A SaaS referral program is a word-of-mouth marketing campaign that gets current customers to be like…
It’s like going from a nobody to the most popular kid in school.
But how do you measure the success of your SaaS referral program?
We’ve got you covered!
- Get all the deets on AARRR Pirate Metrics (and how to track them for your business).
- Check out 6 surefire ways to boost your Renewal Rate and build a loyal base of customers.
- How effectively are you acquiring new customers? Track these 6 Key SaaS Acquisition Metris to get the complete picture.
This Article Contains
- 4 Key SaaS Referral Metrics to Track Program Success
- Other Important Referral Tracking Metrics
- 3 Examples of Successful SaaS Referral-Led Marketing
- How to Improve Your SaaS Referral Program
4 Key SaaS Referral Metrics to Track Program Success
Referral-based SaaS metrics are measurements you use to assess the effectiveness of your referral campaign.
Think of them like glasses.
With referral tracking marketing metrics, you’ll see your success come into focus like—
You can use tools like Google Analytics or referral program software to monitor your program, but first, you need to know which SaaS referral metrics to track.
Let’s jump in!
1. Viral Coefficient (VC)
What is viral coefficient?: The VC shows how many new users an average user generates for your SaaS business, demonstrating your organic, referral-led growth trajectory.
Why is viral coefficient important?: It reflects the growth of your company’s customer base. A high coefficient indicates that your company’s growth is on the right track.
How to measure viral coefficient:
You’ll need three things to calculate this:
- Number of customers.
- Average number of referrals per customer.
- ACR (average conversion rate) for referrals (%).
First, you need to calculate the average conversion rate.
Let’s say you have 200 customers who, on average, refer 10 people each. That means a total of 2000 people were referred to your product. If 400 of the referred people became customers, your ACR would be:
|400 = (400 / 2000 * 100 )= 20%|
Now you have everything you need for the viral coefficient formula:
|VC = (No. of customers / Average no. of referrals per customer / ACR for referrals(%)) / 100|
Put it all together, and your viral coefficient calculation is:
|VC = (200 * 10 * 20% )/ 100 = 4|
So this means the average number of users each customer refers is four.
How often should you measure viral coefficient?: Check your viral coefficient at least once a month to respond quickly if it starts to decrease.
Viral coefficient benchmark: Anything above ‘one’ helps reduce your customer acquisition costs because you’re not paying to acquire them. You’re gaining users all through your referral-based marketing campaign!
Ways to use viral coefficient in your SaaS company: It’s a good idea to compare this metric with viral cycle time. Viral cycle time measures how long it takes an existing customer to refer your product to others. If your viral cycle time is too long, you might need to simplify the referral process or offer more incentives.
2. Participation Rate
What is participation rate?: The participation rate shows you the percentage of customers who signed up for your referral program.
Why is participation rate important?: It shows who is at the right point in their customer journey to consider advocating for your product. Also, it reflects how well-focused your promotional strategy is and the quality of your copy and calls to action (CTAs).
How to measure participation rate:
The formula is:
|Participation rate = Total no. of customers * Average conversion rate for referrals|
Using the example above, let’s say you have 200 customers and an average conversion rate of 20%. Your participation rate calculation is:
|Participation rate = 200 * 20% = 40 customers who participate|
How often should you measure participation rate?: Tracking rates monthly will give you a bigger picture of your growth. This way, you can monitor any decline, stagnation, or increase in participants over time.
Participation rate benchmark: There’s no set standard, but you can still expect a surprisingly high number of signups. On average, 83% of customers are willing to refer products after a successful purchase.
Ways to use participation rate in your SaaS company:
Track participation rates for each marketing channel — e.g., social media, email, or in-app. If participation rates are higher for certain channels than others, you can target those channels to maximize your outreach.
Alternatively, if your participation rate is low, it likely means that your signup copy doesn’t clearly communicate the incentives for referring your product to a potential customer, or the incentives themselves aren’t convincing.
Offer referrers an enticing reward in return, like incorporating a loyalty program. Better yet, consider tailoring your incentives around your services.
For example, if you’re a file-sharing service like Dropbox, it makes sense to offer more free space. Or, if you’re a graphic design platform like Canva, offer temporary access to premium features (more on that later).
Note though, this metric measures signups for the referral program only, not what percentage actually became referrers.
That’s what the share rate does.
3. Share Rate
What is share rate?: The share rate is the percentage of customers who signed up for your referral program and sent customer referrals.
Why is share rate important?:
While the participation rate indicates some engagement, there’s no guarantee that your customers will follow through and send referrals. Since your share rate metric focuses on the customers actively sending referrals, it indicates high customer loyalty.
