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For many industries, referral business is what can make or break a business. Ask somebody who’s managed to stick around for a long time and make consistent gains in sales, and they’ll probably tell you that referrals are the key to longevity. So, if you want to be as successful as possible, it’s time to figure out how to generate high-quality business referrals.
Referrals are a great way to proactively acquire leads. However, it isn’t the only outbound strategy for new sales. For more information on the top prospecting strategies, read our article on sales prospecting.
Business referrals are leads suggested to you by an existing or former customer recommending your business to someone they know. The benefit of referral business is that it takes little-to-no extra time to obtain, and the leads are already warmed by somebody the new prospect trusts.
Strategies to generate referral business happen at three points along the sales process:
Additionally, some might outline a referral agreement with another business or affiliate partner who will generate referrals instead of the customers. An optimized sales process will typically have options laid out for all of these. It’s therefore vital to know exactly what to do before, during, and after the sale to maximize the possibility of a referral. To help, we’ve laid out strategies for each point in time.
Before the initial sale, the ways that you’ll maximize referral business are primarily through referral programs. To do this, develop an incentive for new customers to refer people they know in return for some sort of benefit. There are a variety of referral programs you could try, and we’ll list the three we find most effective.
What it is: A program that gives customers a discount if somebody they refer makes a purchase.
Who Should Use it: Any business that sees a lot of repeat customers, where a discount on future products would benefit their customers.
Referral discount programs are popular in the retail industry but can be used by any business where customers typically make more than one purchase. All you have to do is include an offer that allows new customers to give a referral code to their contacts. The referral code will operate as a discount code for the referred customer, and the initial customer can be sent a discount to use on future purchases.
This works on two fronts:
So, not only do you hammer down more referral business, but you also get more out of your existing customers. You get more business, and your customers get to save money on a product they want to purchase– everybody wins. The steps involved in the referral discount program are choosing your discount amount, and deciding who gets it.
Check out this example below from Soylent:
Because this discount program requires the customer to make a purchase from you, it can be pretty financially forgiving. You can be more liberal with discount programs than with other incentive programs, because they tend to increase repeat business as well as only work if you’re actually selling your products or services. This means that in some cases, you’re able to offer a discount that might lose you money in the short term but increases long-term sales.
So, in order to make your discount enticing, you’ll typically want to make it at least 10%. You don’t always have to pitch it as a percentage, though. You can also offer money as store credit, which can be a more tangible idea for your customer. The more money you spend on incentives, the more you’ll make back in referral revenue.
Now, there are two types of discount incentive programs:
To maximize the possibility of a successful referral, we recommend going with the latter. While it may cost more, it creates an incentive for both the original customer and the referred customer to continue purchasing and referring. It also creates an environment where both customers feel like they are “in on something” in regard to saving money on your product.
What it is: A program that offers an external incentive (cash prize, gift card, or merchandise) in exchange for a certain number of quality referrals.
Who Should Use it: Businesses with one-off purchases who need a steady influx of leads.
If your business doesn’t experience frequent repeat business, then a referral discount program may not incentivize customers enough. In these cases, you can offer an incentive that takes the form of a direct payout based on the number of leads someone refers. These can include little things like a free sample product for each referral, all the way to a Starbucks gift card for straight cash for a higher number of referrals.
There are 3 steps to this strategy:
Choosing an incentive is the act of deciding on the payout method and overall amount. Options include cash offerings as well as gift cards or even physical goods like an iPhone. Ultimately, choose something your customers value and stick to it. Then, set a budget for your referral campaign.
When doing so, consider these factors:
If you don’t land a ton of repeat business, your referral incentive needs to cost less than what you make on your average sale. On the other hand, if your customers tend to buy frequently, you can offer a more enticing incentive since your referral will likely turn into a repeat customer. So, for businesses with a lot of repeat business, you spend money to make money.
Check out this example below from Casper Mattress:
The interval of referrals is the number of referrals it takes to get an incentive. If you want to offer a high-end incentive, it might be a good idea to make the customer have to refer three or five people before they get it. You could even offer tiers of incentives for one, three, and five referrals so you essentially create a mini commission structure for your customers.
This is a great way to save money on an incentive program people love. You can set an interval out of the gate, or you can wait until you’ve seen results from your incentive program before you dial it back by requiring more referrals. That tactic ties into our next step.
Even the best incentive programs have to be tweaked, or even eliminated, after a while. As you start to monitor the results of your program, it’s vital to tweak things to ensure that it’s efficient.
