Referral program – Yes or No?

I get inquiries or asked all the time do I need to start building out sales through a third party? This can take a second to answer or a full hour-long conversation, but as with anything it’s your B2B SaaS business with a sales price point to the market, but the first question is why do you want to do this?

The conversation normally goes something like this:

‘Hi, Stewart. we are growing sales through direct and it’s going well but now I have my Series A I need to spend that money to accelerate growth and I’ve been told that selling through third parties is a good thing to do…

I have been reading posts and your content and looking at what my competition is offering seems its normally something that is easy to set up and can be used at any sell price point.

I want to start by offering XXX% for month/year/ongoing for the introduction of a lead and I know you have done this before or been involved and would like your input.’

This is where the conversation can stop or start but I would normally respond with a response but we need to work through affiliate marketing, refer programs and what the differences are first.

Is an affiliate program different from a Referral program?

An affiliate program is something that is offered to drive website traffic, big giants like Amazon will provide a program like this or if you want to drive gambling site traffic then jump on that bandwagon, it’s open to being abused, lots of revenue is generated and paid but not necessarily in the right manner.

A referral program is where you have individuals registering leads with you, not website traffic, they physically have to come and log a lead under your process and system so fully in your control, you then qualify that lead and decide if you want to move forward with it.

Affiliate – Web-driven traffic.

Refer/Introduction – Lead registration.

So now let’s go a bit deeper.

Affiliate vs. Referral

Affiliate

Affiliate is really simple, you give out a unique link or URL over the web and users sign up to receive this who then send you web traffic which if it ends up the customer purchases you pay them a commission or a fee for this, the customer is yours, you bill them, talk to them and you have the relationship with them so you can upsell to them later on.

Key Facts:

Web Sign up – automated flow – user gets a unique or special URL to send traffic via
Customer – You own the relationship and once you have paid the affiliate who drove the traffic then cost of acquisition has been absorbed and one time hit.
Automation – This type of activity is less human-intensive and can be 90% automated.

Benefit:

Web traffic through third party generation / Lead generation for targetted acquisition

Referral

Referral programs are generally low touch and aimed at allowing your existing users and customers to spread the love about your B2B SaaS app and when they do then a fee is paid, either once or long term.

The nuance with this is that you can also use this as a low barrier of entry to building third party generated revenue by offering this out as a way of engaging with you as a partner to bring leads from consultants who are working in clients that you wish to sell to and they can bring you in as a solution that solves a pain point without actually having to do the sales cycle but getting paid on the back end and also making them look knowledgeable to their client.

Incentives

In terms of payment then a referral program can be carved in multiple ways but in its simplest form at the user level, you can incentivise users to share your B2B SaaS application out to their network, and for every new user they bring in they get extra credits/storage, etc. A great example of this is Dropbox who learned early on that users didn’t want monetary compensation but preferred more storage for themselves, but also they double paid and gave the new user and referring user extra storage, and from this growth accelerated.

In this case, the referral model works well as its paying out storage on both sides whereas the affiliate model driving traffic is purely that, not a network sharing model as both parties don’t get a benefit but also do you want to ask your network to use a product that you get paid on and they don’t get a benefit. Affiliates tend not to use the product in most cases they are promoting, it’s about driving traffic through their own websites and sources so they can get paid.

In the referral model, it tends to be more users or networks of people who are using the product or it would benefit them to promote it and get paid for this, but they tend to also get other benefits outside of the commission payment.

So all clear now? Questions at the end of the post, answers on a postcard.

B2B SaaS lets get over it they are low cost.

So we understand the nuances between affiliate and referral programs, but with my experience in corporates and cloud companies is that on-premise B2B software is expensive whilst B2B SaaS is a low cost, the value is spread out like a loan over a longer period of time whilst on-premise is or was a one-hit on the finances.

Simple maths equates back to on-premise is high touch sales which mean more expensive, B2B SaaS is a no-touch/low touch sales cycle with a focus on marketing driving the lead funnel aggressively to keep it permanently full.

Back to Referral Programs – Payments

So now the explanation is out the way the question always comes back to what do I pay for referral and what actually do I get? What is the standard model for payouts in B2B SaaS? What have you paid in the past? There is not a straight answer and it’s down to you, is your product expensive or high value, is it $50 per month or $500?

Payment Models.

One time only – pay the referral partner a % of the first year invoice – pay this to them once the client has paid you. (% can be 10/15/20 whatever, look at your cost per lead and COA, determine what fits for you)

Recurring – pay the referral partner a % of the first year and ongoing invoices, pay them again once the client has paid you. (% normally less as paying out longer term)

Then you can look at only paying for leads that are annual contracts or have a minimum value, make it as simple or as complex but focus it back on what is the objective of a referral program? It is to drive inbound leads for your B2B SaaS.

Put this back into context, you are asking individuals/companies to promote your product out to their network and then you do the sale and closing, they are basically acting as your inbound marketing engine and thus need a suitable goal to do this, which may also align to their focus as well but not necessarily.

Payout for What?

When considering how to compensate your referrals, you have to know what you are going to pay them for.