How to measure share rate:
For this SaaS metric, you can track how often customers send referrals through direct messages or social media and the share rates for each marketing channel they use.
Typically, SaaS companies use referral marketing software to automatically track sent invite codes. Besides referral software, you can rely on tactics such as:
- Creating forms
- Using cookies
- Using a spreadsheet
- Using Google Analytics
How often should you measure share rate?: Like with your participation rate, you should measure share rates at least monthly to keep track of growth trends. Tracking it more frequently (i.e., weekly) won’t give accurate data.
Although your company needs to track it monthly, as an owner, you may want to just look at quarterly numbers unless a particular month has worrisome figures.
Share rate benchmark: 83% of customers are open to referring, but that doesn’t mean they will. In fact, only 29% actually do. So don’t be discouraged if your share rates are much lower than signups.
Ways to use share rate in your SaaS company:
If share rates are declining, again, this might come down to a lack of clear communication or good incentives.
Alternatively, you might not be focusing on the right customers for your program.
Your team should compare your share rate with your activation rate. Activation rate tracks how many users achieve value via reaching milestones during the customer journey, like giving positive feedback in a survey.
The more valuable actions a user performs, the likelier they are to become a referrer.
If you notice a correlation between more activation moments and a higher share rate, you’ll better understand which customers to target for your referral campaign.
3. RCR (Referral Conversion Rate)
What is Referral Conversion Rate?: This metric shows how many people start paying after being referred.
Why is Referral Conversion Rate important?: RCR is vital for gauging the success of your referral sales. It shows if word-of-mouth marketing is actually paying off.
How to measure Referral Conversion Rate: The formula is:
|RCR = (Total no. of purchases from referral link clicks / Total no. of referral link clicks) * 100|
Let’s say you get 40 new paid signups from the 80 people who clicked a referral link. The RCR calculation is:
|RCR = 40 / 80 * 100 = 50%|
How often should you measure Referral Conversion Rate?: You should check your RCR rates at the end of every quarter or year. If you have fast sales cycles or your team catches any red flags, you’ll want to track conversions more regularly (i.e., monthly).
RCR benchmark: The average referral rate is 2.3%. If your RCR is close to or higher than this, then your program is on track.
Ways to use RCR in your SaaS company:
If conversion rates are low, offering referred leads an exclusive referral reward is a powerful strategy. For example, if they purchase using their unique referral code, you can promise them a free subscription month, discounts, or a cash reward.
Instead of sending referred customers to your homepage, highlight these incentives on a dedicated referral landing page.
Additionally, you should experiment with A/B testing (AKA split testing). With A/B testing, you’ll see which incentive or CTA led to more conversions so you can capitalize on the best results.
4. NPS (Net Promoter Score)
What is NPS?: NPS measures promoters, detractors, and neutral customers. It indicates customer satisfaction with your product and how likely they are to become referrers.
Why is NPS important?: Your Net Promoter Score helps you cut straight to the chase. Instead of wasting time on unlikely advocates, the score immediately highlights which are ideal targets for a referral program.
How to measure Net Promoter Score:
To gauge your net promoter score, your customer success team should survey current customers with the classic query, “On a scale of 0 to 10, how likely are you to recommend our product to a colleague or friend?”
Anything between 0-6 means a recommendation is unlikely (a detractor), and 7-8 is the ‘maybe’ range (neutral customer).
Obviously, you want to see:
9’s and 10’s mean the respondent is highly likely to become a referrer (a promoter).
Once your customer base has answered, your NPS will be how many promoters vs. how many detractors you have.
Luckily, the formula is super simple:
|NPS = Promoters% – Detractors%|
For example, if 20% of respondents are detractors and 60% are promoters, your NPS calculation is:
|NPS = 60% – 20% = 40%|
How often should you measure NPS?: Send NPS surveys every quarter, preferably before quarterly reviews, and discuss any updates to general customer satisfaction with the team.
NPS benchmark: Anything above 0% is fine. But to see the best results, you’ll want to shoot for a score above 20% or 50% — even 80% if you’re feeling ambitious!
Ways to use NPS in your SaaS company:
Simply asking for a customer’s rating doesn’t give you enough context. Go the extra step and ask why they’ve given a certain response. This way, you can look out for patterns.
For example, if you notice that most detractors like the product but find customer service lacking, you immediately know the problem.
That said, don’t go overboard and include too many questions, or you risk a drop in response rates.
What Type of Company Are SaaS Referral Metrics Most Applicable For?
