November 5, 2020
Growth

Growth loops in action: Inside Postscript’s referral program

If you work in SaaS, you already know that your current customers are your best source of future customers. This truth is captured in the concept of growth loops—systems that drive incremental user acquisition through your existing user base. These loops are the holy grail for us growth nerds. 

I first came across the concept of growth loops via the folks at Reforge, and I was immediately excited about the potential. At the time, I was part of the marketing team at Wistia where our main growth loop was our branded freemium product. Today, I’m Head of Growth at Postscript, an SMS marketing software for ecommerce brands on Shopify. I focus on finding ways to scale our user base, including improving our conversion rate and implementing successful campaigns across a variety of linear channels. Most recently, we set our sights on tapping into the power of a growth loop. 

After some research and brainstorming, we decided that a referral program would be a great way to partner with our existing customers in a quest to acquire new customers. Postscript is especially well positioned to take advantage of a referral growth strategy; and we’re already seeing great initial traction.

Why A Referral Program?

One of the main reasons we went with a referral program is because it fits with our company values, particularly our obsession with delivering value to our customers. A referral program is the perfect way to increase acquisition in a way that gives back to our existing customers. It’s a win-win. 

In addition, the timing was right. Our business is growing rapidly, in part because of growth within the Shopify platform, and in part because of wider, global growth trends in the ecommerce sector. Also, the category of SMS marketing is experiencing incredible growth in the ecommerce space. And when the pandemic hit, that crisis accelerated this already strong growth. All of these factors helped us build a user database that can support a customer-driven growth strategy. 

And, finally, we were—and are—in a great position to capitalize on these growth trends and opportunities. Our constant focus on creating value for our customers keeps them very happy. In fact, our customers already routinely tell their peers about our product, even without any incentives in place. 

Overall, a referral program was a natural fit for us on pretty much every front.

Designing a Referral Program from the Ground Up

There are many variables in a referral program, not least of which is the type of incentive. You’ve got your basic swag (tees, totes, mugs, and so forth); high-end consumer products; and cold, hard cash. But there are potential risks with each of these. B2B customers are a little swagged out on the basic merch, the high-end products can be cost prohibitive (they also don’t fit with our down-to-earth brand), and our research found that cash-based and cash-equivalent incentives can lead to people gaming the system. 

Our research also found, however, that saving people money or giving them special status are both effective incentive strategies. After giving it some thought, we decided to go the savings route. Tiered programs that incentivize with “platinum level” features or services can work well, but they can also get complicated. We wanted to start our learning process with something more straightforward that we could easily iterate on and scale. The other driver behind our decision was the fact that our user base includes a lot of small- and medium-sized businesses. For this audience segment, every dollar matters, so any kind of cost savings has very real value.

In the end, we launched with a program that gives a customer $50 off their monthly bill for each referral, regardless of whether or not that referral turns into a customer. The mechanics are simple. The customer creates a personalized referral link to share with their network. When someone signs up via that link, we wait a week (to make sure there isn’t an instant unsubscribe), and then credit the referring customer’s account. And if the referring customer is on one of our lower-cost plans and refers multiple prospects, we roll additional $50 credits to the following month or months as needed. It’s simple. It’s scalable. And it delivers value to both our business and the customer.

We had some fun with the program announcement, which is all about sharing the Postscript love. We even included a video featuring several of our own Postscript teammates sharing what they would do with an extra $50 (true to our customer-first values, each splurge idea highlighted a Postscript customer shop). And, with that, we were off and running. 

Measuring Progress and Looking Ahead

One of the most daunting challenges with referral programs is that it can be difficult to understand the key drivers, which in turn makes it difficult to set accurate goals. For instance, going into a brand new referral program, you don’t know what percentage of your customer base will make referrals, how many people each customer will refer, the quality of those referrals, or what percentage of referrals will ultimately turn into customers. 

Because of all these unknowns, our initial goal setting was—if we’re being honest—somewhat based on instinct. That said, we did try to be realistic and modeled out our assumptions. For the launch, we assumed that around ten percent of our existing customers would make referrals. And we figured each customer in that ten percent would refer between three and six friends and colleagues. Based on those numbers, we felt confident setting an initial goal of fifteen percent more monthly installs. This number was big enough to deliver business impact, but not so far out of reach that it would set us up for failure. 

Our measurement process is entirely home grown. All the program data goes into a database that flows through our CRM (Salesforce), which is also connected to HubSpot. We track the number of referrals per customer, what those shops did after being referred, the amount of money credited to the referring shop, and other relevant details. We’ve set up a dashboard that gives us visibility into how things are going so we can make decisions about which levers to pull (referral amount, referral time, triggers, payment timing) to drive additional engagement.

It’s still early on, but a lot of our customers have already created their personalized referral link. And, while fewer folks are generating actual referrals, the ones who are taking that next step are sending us really high-quality leads. This is encouraging on two counts. First, it’s an early indicator that our incentive has a high-enough perceived value to drive engagement. And second, it means that to achieve our goal, we just need to generate more volume. 

Looking ahead, we’ve already got plans in place to optimize the program funnel by setting up marketing automation to handle things like inviting customers to participate in the program (maybe triggered, for example, by a high NPS score) and notifying customers when someone uses their referral link. We are also considering layering in some nurturing activity like reminder emails to help boost and sustain program engagement. 

Incentivizing B2B customers can be challenging, especially because—in a professional context—a referral means sticking your neck out. But this program already shows a lot of promise. It’s proving to be a great way to drive our business growth while simultaneously thanking our best customers for their engagement and support of our brand.

Andrew is the Head of Growth at Postscript. He’s spent the last 13 years working in SaaS marketing tech (Wistia, HubSpot, Digitas) and specializes in starting and scaling growth functions. Andrew is happiest when analyzing funnel data, running A/B tests, solving user acquisition challenges, and managing high-volume product-led growth businesses.

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