Most referrals are based on driving leads that close and then a payment is made based on the monetary value to the B2B SaaS but is that always the best use of the partner’s network? This is not a written rule and if you want to set up a model where you gain access to their network and make a payment based on them sending a promotional email out, inviting them to your webinar or event then you can act more proactive and set up a commission structure that makes sense in this model, it doesn’t have to be the same as everyone else.

This is the Cost Per Action (CPA) model, though you will sometimes see it broken down further to Cost Per Lead (CPL) but basically its about generating new leads for your direct sales organisation.

Referral Payment Metrics

Are you going to Pay for Leads, Actions, or Customers

You need to look at what fits your business and the mindset you have around this, I speak to a lot of founders/sales leaders who interpret third party sales as losing control, paying for something they can do better themselves!!!!

As I point out that if they want to grow, simple go hire more really great salespeople, give them 6 months to ramp, and start to hit quota then as you are doing that keep back hiring and keep that momentum going whilst losing people to competitors or growth, which takes us to mindset.

The Correct Mindset is Key

So many of the things that hold B2B SaaS vendors back and it drives me crazy is MINDSET!!!!

They are intelligent individuals and have grown their company to get a Series A investment, but then hinder their success by not having the right mindset to plan and implement a channel strategy correctly, as they have heard that it fails, if it is so bad why does Microsoft sell 95% of its cloud products through partners?

Some of the questions I get when discussing Referral partner programs:

“What is the minimum I can pay but still make the partner send me quality leads?”

My response is how do you incentivise your marketing team for leads, do you pay them minimum wage?

But it should be actually a mindset that is how can I incentivise these partners to do more? If you have a marketing funnel that is delivering high quality leads then do you reduce your investment or put more in?

“What’s the MOST I can afford to pay my Referrals?” is the question that should be asked.

Simple maths comes into play but the longer your customer lifetime is and the more likely you are to grow Lifetime Value (LTV) through expansion revenue then the more you can afford to pay out up-front or on a recurring basis (or both).

Mindset is key, if you believe in selling with and through third parties then set it up for success from the outset.

Enable Your Referral Partners and they will deliver.

So you have the right mindset and want to make your partners successful and by doing so accelerate your sales, then treat them with respect as if they are employees by enabling and empowering them to bring you qualified high-quality leads consistently.

Enable them with base marketing materials and collateral, do not overwhelm them.
Do no train them to sell, they are there to generate leads you are there to sell.
Reduce friction for bringing you a lead, online registration which notifies them when the lead has been accepted.
Communicate – automate updates on the status of the lead – It’s not down to them to chase you.
Pay them when you say you will.

These are investments but once done it will add scale to your Customer Acquisition efforts.

B2B SaaS Sales Teams…

There always comes a point in my conversations where I ask, “So how is your sales team performing, do you have a sales process that is highly converting?”

Of course, the response is that the team is knocking it out of the park and hitting quota/targets, and its all wonderful in the Land of Oz !!!

Before you start recruiting referral partners, you need to be certain that you can sell your own product, that you have a sales process and team that is converting, are they doing follow up and have a qualifying process that is tight? If you are looking to get more leads in as your team is not selling or closing then you need to look back at the organisation, back to mindset and understanding, if your marketing and sales teams are working in sync and efficiently not add more into the top of funnel to drop out.

So if you have a great performing sales team then why would you need referral partners? Assuming that’s a legitimate question, the answers are scale and distribution, I have to keep stating that to founders!!!

The key is that if your sales team are performing well and closing then this will drive referral partners to send more highly qualified leads as they will be confident you have the process and drive to earn them revenue and yourselves, seriously… who wants to work hard to send leads to a SaaS company who doesn’t close them.

Do Referral Partners Lower CAC?

Mindset, Mindset, Mindset !!!!!!

Can referral programs lower CAC? Perhaps but it’s not the aim, if marketing is asking to set this up as they see this being the outcome then its the wrong thinking, the goal of a referral program should be scale and distribution and to reach audiences/markets segments that your standard marketing message cant attain to due to the age of your B2B SaaS brand and position in the market.

Scale because you can reach more of those audiences/market segments faster and consistently, lowering CAC is not key but rather it is all about accelerated growth.

End of the call….

Normally get to the end of a conversation and I tend to summarise what we have discussed by focusing the B2B SaaS founder/sales leader on the research and planning they need to do before proceeding further, of course, I can help and assist them with my services but they need to answer some questions that they feel the business will be comfortable with first:

Consider the following:

What can you afford to payout? What are your hard costs, what’s the contribution margin for each customer at full steet price etc.
Who are your potential referral partners? What other products and services do they promote?
Are they straight-up referrals as in have a network in your sector or are these people that work with your potential customers in a trusted advisor capacity?
What will your potential referrals want – one-time payout or recurring?
Will you have an open, anyone can join referrals program or will you keep it private and vet potential all?
Do you have the resources/time/staff and investment to do this?
What is the goal? (Term / Revenue / Payouts )

A key question has the budget been allocated and where from for payouts.

Entering into any type of partnership model requires a mindset, budget, and planning it is not something you start on a Monday morning and expect revenue to come flooding in as you have the hottest SaaS product on the market, you need to look at the long term pay off and benefits but also make certain you have the process and structures in place for this to be successful.

Check out some of the partner programs already out there, see how they are successful and what is driving their accelerated revenue growth.

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You need a Referral Program for your B2B SaaS like Dropbox and you need it now