Here are a few questions to ask yourself whenever you analyze your results:
These answers will inform how you proceed. If you’re losing too much money, but seeing and needing growth, consider adding an interval to save some cash. If you aren’t seeing growth, then you need to change your incentive. Consider surveying your customers to see what would motivate them to refer.
Finally, if you’re losing money and seeing growth, but you’re getting to a point where growth is no longer an issue, you can end your referral program. You can also add an interval if you’d like, but if you don’t need the extra growth, don’t spend the extra money. Focus on maximizing profits from your current customer base now that your program has met your goals.
Now that you’ve set up the groundwork for referral incentives, it’s time to prove to the customer that you’re worth telling people they know. Generating referrals during the sale focuses on your customer service, and ensuring that the customer has an experience worth sharing. Then, either ask for a referral directly, re-introduce your referral program from above, or continue to nurture the relationship post-sale until enough rapport is built.
Let’s look at how to do this during the sales process:
A customer is far more likely to refer when they feel respected and understood during the sales process. To accomplish this, the sales representative they deal with needs to be focused on making each sale feel personal to the customer. There are a few ways to get this done:
All of these elements add to the personal side of a sale, and make it clear that you’re listening and making a personal connection. People love bringing friends together, and if you can become a friend to your customer, they are more likely to recommend you to others.
This is a small detail, but it’s important. Injecting their name into the conversation and during correspondence is a great way to make your communication sound personalized. If there is anything that customers hate, it’s feeling like they are being read a script.
Including their name in the following ways can make things feel more personal:
If these feel like no-brainers, then you’re already doing something right. For some, though, using first names frequently in conversation can feel foreign or unnatural. As a result, though, it’s very noticeable to the customer, and it will make it clear you are tailoring your speech, and your deal, just for them.
When we say “name”, we usually mean first name. While Mr./Mrs./Ms may be necessary in high-end sales, it doesn’t feel as personal as their first name. So, unless you are directed otherwise by a supervisor, use the customer’s first name whenever possible.
This step doesn’t just mean prospecting questions; you should go a step further when building rapport with your customer. When they mention something they like about a product, ask them how it will help them in their day-to-day. Use the feedback they give you as an opportunity to ask questions that dive deeper into your customer’s life.
Examples of good times to ask questions to ask are:
Now, you don’t want to go too far. Ask questions that give you an idea of their day-to-day. You’re trying to tap into their experiences, and you can get that far without overreaching. By asking questions in these specific circumstances, you ensure that they feel connected to the matter-at-hand, and their scope is limited enough to avoid making the customer uncomfortable.
Asking a question means nothing if you don’t do anything with the answer. When the customer starts to talk, you should be taking mental notes of the personal details they give you. Once the correspondence is over, write the important things down so that you can make it clear to them that you remember what they chose to share with you. Write down details like these:
Now that you have them written down, you can recall this information in future conversations with them. This is the step that really seals the deal, and shows them that you’re listening. This isn’t a trick, or a tactic; you sound like you’re understanding them because you are. If you only learn one thing from being a salesman, it should be the power of listening to your customer.
This one is pretty straightforward: Make sure your customers know how to get help if they need it. One of the easiest ways for a happy customer to become a disgruntled one is to make them feel like they are stuck with a broken or unsatisfactory product. Here are the things your customer needs to know before walking out of the door:
Get all of that information written down on a piece of paper, a sticky note, or on the back of your business card. Give it to them to keep so that they have the information handy if they run into any issues, and stress the fact that your company is happy to help. Products and services can sometimes fall short of expectations, and it’s forgivable if the customer knows you will rectify it.
We mentioned using the back of the business card for this step, and that is definitely the recommended way to do it. Let the customer know they can reach out to you personally with any issues, and they are more likely to trust and recommend you.
If you feel you’ve developed enough good will with your customer, ask directly for referrals. This is best done toward the end of the sales process, after all other steps have taken place. You’re basically asking right as they walk out the door.
Here are some professional ways to ask a customer for referrals:
Each has a different “flavor” depending on your circumstance and personality. Some people like to make it more casual, while others feel that the more direct route is a more effective way to drive home the point. It’s okay to let the customer in on some inside baseball and clarify exactly why referrals are helpful to you and your business.
If you aren’t sure if you’ve built enough rapport, continue doing so with our “after the sale” strategies. However, if you have an existing referral program, you should at minimum mention this to the prospect before the deal is done in case they have someone in mind.
One of the best ways to generate passive referral business it to provide stellar customer service to your existing customers. If you focus on 10x service throughout the sales process as well as post-sale, you'll naturally set yourself apart from your competition who typically focus on providing marginally better service at most. Then, so when the contacts of your existing customers ask for a referral suggestion, your brand will be top of mind.
