Referral marketing – Offering incentives

Should you offer benefits, or incentives for referrals?  This is an important question, without a yes, or no answer.  The truth is it depends!  The real question is – if you offered a benefit for a referral would it increase the number of referrals you get?

There are two ways of offering a benefit for a referral.  The first is what I call ‘front end referrals’ and the second is what I call ‘back-end referrals’.

First, let’s discuss front end strategies.  A front end referral strategy is where a business offers an incentive for anyone who refers business to it.

In other words the company puts out a variety of marketing campaigns which states something like “if you recommend a friend and they become a client then you will receive X”.  

For example – many health clubs use ‘refer a friend and you will receive three months free membership’.

If you are considering this type of scheme then you need to decide if you are willing to pay for leads, or sales, or both.

The question is what form should X take?  In other words, What are you going to offer as an inducement?  This could be a whole variety of products, or services, it could be for example:

  • A discount off your services
  • A free product, or service provided by you
  • A discount from another company, preferably one you have a strategic relationship with
  • A contribution to a charity
  • A free social event, like a meal, or a weekend away in a hotel
  • A cash incentive

But the key is that it needs to be something that is going to make your target take action.  Giving something small as a front end strategy is virtually worthless and will not motivate people to refer you at all.  

One example of what not to do would be a national health club chain we did some work for. They offered a free water bottle for every referral their members provided.  What would you do if you were offered a free water bottle? Not a great deal I suspect! You may however still refer a friend to them as they provide a great service and good value for money.

An example of a great front-end strategy would be my friend and colleague Jim Ewan.  Jim is a professional speaker and Jim charges £2,500 per talk.  He wins most of his business by offering people £1,000 in cash for every referral they give that leads to business.  

Do you think this works better than the water bottle?  Absolutely it does and so Jim has an infinite marketing budget, as he pays for sales and not for marketing.

Let’s now take a look at what I mean by ‘backend referral systems’.  A backend system is simply a referral benefit which is not marketing, nor is it stated up front; But it is a benefit which is given as a ‘thank you’ after the event.

This can be very powerful and the need to offer a ‘large’ benefit is less evident and can at times even be detrimental to the success of the strategy.  

In essence what you are doing is ‘saying thank you’ for the fact that someone has done something for you.  You are doing it firstly to thank them and secondly in the hope that they might do it again.

This type of strategy is very popular within the professional services industry and the rewards can include:

  • Just a simply thank you card
  • A bottle of wine, champagne, whisky, etc
  • A bunch of flowers
  • Health treatment
  • A contribution to charity
  • Etc. 

What really matters is finding out what the recipient might appreciate and ensuring that you position your gift as a ‘thank you’ and not a ‘bribe’. 

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