Do “Refer a Friend” Programs Actually Work? Absolutely! Sometimes.

canstockphoto19193088Pay for referrals? Are you kidding me?

Thanks for all the happy birthday wishes last month. My friends and clients aren’t the only ones who remembered my big day. I received offers from my favorite retailers for birthday discounts, designed to make me feel special and (more importantly) spend money.

B2C incentives work like magic. We all love saving money and brag about getting great deals. We line up when stores offer limited supplies of “whatever.” We grab every coupon and sales ad we can find, use Groupon for deep discounts on special events and luxury services, and take advantage of “refer a friend” offers any chance we get.

But in the B2B world, incenting people to provide referrals isn’t the no-brainer sales strategy that it is for consumer-facing companies. There are two kinds of incentives companies provide for referrals: incentives for clients, colleagues, and friends who refer business, and incentives for salespeople who bring in new clients through referral programs.

Only one of these strategies is a good idea.

Should You Give Incentives for Customer Referrals?

The short answer is no.

I know many companies offer discounts or monetary rewards when customers refer a friend. But think about it. 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. Business 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 from a referral marketing program.

If you choose to send referral sources small gifts or to make charitable donations after the fact, that’s fine. Just don’t make compensation the reason they refer you.

What About Incenting Salespeople?

You bet you should. There’s practically no cost associated with referral selling. It takes your sales team less time to close deals. They score important meetings with just one call, and they develop deep, lasting relationships that most likely wouldn’t have happened without a referral.

Rewarding referral deals is magic. You incent the behavior you want to develop in your sales team, and you should be thrilled to write that check! Also consider incenting activities that lead to referral sales—such as referral introductions requested, referral introductions made, and referral meetings completed.

Incentives take many shapes—from financial rewards, to praise, to gifts. Acknowledge referral accomplishments with a group voicemail or email, or by making announcements in weekly meetings. You might also give bonuses, gift cards for movies, dinners, luxury products, and vacations. Everyone is motivated differently, so find out what rocks the boat for each salesperson.

This may sound like a lot, but consider what new referral business means to your revenue. And what is it worth to retain star salesmen and women?

You might be thinking that reps are paid to sell, so why should they get bonuses when clients refer a friend? After all, they should know referrals are the fast track to higher commissions.

“Should” is the operative word here. There’s lots we “should” do, but we often don’t—unless we have goals, skills, accountability, and rewards. It’s human nature.

Should Marketing Offer Incentives for Referrals?

Many companies implement advocate referral programs through marketing channels. Marketing provides a platform and invites clients to become brand advocates. When advocates refer a friend, they receive money, discounts on products or services, or even gift cards. They accumulate “points” for each referral.

These advocate referral marketing platforms have verified results, and I don’t debate that they work. But here’s the catch: Referral marketing takes you just so far.

Sales reps—the ones who actually begin relationships with clients—can’t abdicate their responsibility for staying in touch. They must continue to nurture those relationships and consistently ask for referrals. When they do so, they don’t just make clients feel valued. They also fill their pipelines with hot referral leads. But if salesmen and women don’t “own” the client relationships, they lose the right to ask for referrals.

Your Referral Reputation

A genuine referral from a client, just because the person trusts you and is invested in helping you, provides a much greater return in the long run than any referral marketing program.

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. Appreciation is an incentive in itself.

Join the Conversation: Do you offer incentives to customers who refer a friend? What about salespeople who bring in referrals? What results have you gotten from these strategies?

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Follow Joanne on Google+ or Twitter @ReferralSales, or connect on LinkedIn and Facebook.

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