What percentage of sales in a SAAS startup should come from referrals?

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JASON LEMKIN

Ultimately, almost all software companies end up getting ~80% or so of their new customers from their existing customers once they hit scale.  From referrals.  From brand.  From word-of-mouth.

Maybe half of that will come from pure referrals in many SaaS companies that sell true solutions.  So call it 40% for now as your KPI, as your goal.

Your job, as best you can, is to accelerate that process.  To get that word-of-mouth/viral/referral engine going faster.  Because not only will that turbocharge your growth, it adds certainty to your lead generation, and also most of these new customers will “free”.

How to accelerate things:

  • Over-hire in Customer Success if you can afford to.  Have more hands helping your early customers be happy.  More here: SaaStr | Customer Success Is A Single Digit Hire
  • Double-down on your “mini-brand” as soon as it emerges.  As soon as you start to get any referrals, double down here.  Have your first user conference.   Do more niche events and PR.  Get on a plane and spend time with your super-seeders.  Make yourself appear to break-out within your narrow niche before anyone in the Rest of the World has ever heard of you.  More on this here: SaaStr | In The Early Days, You Won’t Have Enough Customers.  But Your Mini-Brand Will Come to Your Rescue.
  • Ask.  Ask your happy customers for more referrals, both directly, and through tools like Influitive and others than can automate this.
  • Don’t get distracted.  Once you have a niche that works, focus on that niche, at least until you are big enough to be able to afford to have a separate team work on new things.  If most of your customers are SMBs, stay focused there until $10m ARR.  Same if they are mid-market.  The more you concentrate on what’s working, and not searching for that shiny penny, the faster referrals and your mini-brand will work.  Avoid a “peanut butter” strategy if for no other reason than that it won’t create enough second order revenue.

More on Second Order Revenue in SaaS here: SaaStr | CLTV Isn’t The Whole Story.  Don’t Shortchange Second-Order Revenue.

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Published on January 24, 2016
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