Now that we’ve set up a great referral generation framework before the sale, and given the customer an experience worth recommending during the sale, it’s time to keep ourselves on the customer’s mind. The way we ensure that the customer continues to care about us and our business after the sale, is to show them that we care about them after the sale. We do this by receiving their feedback through a survey, and sending them a branded card on their birthday.
Customer surveys are commonplace in sales for a reason: They let you know what to work on, and make the customer feel heard. If you’re implementing a few of these referral generation strategies, and you aren’t getting results, the survey will probably tell you why. You’ll want to send this directly to the customer within a week of the sale, and ask these questions:
These questions focus on the customer experience and make sure the sales staff is doing all the things we’re asking of them here. The survey gives the customer a chance to be heard, reminds them that you’re listening, and keeps salespeople accountable. Creating an incentive structure for salespeople based on these surveys can help amplify that effect. This helps gain referrals by ensuring a quality service experience that is worth referring.
To send an effective survey, use Google Forms. This free option is a great way to create and send custom surveys that allow for multiple-choice as well as write-in questions. You can send one link to all your customers for aggregated feedback.
This one may seem kind of cheesy, but trust me, it works. All you have to do here is print some black cards with your company logo on them, and then have the salesperson fill out a short message for customers’ birthdays. This is best leveraged in industries like car sales, or any market wherein the customers and salespeople don’t see each other often.
Keep the message short, kind, and respectful. You’d be surprised how big of an impact a handwritten card can make, regardless of how short the message inside. Set reminders in your CRM a week out from your customers’ birthdays, and set aside 10 minutes to fill out and send them. This is a great way to make your name stand out when the customer is referring friends.
If applicable, continue to remind your customer about your referral program if you have one. Creating an effective referral program and then providing stellar customer service is a great way to organically entice your existing customers to refer people they know.
Another way to get referrals is to create a referral agreement with a referral partner. A referral agreement is a contract between your company and somebody else (usually another business) where one business agrees to compensate the other in exchange for business referrals. This is commonly seen in the car business, with dealerships referring customers to different paint and body shops in exchange for kickbacks.
Since referral agreements are legal documents, we can’t tell you exactly how they need to be written. So, we have decided to offer a referral agreement template for you, and encourage you to use it as a reference, and consult a lawyer before finalizing any agreement. Below the template, we outline the common sections and how to approach them.
There are a few steps that need to take place in order to create an official, legal referral agreement. You’ll need to cover the basic legal stuff like company names and relationship, what constitutes a lead, and how/when compensation will take place.
Here is what you must include in a referral agreement:
Just like any other legal document, you need to put down all pertinent identification information. This includes:
All of this will be right at the top of the agreement. It makes clear who is involved, and what function they provide in the agreement.
This is where the contract specifies what kind of leads the equity holder will pay for. Not all referral agreements are as simple as “send someone over, and we will pay you.” Each agreement has its own qualification for a “lead” in terms of compensation.
There are two choices here:
Obviously, the choice you go with will affect the value of compensation. If you’re paying for any referral that shows up or contacts you, you don’t want to pay as much per lead. If you only pay for leads that convert, then the external party will demand a higher price. If the lead must convert, decide on a timeframe within which they must convert in order to be counted.
There are a few different compensation details that need to be hammered out on the referral agreement. Both parties need to know how the external party will be paid, how much they will be paid, and when they will be paid. Additionally, there is the question of recurring conversions.
You’ll need to figure out how the external party will be paid. Are you paying with products and services, or are you paying with cash? Once you decide how the external party’s paid, you need to decide how much. The value of products and services vary widely, but payment in cash is usually either a flat rate per lead, or a percentage of what that lead spends with the equity holder.
Now that we have figured out what will be paid, we have to decide when it will be paid. This one is pretty simple, how long after the lead reaches out or makes a purchase will the external party be paid? You should also determine whether the external party will be paid again for recurring purchases, which would incentivize more lucrative leads.
As with any financial agreement, it’s important to mark down whether the agreement is exclusive or not. This is a major deal breaker for a lot of these agreements. You want to make sure, as the equity holder, that you are getting the highest-quality leads possible.
A confidentiality/privacy statement is more of a “dotting i’s, crossing t’s” section of the document. Basically, you are covering yourself legally from any sensitive details being shared, or any intellectual property theft.
Referrals are a vital aspect of sustaining any business through outbound lead generation. With these strategies, you’ll be able to generate and maintain a steady stream of referrals that will keep income for you and/or your business consistent. Put the work in before, during, and after the sale, and people will want to share their experience with their friends and family.