Your guide to B2B referrals
🔥 Cello’s Stefan Bader on how to make user referrals a cost-efficient B2B growth engine
Word-of-mouth and user referrals are known to be the most powerful way of growing consumer startups. In B2B software, the potential of referrals hasn’t been fully realized, to put it mildly, despite being a coveted source of growth.
The channel has become more popular given the twin trends of product-led growth and community. It doesn’t hurt that in the current economic climate, folks are turning to near-$0 CAC channels in order to drive efficient growth.
I caught up with B2B referral wizard Stefan Bader, co-founder and CEO at Cello, makers of an easy-to-integrate user referrals platform for B2B SaaS. Stefan presents a compelling case for SaaS companies – and PLG companies in particular – to prioritize user referrals in their acquisition mix.
Keep reading for a seven step guide to turn referrals into a compounding B2B growth engine.
This is a guest post in collaboration with Stefan Bader from Cello.
Why should you focus on user referrals in B2B?
The way new B2B software is discovered has shifted from outbound and search to social and personal networks (dark social). Incentivizing user-generated word-of-mouth and referrals has quietly become a powerful B2B growth strategy.
Referred users are usually your best users. We see top SaaS companies achieve a 1:5 ratio, where one in every five users brings in a new paying customer annually. Referred users spend more, retain better, and have higher LTV. Conversion rates can be four times higher compared to paid social or high-intent SEO channels.
tl;dv, an AI-powered meeting recorder, integrated and launched its user referral program within a few days, growing the channel to 550 monthly sign-ups soon after.
There’s never been a better time to invest in growing word-of-mouth in B2B. However, the channel remains underutilized due to lack of knowledge and being complicated to self-build. Most who try fail to make referrals work as part of their growth strategy.
By following these seven steps, you can avoid common failure points and launch a high-performing referral program fast that generates compounding growth for your business.
1. Evaluate if referrals will work for your product
First, it needs to be said that referral programs aren't for everyone. In order to make referral programs work in B2B, there are a few must-have prerequisites:
1. Your customers are already referring new customers
Referral growth is a sign of product quality. You need users who are passionate about the problem you're solving. If your users aren't willing and able to share your product with others, no amount of incentive can fix that.
2. Your user needs to have contacts to reach out to
While some B2B products are easy to refer to, many are more specialized and require a higher effort on the part of the user. By setting the right incentives, you can overcome some of this friction by getting your users to go beyond their immediate network in an effort to promote your product.
3. You can position your company on the Referral Potential Venn diagram
Aside from the above must-haves, there are three other dimensions to consider. Product LTV, time to product value, and level of product engagement. Best-in-class excel in all three, but you can also be successful with just having two. Anything outside these sweet spots are considered B2B referral death valley.
2. Seamlessly integrate the referral program with your product and UX
If you have successfully met the prerequisites, the next step is to determine the optimal way to present the program to your users, ensuring easy discoverability.
Referrals should feel like a natural extension of the product. Easily accessible alongside the features your users use and love. Hassle-free referring, without unnecessary application processes or waiting periods will enhance program discoverability and reduce friction in participation.
By having both the referral mechanism and a rewards system within your product, you avoid removing users from your product while they are accomplishing their main objectives when using your product. Consider moving any steps requiring authentication or personal details after users have been given rewards, as asking for details upfront can reduce participation.
Most programs never get implemented due to being complicated to self-build (with a high bar for UX) and difficult to manage over time. Below is an example of an easily accessible program from Butter using Cello’s referral infrastructure.
3. Set optimal referral rewards and other incentives
Rewards are the most difficult part to get right. These are company and end-user specific, so there's no one-size-fits-all solution. There are several key things you need to consider:
Rewards must be personal, with direct monetary rewards working best for most users. Few people feel incentivized to obtain cost-savings for a product they're not themselves paying for. In-product rewards can be powerful but may not be understood by users who have never used your product before.
Your rewards need to be simple and easy to understand, without requiring mental gymnastics to figure out what users can earn. Ideally, we recommend setting a reward cap, which is the maximum amount that can be earned per referred customer. This cap should consist of one-time rewards based on qualified, free signups or demos generated, as well as a fixed percentage of recurring revenue (MRR) generated by referred users when they become paying customers. We’ll get to why this is important in a moment.
Rewards need to be meaningful and attractive enough to overcome sharing friction. We recommend working backward from your average contract value (ACV) to arrive at the headline number your users will see. This is called the reward cap, representing the maximum earning potential per referral. Rewards should be flexible to accommodate different intrinsic motivators, and you should experiment to find what works best for your product.
Rewards need to be multi-sided, taking into account both the user who gets rewarded and the invited user. Direct monetary rewards and discounts tend to work best, especially for products with fast time-to-value, free trials, or aggressive monetization strategies.
Rewards should encourage habit creation around sharing, as B2B products generally have lower user numbers than B2C products. You can overcome this by turning referrers into brand advocates who get rewarded for their ongoing influence over a longer period of time. Higher ACV allows for spreading rewards across a long period as a percentage of monthly subscription payments, creating a powerful reminder to share with more users.
Rewards should mostly be linked to generated revenue, as it provides built-in fraud protection and eliminates payback periods. However, you should experiment with rewarding steps before revenue to shorten the time to referrer aha, such as rewarding qualified free sign-ups or demos booked.
