Last week an entrepreneur shared how they just signed a large customer that was a referral from an existing customer. This got me thinking about the importance and power of second order SaaS revenue. Second order revenue is revenue that comes from existing customer referrals as well as customers changing jobs and bringing the product to their new company. This class of revenue should grow over time as the startup builds a brand and successful customer base.
Here are a few thoughts on second order revenue:
- Track customer referrals over time and look for patterns or trends (e.g. certain customer referrals are much more likely to be good fits)
- Record customers that change jobs and bring the product to their new company (this happens a good bit and is an excellent source of revenue growth)
- Facilitate customer referrals by asking for them automatically in the app (one successful technique is doing a net promoter score questionnaire and then asking for referrals from the promoters that give a 9 or 10)
- Consider how second order revenue plays into the customer lifetime value (e.g. if a customer is worth $50,000 over four years but refers an average of $5,000 in new business and brings an average of $2,000 in new business when changing jobs, the value of signing a new customer is higher than just the lifetime value)
Second order revenue is an important part of the SaaS business model and really shines for startups that have happy customers.
What else? What are some more thoughts on second order revenue in SaaS?
David Cummings on Startups 