It pays to offer rewards for referrals
Referral partners are a powerful thing for any business, especially during times of economic slow down. It is the power of the testimonial and the spoken word that directs a person to buy something from a particular store or vendor. To capitalize on this power, many businesses offer rewards for referrals.
Do you know how much it costs your business to get a new customer? You might have heard that a new customer is more expensive to get than retaining a current customer, but do you know the actual dollar amount it takes to get a contact to convert to become a new customer?
If you don’t already have that cost at your finger tips, take some time and figure it out. As you calculate the cost of customer acquisition, remember to factor in advertising, printed literature and time spent on the phone answering questions, meetings, appointments and actual sales calls.
One powerful way to get new customers is to tap into your current customer base and offer rewards for new customers, turning existing customers into referral partners. Now that you know the exact cost of bringing in that new customer, you know how generous you can be with those referral partners.
Many offers include offering cash payment for any referral that turns into new business. One business owner of which I am aware offered $500 cash for a new customer. He actually figured out the cost of finding a new customer himself and realized the $500 referral payment was cheaper, but still a high enough bonus that it motivated current customers.
In his book “Networking Like a Pro,” Ivan Misner offers an example in which wine beat out a cash referral. A real estate agent in Northern California had a standard $100 finder’s fee for anyone who gave him a referral that ended in a listed house or a sale. In a three-year period, the agent gave out $1,200 in finders fees, or 12 referrals.
This real estate agent had a hobby of growing grapes and turning them into wine he bottled himself. He decided to get creative and have a little fun with referral marketing. So he had an elaborate label designed that really set the bottle apart as being something that was exclusive and not available for purchase in stores. The agent started using a bottle of wine as his referral bonus instead of cash. In the first three years of working with wine, he gave away several dozen cases, receiving about 10 times the number of referrals over the cash incentive. The kicker? Each bottle of wine cost less than $10 to produce, so there was even less out of pocket than cash alone.
Cash might not always be the best driver of business. You also might discover that different groups are motivated by different incentives. Businesses often overlook their best sales force. While they might not hold a sales job at your business, your employees can be your best referral source. Do you offer employees something special for bringing in new customers? Maybe you could offer a bonus or extra vacation day.
Finding the right incentive presents a big challenge. But if you find that your current offerings aren’t bringing in the expected business, don’t be afraid to try new things. Remember that real estate agent? He actually had a person call him after having an outstanding bottle of wine at a dinner party. When she was told that all she needed to do was send him business, she called him with two referrals that both turned into business. It cost the real estate agent $20 for two deals, he created a new referral partner and everyone was happy with the results.
Look beyond cash and you might find the secret that creates a referral pipeline that keeps new business flowing your way.