Referrals- It is not about the money

Intuitively, one may think that rewarding customers or other business owners to refer you or your company would be very successful. However, rewarding customers or small business owners for their recommendations is not an effective strategy.

New ECSB research shows that only 12% of owners expect to receive compensation for their efforts. Of course, owners would gladly take your money, but the majority (57%) don’t expect compensation. So, at a minimum, you are wasting money.

Worse, paying for a referral diminishes its impact. Their study shows that if owners believe another owner stands to benefit, its credibility is jeopardized. For example, the likelihood of a referee following a "paid" recommendation drops like a stone – a negative impact of 4.3 times compared to a "genuine" recommendation. This is now like "shooting yourself in both feet." Rather, we need to take a step back and understand what drives owners to advocate for your products or services. The critical insight is that owners recommend you more so because of their relationships with their peers, and less so because of their relationship with you.
While owners do need to be satisfied with you, what ultimately drives them to recommend is if they believe your product or service will help their peers. What ultimately drives them NOT to recommend is the fear of giving bad advice to their fellow owners. Small business advocacy is about them, not about you.
So, make sure you have a documented Formal Referral Program that clearly states what you do and don’t do with referrals. What you would like the referrer to do? Provide something of value that the referrer can "give" to the referee to make the effort easier for them to approach an associate and make them feel good (remember it is about them) about making the referral. This could be a free consultation over lunch, something of value that allows you to show how you will serve this referee in the future.
Then remember to follow up several times with the referrer to keep them in loop and reinforce how good it feels to help out their referee/friend/associate. This Program means a lot more to someone than a car wash ticket or $50. It is ok to show your appreciation after the fact, but that should be an afterthought and unexpected.
For more on the Formal Referral Program watch this short recorded webinar:

http://www.slideboom.com/presentations/323397/Trust---The-Formal-Referral-Program--recorded

All the best,
Rick Wallace
And