5. Referrals > Design Your Referral Funnel

Design your referral funnel to reduce SaaS churn

A referral funnel is used to define lifecycle journey stages of the new referrals. Defining stages in the funnel help with churn reduction and improve the engagement of existing customers as they get the reward right on time.

●●● FUNCTIONALITY

Airbnb created a beta referral program for 2161 customers and it added 2107 new users.

Dropbox has one of the best referral funnels out there that increases signups by 60%.

Evernote has over a billion users and 13% of them are referred by their existing users.

How to use the technique

Select an appropriate reward. Selecting an attractive reward for your customer and referral is essential. It is the driving force that motivates your customers to take the referral program seriously and actually try to get the reward. Use personas and customer feedback to find a compelling reward. Read our free churn optimization framework for details.
Make it convenient for customers to invite referrals. Allow social sharing, social invitation, and email invitation features. Also, make it easier for referrals to enter the funnel. Reduce form fields. Give them instant access to your app to reduce churn.
Referral conversion is an essential stage of the funnel where you decide when a referral as converted and is now eligible for the reward. It could be achieving Aha moment, conversion to a paid plan, or completing a set number of achievements.
Let customers track their referral’s progress so they can push them for conversion. This is the best approach to reduce churn. Your customers will do all the onboarding.
Send relevant emails for conversion. Send informative and benefit-focused emails throughout the funnel. Send tutorials and help guides based on referral behavior analysis.
Reduce friction. Make referral funnel short. Remove distractions. Focus on helping referral to get as fast as possible to the reward. This will help you retain existing customers who are actively involved in the referral program.
Minimize the number of actions for successful conversion. Ensure both referral and customer get their due reward quickly. Test different funnel models with different stages and actions for conversion optimization. We have an amazing free guide for you here for further help.

Mistakes to avoid

Making funnel too complicated is a big mistake. Your customers have already done the hard part of pre-selling your app, you just have to make onboarding and conversion simple. Don’t make it complex as it will make new referrals churn and the old customers will lose their interest in the program.
The reward isn’t attractive. It’s all about the underlying benefit. Though your most loyal customers won’t refer your app for reward, most other customers are interested in reward so as referrals. It should be compelling enough for users.

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Research evidence

According to HubSpot, companies having 800+ sales opportunities in their funnel are more likely to exceed expected revenue. While companies with 50 or fewer sales opportunities don’t achieve their revenue goals. This clearly indicates the importance of having a referral funnel so your sales team have a decent number of opportunities anytime in the pipeline to boost revenue.

800+

Magic number of a sales opportunities in the funnel that literally pulls the sales team into achieving their revenue goals.

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How to use the technique

Get feedback from customers and users. Conduct surveys and interviews. Refer to personas and see how likely your existing customers will refer your app to a friend if they like it. Do they refer at all? Is there a persona that’s more likely to participate in the referral program? You can get our free churn optimization framework for actionable insights.

Talk to marketing and sales teams to understand metrics, existing referrals, and how your business can best benefit from a referral program. Do you have to focus on reducing churn? Or, the focus should be on customer acquisition?

Set realistic goals based on data. The goal should be challenging yet achievable. Link it to your business strategy. Communicate it to all the teams.

Allocate budget. Choose a percentage of revenue. Take your marketing and finance team onboard for budget allocation.

Identify appropriate metrics to measure success of your referral program. These metrics should be linked to the program’s goals.

Develop a team that will create, execute, and manage the referral program. Train your team, provide them with resources (tools), and assign challenging tasks to the entire team.

Monitor and improve referral program. Monitoring and improving will get easier if you know what the program is all about and what metrics you should use to measure performance. This free guide has all the information you need.

Mistakes to avoid

Setting goals that aren’t SMART. A SMART goal is specific, measurable, achievable, relevant, and time-bound. Not having SMART goals will create issues at a later stage. Better do it now.

Not getting feedback from internal and external customers. It should be based on data and facts. Don’t create it in isolation.

Research evidence

Latham and Locke published an article in European Psychologist journal where they discussed the benefits of goal setting theory on different variables. The finding revealed that setting goals improves performance and helps in achieving complex tasks. When clear goals are set, it gets easier for businesses to achieve objectives even if they're challenging and complex.