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More Referral Business, Please

Thank You, Marcia! The multi-million dollar question

Does a formal referral program make sense for your business? If you’ve been in business for more than a day, you know that referrals are the best way to gain new clients. Most of the time, the person making the referral has already done the selling for you and the person being referred is now highly inclined to work with you.

The million-dollar question then becomes, how can you get more referrals?

For sure, you need to create the culture, or set the scene, that clients are expected to refer others. There are several ways to do this.

Let’s discuss a few, starting with the question, is it a good idea to create a formal referral program?

By formal program, I mean a structured system, whereby if someone sends you a referral, the referrer gets a commission, or a specific gift. And they know what they get ahead of sending you a referral.

So you’re saying ahead of time, if you send me a referral, you get a gift card, a watch or an iPad or whatever. In some such programs, if you send one referral you get gift A; send 5 referrals, get gift B; send 20 referrals, get gift C; and so on.

While some businesses claim success with this model, I’m not convinced it gets you the best or most qualified referrals. Because you are essentially paying for them, whether with cash or “prizes,” these referrals become a financial transaction.

In his book Predictably IrrationalDan Ariely talks about his research experiments regarding market norms and social norms. Here’s a video from Dan where he talks a little more about this concept.

If you don’t know the difference,

and you confuse the two, your business (and possibly your social life) could suffer. For example, at the end of a dinner party at a friend’s house, you wouldn’t pull out your wallet and say, “So how much do I owe you?” By paying your referral sources, you are making the same faux pas.

People typically give referrals because they want to help; they feel good when they’re able to do something nice for someone else; they don‘t expect, or necessarily want, to be paid for them.

When you acknowledge such a gesture with an unexpected gift as a way to say thank you, you’re repaying their goodwill in a more socially acceptable way.

In case social graces are not your concern, know that showing appreciation for referrals via a gift yields a far better monetary return vs. paying money for them. People are much more likely to give more referrals after receiving a gift than they are after receiving a check.

I know! This is contrary to what you might think. You’ve been brainwashed to think money is the great motivator in business, but that belief is not true!

So back to the original question of having a referral program. You should have an internal referral system; a well thought out plan for how to encourage and acknowledge those who send you referrals.

But for best results, don’t spoil the surprise and put your “gift catalog” out there as a carrot.

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Image: stupid is the new clever via Flickr, Creative Commons

Lori Saitz is founder of Zen Rabbit Baking Company. She shares happiness by helping business people show appreciation for and give recognition to customers and employees with The Gratitude Cookie™. With an understanding of the value of creating strong connections and experiences, she supports clients in increasing customer loyalty, referrals and profits. Connect with Lori on TwitterLinkedIn or Facebook.


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