Who Likes Money?
Have you noticed that most people like money? Zig Ziglar 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 many 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 in 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 products or services or she can cash it in. It’s best to give the customer 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 someone 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.
Remember, everyone listens to the same radio station: WIIFM (What’s In It For Me).
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). Her bill is now $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 costs 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, compared to 10 percent in this example.
“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 by offering a reward. And, by the way, don’t people deserve a reward for going out of their way to support your business?
My experience is that most small businesses will have fewer than 50 percent of the certificates cashed in. For one reason or another, they never redeem them. That means a 10 percent referral reward is now costing you only 5 percent! Also, be sure to 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. If you are spending money on direct advertising, what is your best return? Use that as a guide. What return would you be happy with?
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. Fewer than half of the certificates are ever redeemed, so I am spending only 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.
Phenomenal Products currently offers a $300 reward for a new coaching client, and we even have a certification program where members can become referral partners and make 10 to 35 percent, depending on their level. To maximize your referrals, you should definitely offer a financial reward. You will get more referrals and your advertising dollars will go down.
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 this on to a client or someone else.”
Promote your Referral Reward Program to your clients and potential referral sources as often as possible. We promote our Referral Reward Program by saying, “Get Free CASH or FREE SERVICE with Our Referral Reward Program!”
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.
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.
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