By Kendra Lee
I’ve watched the faces of business owners turn from agreement to confusion and then mild panic when I say referrals should make up 20% of their lead sources. They know referrals close faster than any other lead and they appreciate the spontaneous referrals their happy clients share. However, they aren’t sure how to make referrals a consistent, dependable lead source.
The answer is simple: implement a formal referral program.
How One Client Grew More Than 100% Through Referrals
One of our clients, a consulting firm, didn’t want to run outbound lead generation and only wanted to gather referrals from their existing client base. They have a staff of consultants and an 8-person sales team. They wanted to get everyone involved. We went in and defined points throughout the sales and account management processes when they’d ask for referrals. We established a process to manage when people were asking and the metrics to monitor success, then provided training on how to ask for referrals.
A culture of referrals
With a structure to reinforce referral gathering in place and training on how to do it comfortably, everyone started asking. The consulting firm grew more than 100% in the first year of the program as every single person began asking for referrals as part of their client conversations. Referrals were consistently added in following years because they continue to proactively ask. You can’t wait for a client to drop by with a referral, you need to ask.
Why You Need a Formal Referral Program
Designing a referral program isn’t an intimidating process. Actually, you make it much harder on yourself by not having a program in place. When there isn’t a documented process to follow, your team won’t know:
- When to ask
- How to ask
- Who to ask
- If they need to offer an incentive
- What the incentive is
- How to say thank you
- Ways to follow up
When you have a process in place, everyone on your team will be able to ask for and get referrals. Even though a program makes your referral gathering efforts more effective, our research indicates many organizations don’t have one. Before our webinar, How to Design a Referral Program That Works, we sent out a survey to our community to better understand how they gather referrals. Here’s the answer to one of the questions we asked.
That’s a lot of respondents who don’t have a program in place for either clients or their network. To regularly, easily collect referrals, you need a process. Otherwise, your efforts will be sporadic and you’ll miss out on a valuable prospecting source.
Your Referral Program Must Do This
Before getting into who you’re going to ask, it’s important to establish the one thing every referral program must do. Regardless of whether your program targets alliance partners, clients or prospects you must do two things:
- Say “thank you.”
- Provide an update.
How you say thank you will depend on who you asked and received the referral from (more on that below!) but, at the very least, send an immediate note via email.
Sample thank you message
Thank you for introducing me to Sarah. I had a quick call with her yesterday and we set a meeting for next week to discuss her vision and how we might assist her. I appreciate you thinking of me and connecting us to her. The next time I can return the favor, I will! Thank you again.
Send an update even when you don’t close the sale
A quick follow-up on the status of the referral reinforces both your appreciation and the fact that you actually followed through.
Someone took time to give you a referral so you should give some of your time to follow up and let them know how it went. Update your referrer on:
- What you’ve done.
- How it went.
- The next steps you’ll take.
Send an update after you connect with the referral and again once a decision is made. Even if the referral went another direction, your contact will appreciate you took the time to give an update. When you follow-up, the contact sees how important referrals are and they may think of another name to pass along.
Here’s a simple way to stand out from the crowd
When we asked in our poll how people say “thank you” for a referral, calls and emails were the most popular responses. Others said they:
- Send a small gift or gift card
- Forward some of their own merchandise
- Give one of their services for free, such as a free month of licensing
Only around 14% sent a card. If you really want to distinguish yourself, follow your thank you email with a handwritten note.
4 Tips for Getting Referrals From Alliance Partners
By “alliance partner” I mean people in your peer network – your business associates, local professional organizations and people who sell complementary services. Companies in the last group sell to the same people you do, but don’t consume your share of wallet. You aren’t competing for budget, time or ROI so they’ll typically be willing to offer referrals.
1. Figure out who in your network has valuable, relevant information
When I worked for IBM, one of my favorite alliance partners were commercial real estate agents because they know everyone who is moving. They not only needed relocation assistance but also cabling. Plus, a move is when people think about upgrading their equipment from desktops to security to telecommunications. I uncovered many opportunities through commercial real estate agents because they consistently provided useful, relevant information about my target market.
2. Remember, cash is king
You know you must say thank you, but is it necessary to pay for a referral? Most of our survey respondents offer a referral in return when they have one, but if you really want to motivate a partner, cash is king.
3. Define the terms of the commission
If you set up a relationship where you’ll pay your alliance partners for referrals, determine the terms before you start working together. You could do a flat fee or offer a percentage of the sale. Base it on what you pay for a rep, then what the alliance partners’ contribution is to the sales process.
For instance, you could offer 5% if they make an introduction and you own the rest of the process, and 10% if they close the deal.
Then consider how long you’ll pay for a single referral. Is it one time? A year? Longer? I’d recommend a year, max.
Most terms are confirmed with a handshake and trust on both sides, but you can document the program with your alliance partner if you want to formalize it. Either way, make sure you follow through and pay people who deserve it. Otherwise, they won’t give you a referral again and you may earn a reputation you’d rather not have.
4. Decide when to pay for referrals
Depending on your industry, my recommendation is to pay for referrals upon close and payment. There are times you want to pay upon receipt, like if you work in the real estate industry. Consider the competitive nature of your business as you choose which is most appropriate.
Pros and cons of paying upon connection
- You’ll get more referrals
- Less pressure to close
- Less pressure to follow up with referee
- Pay before any return
- More lower quality referrals
Pros and cons of paying after a deal closes
- Receive better-qualified referrals
- Can afford to pay more, potentially leading to more referrals
- Get fewer referrals
- Pressure to close the referrals you do receive
- Must pay more to sustain referrals from the same contact
My goal here is to help you evaluate your choices. If we should delve more deeply into your project, we should engage and give it the time and attention you deserve.
