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