5 Lessons Learned from Launching an In-House Referral Program

by Derek Story

Derek is a co-founder of TeamPages where he heads up sales and marketing. When not in front of a computer, he can usually be found doing outdoorsy things or on twitter.

Back in 2010, my SAAS startup was constantly experimenting with different ways to scale up our customer base for our league and team management app. It felt like I dabbled in just about every growth channel from PPC to content marketing to direct sales, and nothing seemed to give us that hockey stick growth the investors were looking for.

As is the case with almost every SAAS business, one of the channels I explored was a customer referral program.

On the heels of two of the most successful customer referral programs ever executed, I was faced with a decision:

Do we go the Groupon route and incentivize our members with cash and credit in exchange for referred paid accounts, or will our members be more inclined to share TeamPages with their friends in exchange for free upgrades a la Dropbox?

With little to no data on why our customers were already sharing TeamPages with their friends, I was ill-equipped for such a decision. I dove in head first anyway and hacked something together using my intuition and bits and pieces from campaigns I was a fan of.

The results… were less than stellar initially, and generated a long list of lessons learned.

Here are some of the most important ones:

Lesson#1: Understand your customers and their motivations.

I imagine at this point you have an understanding of what need or problem you’re solving for your customer. However, you need to delve deeper to further understand their motivations for sharing your product or service to establish a solid foundation to build your referral program.

Bringing value to others and being seen as a resource or an expert were the two which resonated the most with our audience.

Lesson #2: Data, data and more data.

Back up your qualitative findings from lesson #1, with lots of data. Understanding what the conversion funnel looks like will help you set goals and determine whether the campaign is a successful one.

Having this information early on would have helped us out immensely. It wasn’t until we became obsessed with measuring how each conversion point performed that we really saw the needle move with the referral program.

Lesson #3: Once you launch, you’re just getting started.

Chances are you won’t get it right the first time. So track, report, learn, iterate, rinse and repeat. Get obsessed with optimizing your referral program and don’t be afraid to experiment based on data-driven assumptions.

We started by offering cash incentives for referrals, but eventually moved towards a model where everybody won. Specifically we offered a credit for the referrer and a onetime discount for the friend they referred.

Lesson #4: Assign a champion.

You’re a startup, you’re small, and more than likely wearing a million hats already. That said, the buck needs to stop somewhere and if you’re serious about your customer referral program, you’ll need a single person accountable for its success/failure.

This turned out to be the real turning point for our referral program. Once a single member of our team took ownership, they were able to delve into the data and fully understand the changes needed to turn our program around.

Lesson #5: Whatever you think it’ll take in resources, double it, and then double it again.

Much like writing code, projects like this always seem to take longer, and require more resources than you initially thought. So be patient and don’t kibosh your referral program if it doesn’t take off immediately.

Lesson #6 (Bonus): Focus on doing what you do best.

It took us a month of development time to build a referral program, which didn’t provide the data, and analytics we needed to learn and iterate on our program quickly. The results were less than stellar and a lot more time spent drilling into the raw data and hypothesizing why we weren’t hitting our goals.

Chances are you’re not building marketing software. So before you sit down to build a better mousetrap, take a look around and see if there’s a system out there that already does what you need it to, because I can almost guarantee it will be less expensive and more effective in the long run.

If given the chance to do it differently, would I? Yes of course, I could say that about almost every aspect of the business. But even though it took longer than expected to fine tune our referral program, to date over a quarter of our customers were referred from existing clients.

Additionally, it is my experience that not only do these customers have a lower churn rate, but they’re also much more likely to refer us, which makes them much more valuable than customers acquired through any other channel.