The Paradox of Referral Fees

Offering referral fees to others to send business your way is a two edged sword at times:

  • On one hand you can really increase your customers,
  • On the other hand you might not get the customers you really want or need.

Therein lies the paradox.

On The Positive Side

On the positive side you are offering a financial incentive to others to refer business your way. Your customers and "agents" can earn some cold hard cash sending business your way.

You hope that the person doing the referring is looking out for both your and the potential client's best interest in making the connection.

But There Is Another Side

However, this is not always the case. Your "agents" may start sending business your way that is not good for you and even worse, not a good match for the customers.

And once they find out that the "agent" was benefiting financially from the referral they can become bitter to both the agent and your company by association. With the reach of Social Media, this may be a complication you don't need.

There is another issue on the psychology side: monetary incentives alone do not motivate well long-term. Some people are even arguing that pay for performance is causing people to blindly seek the money and game the system.

Giving Amazing Value Instead

For our Manifast product we are looking for business advisers (coaches, mentors, consultants, board of directors, etc.) who would see value in offering a tool to reinforce and add to the value to their consulting work. They get added revenue from helping their clients actually do the planning required and we get the software licensing fees.

The consulting work per client potentially far exceeds our piece. We would also expect to eventually refer work back to the advisers.

Already we are thinking of the tremendous value to both the advisers and the customers.

Raving fans of your product who give referrals out of caring are potentially worth a lot more to your brand than paid agents. As well, many advisers need to remain unbiased in the eyes of their clients so will not want payment anyways.

(And in the future we have even more powerful value propositions in store for both groups.)

So first look for other ways you can give value back to your champions so that referral fees are not necessary. Amazing value.

Conclusion

Referrals fees can work well for certain types of business where an unbiased referral is not a concern and customer matching is easy or straight forward. Commodities like books are like that.

If you are going to use referral fees make sure you set them up to get the customers you really want and need. Also be prepared to deal with the administration of score keeping and refereeing those trying to game the system.

I like the idea of delivering amazing value and getting customers to become raving fans.

Are you using referral fees successfully? Leave a comment.

By | 2017-04-03T11:40:07+00:00 February 9th, 2012|Categories: Business Strategy, Doug's Blog, Marketing, Sales|

About the Author:

Doug Wagner is an entrepreneur, President and Co-founder of Sunwapta Solutions. Sunwapta’s mission is to help businesses transform from surviving to thriving, sustainable growth. From strategy to implementation, this means marketing, sales, managing your brand and delivering consistent value. Get more clients and keep them.