arguably the harder task, so you’ll need all the help you can get.
Referral marketing can achieve conversion rates three to five times higher than any other marketing channel.
When visitors land on your site because of a recommendation, they are more likely to sign up for your product. According to a Nielsen study, 92 percent of respondents said they trust product recommendations from friends or family members.
That’s because they already see value in your product. They know what your product does, they know it solves the problem it claims to solve, and they know at least one person who will reap the benefits of the product.
Additionally, visitors who weren’t referred to your site are difficult to convert into customers because they weren’t right in the first place. They may have encountered your content or clicked on your paid ads, but they may not have the problem you are solving, cannot afford your service, or are happy with a different solution.
Conclusion: Referral marketing for every SaaS company
To build a successful SaaS business, you need to acquire qualified leads as cheaply as possible, convert them into customers, and prevent them from churn. Referral marketing (and the power of word of mouth) can help you with all of this.
The earlier you start a referral marketing program like Rewardful, the faster your customer base can expand and ensure continued growth.