Q: Dear SaaStr: What Percent of My Revenue Should Come from Referrals and Word of Mouth?
Ultimately, almost all top software companies end up getting 20-50% or so of their new customers from their existing customers once they hit scale. Sometimes even more. From referrals. From brand. From word-of-mouth.
- Bill.com at IPO saw 50% of its new customers coming from word-of-mouth and second-time buyers. More here.
- Even at $1B+ in ARR, 33% of HubSpot’s customers still come from word-of-mouth. More here. In fact, it’s still their #1 source of new customers.
A few related thoughts:
- So first, track it. Too many SaaS companies don’t really track what % of their customers come from word-of-mouth.
- Make the sales team ask. If you don’t ask, you often don’t get the true story on “how did you hear about us”?
- Then, set a goal. Say 20% to start, going up over time. Even by say $3m in ARR, this engine should be running. You’ll have been around long enough by then for second-order revenue to kick in.
- And make it a top metric for the company. So everyone knows.
And critically: if your percent of customers from word-of-mouth is going up over time — you know you have something good. Folks really love you, in the way that matters. They are telling more and more of their business friends.
If you see 20% or more of your new customers coming from word-of-mouth by $2m-$3m ARR,
Things are going really well
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) July 21, 2021
Then as CEO, 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:
- 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:
- Ask. Ask your happy customers for more referrals, both directly, and through tools that 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.
- Hire someone to own customer marketing. Do it for real. The more you share success with your existing customers — the more they will refer more of their friends to you. More on that here.
More on Second Order Revenue in SaaS here:
Here’s another survey on data from a little while back, showing tech companies get 29% of their new customers from word-of-mouth. Get there yourself: