Running a SaaS company is hard. Sales, customer support, product bugs, new features, and investors are all a balancing act. But the most difficult, and most important, part is generating growth. Growth is the difference between a side project and a real company. Growth is what gets you taken seriously. Growth is the difference between success and failure. The problem is that growing your SaaS company can feel overwhelming and unpredictable.
“Partnerships are one of the fastest and most efficient ways of scaling your software business.” –SaaS Coach Dan Martell via danmartell.com
Even if your company is lucky enough to already have a following, continued growth requires an expanding audience. The quickest and most effective way to grow is by borrowing the audience of another.
Finding win-win scenarios in business is rare, but they do exist. SaaS companies want to reach new customers and affiliates want to add value to their audience. If your product delivers this value then it’s a natural partnership.
In this post, I’m going to explain why a good affiliate program is truly a win for both the affiliates and the SaaS they are promoting.
What is an affiliate program?
An affiliate program (or partner program) is a compensation agreement between a company and a marketing partner.
Affiliate programs are all over. For years, companies of all sizes have used affiliate programs to grow their revenue. Affiliate programs can be successful across all industries.
- Retail giants like Amazon use affiliates to widen their reach
- Real estate agents earn commissions by referring clients to lenders
- Tech services like Bluehost give a commission for new accounts
- Headhunters are paid based on the referred employee’s salary
These are all examples of partner programs. All these companies leverage partners to gain access to an audience. An audience that they don’t have the time or authority to access through their existing marketing or sales channels.
For companies with a physical product, affiliate promotion ends when they recommend a product. Either the prospect buys or they don’t. If they buy, then the affiliate gets paid a one time commission.
With SaaS, however, there are more options. You can pay affiliates based on the estimated lifetime value (CLV). This allows affiliates to recuperate their advertising spend immediately. Alternatively, you can share the recurring revenue with their affiliates. This aligns incentives by encouraging high-quality, low churn referrals. Many affiliates even become external Customer Success agents. They begin providing support and training to the customers who they’ve referred.
Why every SaaS company should start an affiliate program
SaaS is the perfect business model for high performing affiliate programs. The high margins and recurring revenue mean that the majority of expenses are attributed to marketing costs. Hiring external marketers makes good business sense, especially in markets or niches that you don’t have an audience or authority in. Offloading the upfront costs and replacing them with predictable margins is a CFOs dream.
“47% of new revenue in 2017 was from affiliate referrals” — Nathan Barry, ConvertKit CEO
These same unit economics make it possible to offer affiliates exactly what they are looking for. Long term, steady, generous commissions. The recurring nature of subscription-based companies makes it easy to align the goals of the affiliate and the brand. For instance, by paying a percentage of every transaction from a referred customer over the lifetime of that customer, SaaS companies only pay commissions based on realized referred revenue. Affiliates are incentivized to refer prospects from niches with high product-market-fit. They also use their knowledge of marketing to their niche to do much of the heavy lifting for you in prospecting for and qualifying leads.
Some of the most effective affiliate programs in the SaaS space offer 25% or 30% of all recurring revenue for a referral (see: ConvertKit, CrowdCast, Teachable). Now, if you think of affiliates as casual bloggers, 30% may seem like a lot to offer for simply referring your product. But remember, you’re paying for years of community and audience building. Their understanding of their audience helps them communicated its value better than you ever could. In this way, SaaS companies get direct access into niches of potential customers.
It’s really true that whatever you incentivize you’ll get. Some affiliate programs incentivize traffic, some email conversions, some new trials. But if you want quality, high paying, long lasting customers, then those customers should be worth the most to your affiliates also.
No risk growth channel
The great thing about an affiliate program is that there are only upsides. If structured properly, you can’t lose money. If you give commissions based on the actual revenue you earn from those referred customers you’ll never pay more than you earn.
You only pay affiliates based on the actual revenue you earn from new customers. So it doesn’t cost you anything until you’ve already generated more revenue than the commission. Profitability is built in.
Why affiliates love SaaS
Aside from the steady monetary benefits noted above, top affiliates love SaaS for other reasons. Creators with a valuable audience want to help their audience as much as possible. Sometimes they will create products to specifically address the needs of their community. But this can be a burden for them. Instead, some will elect to promote products that they are familiar with and know will create value for their audience.
The fit of the product to the audience is the primary concern for the affiliate. If you have a product that adds value to the affiliate’s audience, then the partnership is valuable for everyone involved. The audience finds a tool that helps solve a problem. The affiliate is helpful to their audience and earns commissions for it. The brand acquires new customers with no risk. The relationship with their audience is the most valuable asset that an affiliate has and finding ways to serve it is the affiliate’s job.
The best affiliates aren’t only bloggers or podcasters or AdWords marketers. Anyone with influence in a community of your target customers can be a good affiliate. If you’re selling software to small service businesses maybe accountants would be your best affiliates. If you’re selling efficiency software then maybe productivity experts would be good partners.
To find affiliates ask yourself, “who do my customers go to for advice?” Good affiliates are in far more places than you think.
Just because an affiliate has a large audience doesn’t mean that they are a good fit for your product. You don’t want to get flooded with unqualified leads and new customers that don’t get any value from your product. This will cause you to waste time on new customers that will inevitably churn.
The best affiliates are true fans of your product and really understand the unique value that it delivers to their audience. When considering your idea affiliates, you should look for:
- Your ideal customers overlapping with their audience
- Highly authoritative figure (esp. In highly technical markets)
- Untapped markets to current offerings
Make something worthwhile. You have to have a valuable product that actually helps people before affiliates will want to promote it.
The great news is that you probably already have access to some of your best potential affiliates. Current customers. Any customers that you share an overlapping target audience (or customer group) with, could be a valuable partner.
Step 1: find your first affiliates
Reach out to the potential affiliate and ask something like:
Hey there, I’m writing a blog post called XZY that I think could really be helpful to your customers. If you think so, would you be interested in promoting it to them? I could offer you 30% of the revenue from any customers we get from your promotion.
Step 2: create something the affiliate can promote
Write a blog post or schedule a webinar that will deliver value to your affiliates audience.
Step 3: having a tracking solution in place
Make sure you have a way to track and pay affiliates. LinkMink is a great way to be able to run a program like this with only 15 minutes of setup.
If you focus on relationships with your affiliates, worrying about where new customers are going to come from could be a thing of the past. Growing a SaaS company is hard. You should take all the help you can get.