How to improve a customer referral program

This episode ended up being a brainstorming exercise on how Tyler can increase usage of  Less Annoying CRM’s customer referral program. Tyler may focus in the following areas: 

1. Trying to increase usage of the existing referral program by driving more awareness
2. Trying to capture more information from signups to determine if they were referred
3. Trying to repackage the referral program to make it more transactional.

Takeaways include:

• It’s important to have a remarkable product experience (that people want to talk about) before you focus on referrals
• Decide what the objective of your customer referral program is upfront
  • For example, is it to create leads or paid signups?
• It’s hard to create a customer referral program for products with long sales cycles
  • If you have a long sales cycle, consider creating or packaging a mini-product that is more transactional in nature to make it easier for your customers to refer (e.g. Hubspot’s website grader)
• It’s hard to incentivize referrals on a low-ACV product
  • This is especially hard if there is also a long sales cycle
  • Considering gamifying and /or tieing referrals into product features
• Think of your customers referral program as a product that requires its own product / market fit.
  • Consider the size of your market (customers and their potential referrals) and how to build the right product for both parties
• Once you think you have a solid referral program product, make sure your customers are aware of it
  • Be careful, you don’t want to be annoying or spammy
  • Considering marketing it passively as part of larger “join the movement” community building
    • With thoughtful design, you can do this in passive sections of your newsletters, emails, website pages and app pages. (But, don’t be too annoying)
• Morning Brew, a daily newsletter, provides a good example of an awesome referral program.
  • They've actually written a blog post about it.

Introduction

Tyler: We're framing it as, how to structure a referral program. But let me dive into why I'm thinking about this.Less Annoying CRM, my business, is currently at about two and a half million dollars in annual recurring revenue. We're growing about 20% per year. I'm happy with both of those numbers, but every company obviously wants to grow, at the very least continue growing and maybe even increase growth. We have not had a lot of success with a lot of marketing things we've tried. One of the reasons for this is totally my fault that I refuse to do certain things. I don't want to do retargeting advertising because I think it's a privacy violation. Anything that's not permission marketing, I'm pretty much opposed to. Also, it's just not one of our core competencies, and because our price point is so low, we don't have the type of budget to compete with other companies on marketing. As a result of that, the way we grow is almost entirely through word of mouth, which is awesome because it's free, it aligns what we're doing with customers. I really like word of mouth growth, but the downside is we have no control over it. I think that's... Would you agree that's true with most companies, that you just cross your fingers and hope word of mouth happens?

Rick: Yeah, I would say so. It's definitely one of those voodoo marketing tricks versus a systematic levered sales approach.

Tyler: Right? Word of mouth is a big topic. Making the product better, for example, maybe is one way to help with it. That's not what I want to talk about today. What I want to specifically do is say, in as much as we can control word of mouth growth, well, A, we have to be able to track it in order to do anything with it, and B, a referral program is one of potentially many ways to increase word of mouth growth. That's what I want to talk about. Historically, what we've done as a company is, we've offered a deal. It's basically the Dropbox deal, which is, anyone of our customers who refers someone else, that other person gets an extra free month of their free trial, and the person who did the referring gets a $10 credit. A free month themselves.

Rick: Give one get one.

Tyler: Give one get one. A pretty classic approach, it's worked plenty of times before. Unfortunately, not many people actually use this. Anecdotally, we have quite a bit of reason to believe that lots of people... almost all our growth comes from word of mouth, but the vast majority of that, I would estimate it at about five to 10%, actually uses the referral program. Which is not great because it means we can't track it, we can't tell what's working, we can't experiment very easily. Basically what I would like to talk about today is, how do we offer some kind of referral program that gets our users, when they refer someone, when they do the word of mouth thing, the person who's signing up actually uses a link that tracks back to... Or maybe that's not even the way to do it, but that one way or another we can track it back to the person who did the referral. This might involve giving incentives, it might be restructuring how the technology for the link tracking works. I don't know, but that's the basic problem I'm interested in talking about.

Rick: Yeah. Recapping, I want to make sure I got this. You've got a couple of challenges. Well, you've got a great product that people want to talk about, that's the good thing.

Tyler: Yeah, that's the good thing.

The challenge of low ACVs

Rick: You know that that's happening, you just don't have control over it. One constraint you have is that you have a low ACV, which means you can't spend a whole lot of money on this. I think the bigger constraint though is your philosophical constraints that you're placing on yourself that don't allow you to engage in some of the marketing activities that actually do give you control over this in terms of data collection.

Tyler: Fair. Maybe we should talk about this because it's a case by case basis I guess.

Rick: Yeah. I think it's hard enough to control marketing on a low ACV by itself. Then when you add, "Oh I'm not going to do that-"

Tyler: Sorry, ACV is annual contract value, right?

Rick: Correct. Thank you. Annual contract value, which is... Let's just talk in, it's $10 per user per month. With that amount of money, you don't have a whole lot of money to spend on advertising or anything like that. Then on top of that you're saying, but I wouldn't even be willing to do that if I did have the money because I don't believe in it.

Tyler: That's one of the reasons I'm trying to constrain to say, there is a whole range of topics about marketing that we could be talking about. But just to keep this constrained I'm saying, people are already doing word of mouth like referrals. I want to be able to track it and consider ways to specifically enable them. One of the things I love about word of mouth is that the customer wants to refer people to us. Everyone is aligned here. I just want to empower them to do it and...