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8 minutes read

How to Build an Effective Referral Program for Your App

By Robert Kazmi
By Robert Kazmi
8 minutes read

How to scale up is always of key concern to SaaS.

Maybe you’re hoping to attract a new funding round, a buyer or simply to hit growth targets. In any case, you need to show strong numbers and a solid record of attracting new users.

There are various activities which have helped SaaS gain the fast track to growth, but one that stands out among many examples is the use of referral programs.

Let’s take a closer look:

Why use referral programs?

Have a look at how much you currently spend on top-of-funnel marketing, do you want to be spending much more than what you do already? One of the benefits of referral programs is that you can leverage your current user base and avoid spending a whole lot more on marketing.

If you can implement a referral program effectively, research shows that it can be a powerful force behind the growth of your customer base. Here are just a couple of statistics from Referral SaaSquatch:

  • People are four times more likely to buy when referred by a friend.
  • The lifetime value for a new referral customer is 16% higher than non-referrals.
  • 92% of people trust referrals from people they know.

Trust is a key factor here – someone who has never come across your company before feels more confident when there is social proof in the form of a recommendation from someone they know or trust.

A referral program can give you measurable results and a chance at virality without the hefty marketing price tag. It can provide SaaS with consistent growth as well as longer term retention.

What makes a referral program effective?

If you’re going to add a referral program as a growth strategy, not just any format will do. There are referral programs out there which completely bomb because they haven’t been crafted in such a way that they’re actually enticing to people.

A key to remember about referral programs is that they’re completely different from affiliate marketing. Affiliates are motivated by (usually cash) rewards to share your link or put up a banner on their website. They don’t necessarily strongly endorse your product. On the other hand, referrals rely on requesting existing users to share with their own network. There may be some reward or benefit for doing so, but it’s not often monetary.

When you’re asking users to refer your product to people they know, they will be eager to do so only if it is a way they can help others and if it will reflect well on them. For most people, you could pay them cash but they wouldn’t want to recommend a poor product to their friends.

For that reason, the first item on our list for what makes a referral program effective is a quality product.

Have an exceptional product

Your product and services have to be standout if your referral program is to be a success. Dropbox is an example that is often talked about when it comes to successful SaaS referral programs, but that is because they are a standout.

At the time they came onto the scene, there was no one else like them and they had created an exceptional product. This meant that users didn’t mind sending out referral invites – in fact in April 2010, Dropbox users sent out 2.8 million direct referral invites. The resulting flood of signups meant that the company grew from 100,000 to over 4 million users in 15 months.

Had Dropbox delivered a mediocre product, it would have been difficult for their referral program to take off. They just wouldn’t have had the numbers willing to share and recommend the product to friends.

Make it convenient

You may have come across referral programs that try to get you jumping through hoops before. If users have to click here, copy that, go here, paste there then report back by clicking here, they’re gone.

As a general rule, your objective for the operation of your referral program should be to reduce friction as much as possible. Each step or layer of information that a user has to take in to make the program work is a friction point which could put them off. Make it as easy as you possibly can and use simple referral mechanisms.

For example, you could:

  • Have simple social share buttons so that the user can share with one click.
  • Have pre-populated links and emails so all they have to do is enter the email address they want the link to go to.
  • Include a link in their email footers, where applicable. For example, if your product is one from which the user will send emails (such as for invoicing), you could include an optional message in the footer telling the receiver to check out the product.

Have a logical incentive

One of the things that made Dropbox’s referral program successful was that the reward they offered made logical sense for the product. Their reward was to give away free storage space to the referrer and referee, meaning that the reward was something they would value as part of the product and Dropbox didn’t need to outlay cash for rewards. (Paypal gave out cash, but this makes sense in terms of them being a payment service).

Your SaaS might offer more of a capped service that you have (for example, send more emails, have more contacts or get access to more templates), or, you might offer users the chance to access features from the next tier of service. Another route that some SaaS take is to offer a certain period of time free or to offer a special discount.

Many SaaS (and others) who use referral programs go for a two-way referral strategy, meaning both the referrer and the referee get something. This helps the referrer to feel even better about making the referral!

Know your users

This is something you want to be very considerate of before even coming up with the incentive for your referral program. You need to have a good understanding of who your users are so that you can develop ideas about what might motivate them to participate.

What would your customers most benefit from? What are their priorities? What would convince them to share with their friends and contacts?

Another important point here is that your referral program should be a good fit for your brand, which is why those “logical incentives” make a lot of sense. It would be a bit strange for a SaaS to reward people with chocolate (unless it is directly relevant!).

Create awareness of your program

There are plenty of companies running referral programs out there who don’t do a very good job of ensuring that people know about them. For example, we’ve seen SaaS who relegate their referral program to a menu item in the footer of their website, where it is unlikely to be seen by many.

If you want people participating and making your referral program a success, you need to make sure that it has some prominent promotion.

Here are a few ideas:

  • Build it into your onboarding process. This is what Dropbox did with theirs and users could clearly see their progress and know what reward referrals would get them.
  • Create a referral tab/menu item in your app so that it is obvious to users. For example, Uber has a “share” option on their menu and makes it easy for users to share from there with various button options.
  • Use in-app messaging. The investing app Acorns has in-app notifications pop up every now and then, inviting users to share. They also often change up their reward for a limited time, for example, whereas the regular reward is $5 invested into the user’s account, sometimes they will offer more as a monthly promotion.
  • Put it across your social channels. Talk it up! Get the word out that users can refer through your program.
  • Include your referral program in your email newsletter or as a separate, regular email campaign. An example from Acorns is shown below:

Final thoughts

A referral program, when it has been well-thought out and constructed can be a powerful source of growth for SaaS.

One of the keys is that your referral program can’t be an afterthought or something that you do just because everyone else is – it should be something that is logical, on-brand and integral to your company.

Know who your customers are and who you are trying to attract. Your reward program should be an incentive to current users and enticing to new signups too. Above all, deliver an app of such high quality that people want to talk about it – in the end, people will tell others if you deliver.

Koombea builds beautiful, engaging apps and can create your referral software too. Talk to us today about your needs.


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