Have you noticed that most people like money? Zig used to say, “Money isn’t the most important thing in life, but it is reasonably close to oxygen!” To maximize your referrals, you should definitely offer a financial reward. You will get more referrals and your advertising dollars will go down. Sure you can get referrals without a reward, but you will get much more if you offer a reward. Plus, offering a referral reward gives you something to talk about. If you don’t offer a reward of some kind, it makes it harder to ask for referrals without appearing selfish. Remember, everyone listens to the same radio station: WIIFM (What’s In It For Me).
A good referral reward program offers anyone who refers a new client to you a reward. You offer cash or products and services. Example: Suzy refers Bob who is a new client. Bob spends $500 with you and your referral reward is 10 percent. You mail a Referral Reward Certificate to Suzy for $50. She can then redeem that certificate for services or she can cash it in. It’s best to give them a choice. It can be a flat fee instead of a percentage of sale if you like, but make it significant.
Now, Suzy receives this wonderful Referral Reward Certificate and she can decide whether she wants to redeem it, throw it away, or give it to some- one else. Here’s where it gets interesting. The certificate is just like cash and can be given to a favorite charity, a friend, or whatever the person wants to do with it. Suzy doesn’t want to take money from you and doesn’t need your service or product right now, but she has another friend who does!
Suzy refers Cathy. Cathy calls you up or walks into your store and says, “Can I use this certificate?” “You bet!” you say. Cathy spends $500 with you and you take $50 off (the value of the certificate). Now her bill is $450. She is a new client referred by Suzy and Suzy will now get another certificate for $45 for referring Cathy. Does Suzy have more friends?
You bet she does!
At this point, you are probably thinking, Boy, that sounds like a lot of money to give away. Let me ask you this question: Do you know what it cost you to gain a new client? For example, if you invest $1,000 in advertising, would you be happy with a $4,000 initial return? If so, that just cost you 25 percent to gain that new client.
“But, Howard, I already get referrals,” you might say. My experience of implementing this with business owners around the world is that you’ll get more referrals. And by the way, don’t people deserve a reward for going out of their way to support your business?
Our experience in most small businesses is that less than 50 percent of the certificates ever get cashed in for one reason or another. Also, put an expiration date on the certificate. We use a one year expiration.
How much should you offer? Determine what your new client acquisition cost is and go from there. We offer 10 percent in my service company. Anyone who refers a new client gets a referral certificate for 10 percent of the first job. After that, they are a repeat client. Less than half of the certificates are ever redeemed, so I am only spending 5 percent to gain a new client (that’s a 20-to-1 return by the way). What’s more impressive is that the referral rewards we actually pay out are less than 1 percent of our total revenue.
My coaching company uses what is called an “affiliate program,” which is much like a referral program. The difference is that when you have a company that is well known in a certain community or industry, your prospects come to know about you through a variety of channels. Companies that do a lot of direct advertising using multiple channels don’t always know exactly what ad triggered the sale (unless they have trackable phone numbers, promo numbers, or links if it is online). So an affiliate program (especially online) is beneficial. This way, an affiliate (referral source) can have a special code and put someone on our list using a special link. When their referral buys a product or attends a workshop, the affiliate gets 50 percent. When that person joins our coaching program, they get a flat $300.
So you can offer a percentage or a flat fee, but you must make sure it is attractive enough for people to take the extra step to refer you. Is everyone motivated by money? No. Can everyone accept a reward? No. Some industries have rules against referral rewards or commissions. Therefore, we put on our certificate: “If you have a conflict of interest or cannot accept this reward, please pass on to your client or someone else.”
Simply put, here’s how our referral reward program works. We promote it on everything we print, everywhere we go, anything we do by saying, “Get Free CASH or FREE <Your Service or Product Goes Here> with Our Referral Reward Program!”TM* Every time a new customer buys from us, we have a system of recording how they were referred (online and offline). They are tagged as being referred by that person. Then we have a process of sending referral certificates or affiliate funds to that person. It’s as simple as that. *If you are not one of our coaching clients yet, please change this significantly to protect the interest of our members. Thank you for your integrity.
I’m sure you have more questions about a referral reward program, but my challenge is that I don’t have enough space and time in this book to teach you the “ins and outs” of a proper referral program. Also, getting the details right will be the difference of it working or not, so scan the following QR code to see how you can get our training program on how to create your own referral reward program for your business.
One final note: If you offer a referral reward, be sure to honor it and pay it promptly! The worst thing you can do is promote a referral reward and fail to pay it.