1. The advantage of using rewards in referral marketing programs
When used correctly, using rewards and thank-you gifts can be a powerful
incentive for clients to provide referrals to you. They can be used as
creative method
to boost the number of contacts you receive while providing new relationship-building
events with your current clients.
A reward or thank-you gift in this context
means that you, as a business person, give a special gift or bonus to clients
who give you referrals
that convert
to new clients.
Getting a referral often relies on chance simultaneous
events
Clients most often give referrals when a series of chance, simultaneous
events happen: they are asked by a friend to refer a service provider,
they remember
your great service, and they happen to remember your contact information.
The greatest enemy to clients giving referrals is entropy and inconvenience.
Either
they don’t remember your service when asked, they don’t
have your business card handy, or it’s the wrong time for them
to give a referral.
Rewards create an extra incentive to beat inconvenience
and entropy
A reward gives the client an extra incentive to drive past
the feeling of inconvenience and participate in the referral giving
process.
Whereas before they may have
postponed giving the referral (perhaps perpetually) they now feel
urgency to provide names of their friends and family immediately.
Take
this example:
Bob is a successful Insurance agent with a great track record of
excellent customer service. He’s decided to offer a tasteful
reward for his clients who give him a referral: He’s going
to donate $100 to the referral-giver’s
charity of choice for every new referral he receives that turns
into a new client. Now when his clients receive his request for
referrals they don’t
postpone writing back with names when it’s convenient for
them – they
value the reward and take a few extra moments to send Bob names
of friends and family who may be looking for insurance.
Rewards
may also show the importance or seriousness of your referral requests
to your clients. They may have previously taken your requests
for referrals
much more lightly, not realizing the enormous value that have to
you. A reward says “this is important to me”.
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Nothing is more important
to referral business than delivering top-quality, superior services to
your clients. Nothing. If your
business practices
are poor and clients are unhappy, than no reward will encourage
them to submit
their friends and family addresses. Many business people may
find rewards too promotional or hawkish. Some businesses may even undermine
their
reputation with rewards. Rewards are not meant to supplant
excellent service, or change
the reputation of a service provider.
Positioning rewards properly
for your business
Rewards or thank-you gifts in this context should be seen as
incentives for clients to participate in your referral program
immediately
instead of putting
off participation indefinitely. There are many tasteful,
non-promotional rewards that will be very much appreciated and will not
seem “salesy” in
any way. In fact, many of them may create new up-sell, cross-sell
and relationship-building opportunities within your client
base.
For example:
In Bob’s insurance business, he may offer a free Long-Term Care Readiness
assessment or free tax planning software for each successful
referral that he receives. This provides his clients with an incentive
to provide referrals,
sends a message that’s in perfect context with his
business, and also may begin a new financial conversation
with his current
clients.
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Rewards must always make smart economic sense and
create a positive return. The cost of the reward must only
be
a fraction
of the
profit of the new
customer’s
lifetime value. Because of this, expensive or time-intensive
rewards should only be given when a referral converts to
a new revenue-bearing
client.
Understanding lifetime value
Lifetime value is the amount of profit you receive from
a client over the entire relationship. Some service providers
may only
know a client
a short
time, and
only ever sell one product to them. Other service providers
may have clients with recurring revenue for years, even
generations.
Lifetime
value may
also include the new referrals that you will receive
once they become your client.
A simplified lifetime value calculation
may look like:
(Annual revenue from client – cost of doing business) * years
of service + new referrals
Examples:
A new client for a babysitter
may only last for a few years until the family outgrows the need for
a sitter.
A new
babysitting client may
receive $400
a year for a new client for five years. This adds up
to $2,000 in lifetime value.
The babysitter may want to choose a reward that doesn’t
require any out-of-pocket expenses: such as 4 hours
of free babysitting.
A car dealer may calculate that
he will get two sales for every new good client he
has. For
each automobile
he sells,
he receives
a $1,000
commission after his costs. His lifetime value for
each new client is about $2,000. This dealer may feel
comfortable
giving
away
$50-$200 in
value
as a referral reward.
