When you provide a referral, your reputation is on the line. You refer someone you know and trust to take care of your client or colleague just as you would. Referrals are far more powerful when they’re given out of an authentic desire to connect people who can benefit from knowing each other—rather than to get a kickback.
If you choose to send Referral Sources a small gift or to make a charitable donation after the fact, that’s fine. Just don’t make compensation the reason they refer you.
Don’t Take My Word For It
For a 2010 report from the Wharton School of Business, researchers Christophe Van den Bulte, Bernd Skiera, and Philipp Schmitt studied data that an anonymous German bank gathered on nearly 10,000 of its customers over 33 months. They found that referred customers generated 16 to 25 percent more value than non-referred customers.
Although this bank did offer incentives to customers who referred new clients, the researchers admit that such company-stimulated, word-of-mouth programs (WOM) are ultimately less effective than organic referrals. They point to several studies that illustrate the shortfalls of incentivized referrals. Their findings:
- “Such efforts often involve a monetary reward for the referrer who, as a result, may seem less trustworthy.”
- “Programs providing economic benefits tend not to be very sustainable.”
- “Unlike organic WOM, stimulated WOM is not free, raising questions about cost-effectiveness.”
- “In most referral programs, the reward is given regardless of how long the new referred customers stay with the firm. [This] incentive structure … creates the potential for abuse in which existing customers get rewarded for referring low-quality customers.”
Incentive referral programs may work in business-to-consumer situations. However, in business-to-business sales, a genuine referral from a client—just because the referrer is invested in helping both your company and the prospect—provides a much greater return.
Incent or not. It’s your choice. I’ve given you my point of view. But whichever route you take, always remember to thank your Referral Sources.
Do you offer incentives to Referral Sources? If so, do you think the incentive program has been valuable?