The way you communicate your reward matters, so start by creating a message that will make users pause and consider sharing. Going back to the first point, rewarding both on initial conversion and for revenue generated over time enables you to showcase a much larger headline number when marketing the program. “Earn up to $3,000 per referred user” is much more compelling than “Earn $10 per qualified signup”.
4. Make sharing easy and effortless for your users
The effort of getting users to discover your program and hooked by your incentive is wasted if the friction to share is too high. Make it easy for your users to craft great ads for your product they can share:
Provide useful creative assets, such as copy, GIFs, and explainers, to minimize the amount of work your users need to put in. Include swipe copy that referrers can modify to highlight acquisition-focused value propositions. Make sure to include social proof and a clear call to action.
Create a dedicated landing page for users to learn about your program and include many of the aforementioned assets. Maintain an up-to-date FAQ based on user feedback.
Give examples of what effective referral messages look like, and ensure your users can clearly articulate your product's value propositions to others. If your product facilitates showcasing work done with the tool, this can be a powerful way to personalize the message.
Make it convenient for users to identify whom you would like them to refer. If your ideal customer profile isn't clear, provide guidance on what type of users find your product most useful. Products like Gusto can scan your contacts and suggest potential leads that are a good fit based on email domains.
5. Plan and execute an effective program go-to-market
Referral programs in B2B are a longer-term game, not a one-off campaign. The goal is to maximize the number of program impressions over a longer period of time, without annoying your users. To achieve this, a multi-channel approach where the pitch is reiterated across a range of touch-points works best.
Start with a staged rollout. You're likely to not get everything right the first time around. You can roll-out to your community or power users first, as they tend to be more forgiving and more open for providing valuable feedback when testing your messaging at the start.
Launch campaign for existing users. You'll need a campaign to create awareness among existing users and to also attract outside influencers and affiliates:
Email sequence either as standalone, or part of a newsletter or product release
In-app messages standalone or as part of a wider lifecycle sequence
Announcing on social is a good way to reach influencers, affiliates, and user admin-type users who might not actively use your product
Link from your homepage, login or other pages that your existing users frequent
Email signatures and bios if they are important touch-points for your business
Onboarding and referrals for new users. Start by considering your new user journey and identifying the moments when the level of excitement is highest or when they’re most primed for sharing. You can also target users when they reach their "aha" moment, after inviting their team members, or as part of an onboarding email series.
Behavioral triggers for existing and new users. It's important to have the ability to nudge users for referrals when they are primed for it. Evaluate all other touchpoints in your journey where asking for referrals might make sense. Be mindful not to annoy your users with excessive frequency:
Filling an NPS survey with a score > 9
End of successful customer service engagements
After externally sharing links/documents
Hitting product milestones
As part of transactional emails (Ones that show value received from using the product)
Completing a use case
Regular, time-based triggers (e.g. monthly) to complement the above ones
Post-launch. It's essential to talk to your users to understand how rewards are perceived and if they are the correct ones. People have different motivators so you should A/B test everything to find what channels and pitch works for your users.
6. Don’t forget about scalability & governance
Referral programs are about scaling. Have a plan to ensure KYC & legal compliance, an often overlooked aspect.
Don't try to manage payouts manually in a spreadsheet. You carry the burden of KYC (falls under AML laws) even if using KYC-compliant payment gateways. In order to be tax compliant, you need to inform your users regarding tax implications, provide documentation, and communicate to tax authorities. These are common failure points that lead to massive overhead that is difficult to automate after the fact, along with legal risks.
Tax treatment for referrers varies by country and affects your company as the payout provider. You need to inform referrers about tax obligations to avoid legal risks. Referrers, as suppliers, report referral income in their tax returns, either personal or corporate. Countries have specific tax reporting rules, including sales thresholds for self-employment, business registration, VAT, and reporting requirements to authorities or referrers. You need to make sure you can collect this information. For example, in the US, you need to issue a year-end tax form for non-corporate referrers receiving $600 or more.
7. Benchmark and understand what “good” looks like
End of the day, what you want to understand is the overall volume of new users the program is bringing in and what is the quality of these users.
The TL;DR
Incentivizing your existing users can be a powerful strategy for amplifying word-of-mouth. Here are five key takeaways to get started:
You should approach user referrals with a test-and-learn mindset to understand if can grow and scale the channel.
Using a referral vendor allows you to validate a program with less risk and ensure smooth scaling and minimal back-office headache later. In order to de-risk and minimize upfront costs, look for ones with a freemium model that allows you to validate the channel before committing.
Make sure you get buy-in from product and engineering for embedding the program into your product, and from marketing to stage an effective multi-channel go-to-market rollout.
The referral program is not a one-time campaign. Make sure both new and existing users are reminded. The more contextual and well-timed your nudges are, the less likely you are to annoy your users.
Like any community-based initiative, you should keep engaging with your users and be prepared to iterate on your reward model and messaging before you find the global optimum.
PS: I’m testing my own secret referral program. Go ahead, be an early adopter 👇
Really neat proposition. Referral not done well is like revenue left on the table.
Fascinating proposition... great to see the data-driven approach has reached referral/affiliate marketing finally.