An interior designer receives
a 20% commission on her new client’s furniture
and design budget. She estimates that an average
design client is worth $8,000 - $10,000 in a year’s project fees.
They typically conduct multiple design projects over the years. Each
client is worth $40,000
and $50,000
in revenue.
A referral reward value could easily fall between
$200 - $600, but much more could be justified.
A successful investment advisor
seeks clients with
at least $1,000,000 in assets to invest. His fees
from that
client,
after costs,
rear about 100
basis points,
or $10,000 annually. Because the fees will grow
with the assets over an expected 20 year relationship,
he calculates
each client
to be
worth $250,000
- $500,000
or more in lifetime value. He may give a referral
reward of $500 - $2,000 in value – but could
probably justify thousands more!
In some cases, it may be appropriate to give rewards
to people who give referrals that don’t convert.
This may be when the reward itself is a business-building
event, or affordable enough
to give away without
an immediate financial return.
A thank-you communication should be sent to all
clients who give referrals regardless if they convert.
In fact,
the savvy marketer
should relish
this communication.
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Rewards should reinforce the quality, themes,
or content of your business. This will help you:
- Reinforce your value
and message to existing clients
- Possibly create new events to communicate and sell to existing clients
- Minimize or eliminate any overly promotional aspects of your referral
reward program
The best rewards are ones that bring
clients back to you
The best rewards are ones that result in your existing
clients enjoying your service, being reminded of
your quality, and
potentially start
new conversations.
These gifts can also be the most cost-effective
as you may be fulfilling them yourself without
any additional
out-of-pocket
costs.
Some examples of rewards that bring clients
back:
A financial services professional may offer free planning,
tax preparation help, budgeting software, or another gift
that promotes financial health
An auto dealer may offer a free auto detailing
service at their dealership.
A designer may hand choose a small decoration
for their clients, which reinforces the taste and discretion that
the designer has for the client.
A caterer may say thank-you with a beautiful
gift basket with wines and cheeses of their selection. Or hold thank-you
dinners for referral-givers.
A travel agent may offer tickets to a show,
or room upgrades for travelers.
A massage therapist may offer a free massage.
Hold an annual appreciation
event at your house or at a restaurant where you give clients an enjoyable
fine
meal and drink, and a chance to mingle with new people or see some entertainment.
Care for the community and philanthropy
A gift to charity or to a church may be a wonderful reward that carries
a self-less and non-promotional
nuance while showing genuine appreciation. Giving the gift
in the referral-givers may
name may offer prestige to the referral-giver, and reinforce your
business’s sense of caring and community support. You
choose a charity that is relevant to your business, a charity that is close
to your community, or one of the referral-giver’s
choice. You may even let them
present the gift themselves,
delivering the
check to the
church
or community sports team personally.
Give
them something fun
There are many quality ways
to say thank-you that may not
directly
reinforce
your
business, but will
be appreciated
all the same.
Remember, your first
priority is to motivate clients
to act now instead later. Some
of these
rewards
may
include:
- Gift certificates to
local stores or restaurants
- Online gift certificates
- Free tickets to sporting events, concerts, films,
or museums
- Flowers, candy, food, gift baskets, homemade treats
- Personal gifts: photo
albums, coffee table books, picture frames
- Presents for children
- Cash and gift checks
Fulfilling rewards online
Giving rewards online may be convenient and immediate way to
fulfill rewards, especially if you
are using an online referral system like FollowMyClients. Gift certificates
can sent via e-mail from online retailers
such as amazon.com and
americanexpress.com.
Charitable
gifts
can
be given almost anywhere through charity portals
such as justgive.org.
Whether you fulfill them online or in your place
of business, rewards can be a powerful means of defeating
a potential referral-giver’s sense of inconvenience
and have them
participate in your referral program actively.
Reward programs should be designed carefully so
that you don’t
seem overly
promotional, and more importantly,
drive your
existing clients
back to you
for more business.
