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 customersReferral 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 toWhile 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 diagramAside 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.
