Incentivizing Customers to Grow Your Recurring Revenue

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yoga Joes

As a Software-as-a-Service (SaaS) company in an increasingly competitive market, you need every advantage possible to be successful. Not only are you faced with the challenge of attracting customers, you also have to make sure they stay over the long-term.
This is where many successful SaaS companies turn to incentives at key points in the customer lifecycle. Whether it’s to encourage users to sign up, stay engaged or even help you grow your user base through referrals, giving people an extra little push to take actions can make a huge difference to your customer lifetime value (CLV) and recurring revenues. 

Identifying the Bottleneck

The first step is figuring out what you need your users to do. For this, you should know which parts of the customer lifecycle has the most friction for users and is causing you the greatest lost revenue. If you have high churn after sign up, an incentive that encourages users to stay engaged with your service would likely go a long way. Likewise, if you are having a hard time getting users to onboard initially, offering a one-time, promotional item with sign up may help you start to gain traction.

Finding the Right Incentive

One of the greatest challenges for many SaaS companies is attracting a large number of users. With word-of-mouth recommendations often being far more effective than traditional advertising, many focus on user referral programs. In fact, 92% of customers trust recommendations from people they know and 70% trust consumer opinions posted online, as opposed to 40% for most forms of advertising.
Dropbox remains one of the most successful examples of an incentivized referral program that’s easy-to-use and enticing. Dropbox is big on its dual-party referrals: when one person who has Dropbox refers another, they both get a 500MB storage increase after signup. Referrals alone have increased Dropbox signups by 60% to over 300 million users. In this case, customers can easily understand the benefit and feel comfortable – even excited – to refer the service to their friends.
While small upgrades are a popular incentive offered for referrals, other users respond more to financial incentives like one-time or ongoing discounts. For example, the accounting software company FreeAgent offers existing customers 10% off their subscription price for each person that signs up through their referral. The discount remains in effect for as long as the referred person remains a subscriber. So, potentially a customer could use the service for free if they referred the service to 10 people who become and remain subscribers. Similarly, Yesware, an email tracking service, gives existing users 100 free tracking events for every person who signs up through them.

Both Yesware and FreeAgent have successful referral programs because they incorporate elements like:

  • Constant encouragement and reminders to ‘invite a friend’;
  • Thoughtful explanations of what they are offering; and
  • Having a template ready for the customer to send to their friend, referring the service.

To keep users engaged, many applications use non-financial incentives like gamification. Gamifying means rewarding certain behaviours with badges or virtual points. For example, the brain training game Lumosity – whose aim is to improve cognitive ability – calculates users’ brain performance index. The incentive is to keep training to achieve a higher ‘brain’ score and compare those scores against other people their age as a percentile. If users pay up, they unlock full access to more gameplay and user statistics.

While you can get pretty creative with incentives for different actions, focus on keeping them simple and engaging enough so that users actually feel compelled to do what you want them to do. This means giving rewards that matter to your target customer.

Putting It All Together

Incentivizing is crucial for those in the SaaS space to both attract and retain customers. Incentives don’t have to cost a lot and those that are well-thought out can go a long way to keep your CLV and recurring revenues trending upwards.

Jason Kiwaluk
Director of Ideation