Is a Referral Program a Bad Idea?

Jim,
Here’s my three cents. I believe people refer to me most when 1) they like me, 2) like what I’ve done for them, and most importantly, 3) when I’ve asked them to refer to me (and taught them how).

Why do they refer to me?

1. Because I’ve served them, and they want their friends to experience the same service. Their reward? Their friends like them better because they got turned on to somebody who would help them.
2. Because I asked them to. People want to help other people, they just get busy or don’t know how to help us. When we ask, most people are glad to do it. “How has this worked for you?” “Great”. “I thought so…do you know one other person who might benefit from the experience you’ve had with us?” Don’t ask for three, you’ll get none. Ask for one and you might get three. And talk about their experience, not your need for a referral, etc. We’ve worked out the wording of the last sentence pretty carefully over time.
3. Least motivating – because they get something extra from me. If you can’t develop a relationship with someone directly, then having a standard referral program to incentivize them is a great idea (37signals) has a nice one). But in general, the best referrals don’t come because I paid somebody, they come because I served them, asked and taught them how to refer. In some cases, paying for the referral can actually cheapen the relationship because now you have a monetary relationship instead of a friendship.

My best referrals are from people I’ve served, who like me, and who have benefited from our relationship in a non-monetary way.

I’m not saying you shouldn’t reward people for referring. But with close in connections it’s sometimes better to do it as a “gift”, something they weren’t aware of beforehand even though you may already have planned to do it for anyone who refers to you. A gift says thank you (and still incentivizes them to do it again). A referral fee is a pure business/revenue transaction.

Bottom line – If I don’t have a personal relationship of some sort and don’t see building one, giving a referral fee is a good idea. Buy friends you don’t have time to make. But I would start with the following:

1. Make a list of your top 10 existing or potential referral partners.
2. Get a cup of coffee with them and discuss how you can help each other in business by raining on each other and ask them for a referral “one other person you know that might benefit from the experience you’ve had”, or if they are not customers “…an experience with us”, etc. If they refer someone, you might tell them you are developing a referral program that they might see in an email, but don’t tell them the details unless they ask. Most won’t care.
3. Once you’ve got that list covered, publish your referral program. And in the future, continue to get with those big potential referral partners and develop the relationship (sending them referrals is the best way to reward them!).

I send clients to people mostly because I know they are going to be well served, and it makes me glad to serve people I know. Being someone that others want to refer to is the best referral program possible.

Best!

C