What is Referral Marketing?

Isabelle Wuilleumier Salemme

Try to think about the last time you’ve tried something new, went to a new restaurant, bought a specific brand of a new product. Chances are your decision has been influenced by recommendations from people you knew.

I can use myself as an example – just last week I’ve decided I wanted to join a gym and my decision was entirely based on the information my friends and family gave me. I actually ended up at a gym where a friend works out and, because he referred me, he got a gift kit and I didn’t have to pay the enrollment fee – win win situation!

The same goes for SaaS companies – there’s a huge number of marketing and sales techniques you can employ when selling your Saas but referral techniques always stand out for its lower cost and awesome results.

Numerous studies, such as this one published in Forbes and this in the Journal of Advertising Research – point out the importance of referral marketing (aka word-of-mouth).

Even though the marketing scenario and techniques have changed and evolved through eras, referral marketing is an ever-present technique for marketers. In the journal of advertising research article, the authors wrote:

The real value that an advertisement generates is three times more than the value if WOM is not taken into account.

Why is Referral Marketing so important for SaaS?

The world has become increasingly digital over the past decades and with this evolution came an entire generation of innovative businesses built by creative entrepreneurs. All that has consequently increased the demand for SaaS products.

The reason why SaaS boomed intensely was mostly because it provided simple and intuitive B2B and B2C platforms. If we consider all those companies surfaced as an early-stage startup they had a few common challenges that affected them all: consistently acquiring new customers, retaining their customers and growing the business.

Provided we’re talking about startups they had to overcome those barriers without spending a lot. The first SaaS company that really applied referral marketing and became a case study was Dropbox.

Dropbox launched a simple – but way ahead of its time – referral program in 2008. Their case is an example of how referral marketing really works: even though they work at a hostile environment full of competitors, they’ve managed to go from 100 thousand registered users in 2008 to over 4 million within 15 months. Most people don’t actually know that Dropbox’s referral program was actually inspired by Paypal’s, launched in the early 2000’s.

What set Dropbox’s killer approach to the competition was that it came at a time most people weren’t relying on referrals. At that time, no one could ever imagine those techniques such as unique referral links or “invite-a-friend” programs could be that effective. That’s mostly how Dropbox conquered millions of users and has a value currently estimated a around $10 billion.

After this astounding success it became clear referral marketing works and, nowadays, it’s not a surprise to see many (not to say all) SaaS companies have adopted it as a part of their general marketing strategy.

Is Referral Marketing the same as Affiliate Marketing?

Short answer: no, it’s not.

Before you can actually learn how to explore referral marketing it’s essential that you know the difference between Referral and Affiliate marketing.

Referral Marketing relies mostly on requesting your users to use the power of their network to refer your company and it may or may note come with a monetary benefit/incentive. Affiliate marketing is fueled by financial and/or business incentives.

Since referral marketing adapts best to the company’s needs and comes with more benefits, it’s a growing strategy in SaaS companies’ preference. However, before you can start your very own referral marketing campaign, there are a few techniques you should consider. But that’s a topic for another day…

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Written by
Isabelle Wuilleumier Salemme
Head of Customer Support @Pipefy. She uses her extensive Pipefy knowledge to help users make the best of Pipefy via support and writing informative content pieces. Besides being in charge of support, she's an avid reader, a coffee lover, and a professional photographer.

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