Generally speaking, these marketing metrics are suited for a SaaS business seeing steady growth. Most companies set up referral programs after establishing a steady stream of loyal customers.
Companies tend to invest in referral marketing early on only if they’re a larger brand with an in-built customer base, which they can leverage to launch a new product.
Otherwise, SaaS referral metrics aren’t ideal for an early-stage small business during the launch phase. You’ll only want to start tracking metrics after you’ve built enough awareness of your product to successfully attract a sizable customer base.
Other Important Referral Tracking Metrics
A few other vital SaaS metrics include:
- Network Effects: This SaaS metric links with virality but indicates how the value of your product increases as more people use it.
- CAC (Customer Acquisition Cost): CAC is how much money a SaaS company spends when gaining a new customer. When creating your reward system, compare the CAC for customer referrals against your general CAC and see how much you’re saving.
- CLTV (Customer Lifetime Value): Customer lifetime value is the total recurring revenue you can expect from customers throughout the business relationship. CLTV compares customer retention with ARPU to help you determine the overall value of a referred customer.
- ARPU (Average Revenue Per User): This SaaS metric is the average revenue you get from each customer. ARPU can be pretty low in the SaaS industry, so referral marketing is a great way to increase your customer base and, in turn, your revenue.
- Revenue churn: This metric is a measure of your lost revenue, which can provide additional context for what might be turning customers away.
So how do you ensure your customers go from—
— to telling everyone about your product?
Let’s look at other SaaS companies for inspiration.
3 Examples of Successful SaaS Referral-Led Marketing
Some of the leading companies that have accomplished success with this word-of-mouth marketing campaign include:
Uber is a transportation service that lets people hail rides from registered drivers in almost any city.
Founded in 2009, Uber initially encouraged existing customers to share with friends and attract new riders by offering a $10 reward. And then, Uber introduced smooth, in-app referrals.
Uber’s mobile app is a great example of well-crafted referral software. The app provides an invite code riders can share directly with your contacts list. App users can track the invitee’s progress, receive email updates, and earn a unique referral reward localized to their city.
Although services were limited to San Francisco when the app launched in 2011, Uber gained an active user base of 70,000 per week in 2013.
Then, the company expanded its global operations to East Asia, South Africa, India, and more. By 2016, Uber gained a total of 37 million users worldwide.
Currently, Uber has 118 million users in over 70 countries and 10,000 cities.
Trello is a project management tool that continues to surge in popularity, and for a good reason.
With each referred signup, users earn a month of free access to Trello’s premium features (i.e., calendars, timelines, and unlimited workspace). Users can refer up to twelve people — potentially a year of free use.
How did Trello benefit from this?
- In 2012, Trello reached 500,000 users.
- In 2016, Trello reached 1 million users and 14 million signups.
- Today, Trello has nearly 5 million users.
Canva is a platform that lets anyone design ads, social media graphics, and more. In fact, it’s one of the most popular graphic design tools in the SaaS sphere.
Canva users acquire credits through referrals and exchange them for premium elements (i.e., illustrations, images, icons, and music).
Since its inception in 2013, this SaaS company quickly gained traction via word-of-mouth referral marketing, attracting over 750,000 users.
This figure jumped to over 10 million in 2016, which CEO and co-founder Melanie Perkins attributed to their user base sharing and promoting the platform.
Now, Canva has an active user base of over 100 million people monthly.
Still not sure how to accomplish a winning referral marketing strategy?
How to Improve Your SaaS Referral Program
Following these best practices will help you refine your referral campaign:
- Create a clear, straightforward referral program: Provide current customers an invite code via email, social media, or on an app with referral marketing software capabilities. So each time a referred customer purchases with that code, the referrer gets a discount on their next subscription fee.
- Use enticing incentives for referral sales: To boost your retention rate, encourage an active user with a reward like gift cards or a loyalty program to stick around. Make incentives specific to your customers’ needs and wants without overspending.
- Automate the process: Referral program software lets you send unique URLs and automatically track any potential customer in your system. Referral software reduces manual calculations and the risk of human error, which, in turn, will give you better insights into your program’s success.
Boost Brand Awareness With Referral Tracking Marketing Metrics
If executed correctly, a referral program can increase brand awareness, retention rate, and recurring revenue — all without expensive acquisition efforts.
And by using the SaaS metrics we discussed, you can measure whether this marketing strategy is paying off.
Looking to offer more value to your new and current customers?
Develop a winning strategy to set you apart from the crowd with Startup Voyager!
Contact our specialists today, and we’ll help you deliver well-optimized, conversion-focused content, see your organic traffic skyrocket, and attract even more users.