How I advised one client to set up a commission-based partnership
One of our clients recently approached me with this question. A local contact of his wanted to transition from his construction contractor business to sales. The future salesman wasn’t ready to give up construction, but he wanted to start his career switch now. Our client wanted to know the best way to incorporate this well-connected professional into his business operations. I suggested a referral program where the construction contractor receives a flat fee or commission for each successful referral. It was a win-win. The construction contractor expanded into sales and our client started receiving referrals.
Referral Programs for Clients
Happy clients happily give referrals. They won’t expect a cash reward, but you may want to add an incentive to increase referrals and say thank you. Use these guidelines as you set up a program for your clients.
1. Don’t overlook your prospects
Prospects can be a goldmine for referrals, especially if you have a long sales process and have established a warm relationship. Your processes and services are fresh in their minds. You can offer the same incentives you do for clients. The promise of a discount on services in exchange for referrals may even help you close the sale!
2. Create an easy, repeatable process for your program
An Xbox or iPad sound enticing. Who wouldn’t want free technology? But what happens if someone gives you multiple referrals? They aren’t going to want another Xbox. They’ll either send one referral and stop or ask what you can give them instead. This creates more work and unnecessary complications.
3. Keep it simple
Your program must be easy to remember, for you and the people you’re asking for referrals. The more complex you make it, the harder it will be to implement and the less incentivizing it will be. The graphic below shows ways our community shared they express gratitude for referrals from their clients.
As I mentioned before, at the very least you need to thank your referrer in an email and/or note. If you have a strong social media presence, you could consider thanking them there, too – it might even provide opportunity to gather referrals from your social network.
1. Service discounts, credits or upgrades
One easy incentive is to offer a discount, credit or upgrade related to services you offer. This could include a credit toward a service they’re already using, such as a free month or a 10% discount. It may also be a free service you offer that they don’t yet use, such as an assessment or training.
2. Gift Card
Gift cards to places like Starbucks or Amazon work well if you want an incentive with broad appeal that can be delivered quickly digitally, through the mail or in person.
3. Night out on the town
Create a “night out on the town” bonus and give away a restaurant gift certificate or tickets for the theater, a comedy club or sporting event.
4. Gourmet meal
Or, give someone a night in and gift them a gourmet meal delivered straight to their door.
5. Charitable donation
Many companies have one or several non-profits they support. Give a donation in your client’s name to the one you think they’d appreciate. This is the ideal thank you for clients who aren’t allowed to accept gifts but you want to recognize
6. Mystery Gift
Mystery gifts add intrigue and fun to your referral program. Collect a selection of different gifts and wrap them in pretty boxes. Make it a game and allow your client to choose a box.
7. Passes to a local attraction
Zoo, museum, botanical garden, amusement park and aquarium passes are all great options, especially for referrers who have families. Here in Colorado, I’d include ski tickets, too!
Whichever option you choose, document what you do with a nicely designed piece that describes your program and when you pay.
How to Ask for Referrals
You’ve put your formal program in place. Now you need to start asking!
Pay attention to timing
This is especially key for clients and prospects. If you ask someone who is unhappy with you, your company or your services, they won’t be inclined to help. (They may even look at you quizzically wondering why you’re asking.) If you ask too early in the sales process, they won’t have experienced enough to comfortably offer up some names.
You know your clients, prospects and alliance partners. Trust your instincts. If the timing feels off, wait until a better opportunity arises. Better yet, establish a referral request process and define exactly when you’ll ask as part of the client life cycle.
Work the request into a conversation or meeting
Unless you’re running a referral gathering blitz, don’t schedule a meeting or make a phone call for the sole purpose of only asking for a referral. Find a way to build it into your agenda or weave it into the discussion for your next meeting. Use the phrases we share in our free guide, How to Ask for Referrals, to easily and naturally make your request.
Paint a picture of who you want to work with
A steady stream of referrals from your network won’t help grow your business if the leads you receive are too big, too small, the wrong title, the wrong geography, or suffering from the wrong issues. You want contacts who fit your ideal target market – your sweet spot. Provide a few key characteristics that illustrate your perfect clients and really bring them to life. You’ll ensure you get the type of referrals that fit your company.
Think outside the box
I love this sign that was posted in the reception area of an office:
Anyone signing in sees it, and as they enter a meeting, might offer a referral. It highlights how much you value referrals and clearly states how you reward them.
Notice that this bonus is simply a dinner for two. The company made it sound like a fun game by saying “win a dinner for two.” Your thank you for a referral doesn’t have to be huge. Base your incentives on a combination of your relationship with the referrer and sometimes, what you sell.
Share Your Program With Your Team and Start Asking for Referrals
You now know who to ask. You’ve determined what you’ll offer in return for a referral. Now document it!
- Write it out for both your staff and clients.
- Add it to your CRM and ticketing system to make it a repeatable process.
- Create a simple, fun graphic that easily explains the program.
Here’s an example of what we created to illustrate how KLA’s referral program works. It’s 3 simple steps.
If you’ve made it to the end of this guide, you now have everything you need to set up your formal referral program and watch your leads from referrals increase.
Want more resources about gathering referrals?
If you’re hungry for more:
- Take 2 minutes to read: Get Proactive About Sales Referrals
- Now that you know how to set up a referral program, download our free guide, How to Ask for Referrals
- Watch the replay of our 1-hour Coffee with Kendra webinar and Design a Referral Program that Works
- Sign up for our tailored training How to Get More Referrals and unleash your referral stream
If you would benefit from consulting guidance to establish your referral program, contact us. We’ll guide you through how to set up a plan that fits your company culture, then train your staff to use it.