The importance of a thoughtful referral program

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1987
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It is vital to be consistent in your marketing message -- and your service delivery.
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There aren’t too many brighter marketing ideas than developing an effective referral program

Bernie Heer, in the Closing Success Systems blog (Mike Jeffries), reminds us in a recent posting of the importance of referrals, and that you should set a system to (a) ask for and (b) reward referrals as your highest priority.

He also wisely reminds us that you don’t want to “cheap out” on a referral program. You can easily justify returns of $1,000 or more for larger renovation projects and (if you are not rightfully constrained by ethical guidelines and rules against kickbacks), even more for ICI work.

Create a referral reward program. And please don’t cheap out on this. Remember our discussion about lifetime customer value.

If you’re a custom home builder, a remodeler, or a pool contractor, you can certainly afford a referral reward valued in the $500 to $1,000 range. That’s a whole lot more than any of your competitors are giving away for a referral. I like to offer three rewards so that clients can choose which one they want.

A painter, paving contractor, roofer, or similar type of contractor probably can’t afford that level, but $150 to $200 is doable. There are a lot of great things you can get for that kind of money, especially electronics. And, again, your competitors—if they do anything—are giving twenty-five-dollar gift cards.

If you can arrange with another local business to package a reward, you can “plus” the value of the referral reward. For instance, a dinner for four at a nice restaurant would be a very nice referral reward. But, if you approach the owner and arrange for the dinner to be on a Tuesday or Wednesday—typically slow nights—then you might get the dinner at a pretty nice discount. Plus, the restaurant is potentially getting people in the door that they wouldn’t have gotten otherwise, so the discount they’re giving you is really a marketing expense for them.

One note: if you do arrange a dinner as a referral reward, specify that it comes with a bottle of wine with your compliments. Otherwise, the party might go through several bottles of expensive wine and expect you to pay the tab. Don’t ask me how I know…

 

Of course, if you are ethical, you will only pay out your referral bonuses because your current and previous clients truly love the service they received. A good sign you are on the way to success of course is when you receive referrals spontaneously without even trying. (Though this may also indicate you are pricing your services too low. If you are at the level where you are overwhelmed with business and “rely” totally on referral and word-of-mouth, then you should consider raising your prices. Remember if you are working on a 10 per cent margin, a 10 per cent price increase will double your profits.)

So there is a balance — se the right (often higher) price, and allocate some marketing resources to a referral program. If you are spending money on non-referral based marketing (like wasteful old Yellow Pages advertising, yes, some are still doing it), you could easily reallocate your funds. If you haven’t spent any money on marketing, the referral campaign/program will be your natural first step, because of its high reward for cost and, done right, its conditionality — that is, outside of a small reward for just providing the referral the real generosity only occurs when you have the referral order and sale in your hand.

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