A Sales Referral Program can be one of the best and most cost-effective ways to generate leads for small businesses but is underutilized by most. In many cases, it is because larger enterprises tend to implement them, making it appear difficult for a small business. For this reason, small business owners do not feel they have the staff or capacity to implement one successfully and often miss a great opportunity.
We all work on our business networks, hoping that people we deal with and know will refer business our way, and in many cases, they do. Think for a moment; these same people in our networks are also looking for leads from us, and there are only so many leads to go around. If you knew two companies that did similar business and both are good companies – who would you refer the business?
Implementing a referral program can be simple to develop and implement and will increase your chances of receiving qualified leads. You only pay the referral partners when a lead closes, so there is more of an incentive to qualify the leads provided. You do not have to have a sophisticated system for tracking. Having forms on the web makes it easier for partners and yourself, but I have run several referral programs in small and medium-sized businesses with Excel or Word-based forms. The key is to have a defined process to follow.
Step 1 – Set Guidelines for Your Business
A contract should outline the rules and regulations for your program that you make them sign. The arrangement and rules need to be simple to understand, and they need to sign the agreement before you take them on as a referral partner.
Set a time frame for how long you will accept the lead as a referral.
The time frame will differ depending on your sales cycle. Most referral programs that I have seen for products or services with a 3-6 month sales cycle allow a lead cut to six months. If the lead has not been able to close in that period, you can decide whether the referral partner can re-submit the lead or whether it is a dead lead.
Determine if the lead provided meets your criteria for a client.
When they submit a lead, make sure to get back to them in a short period and let them know whether you accept the lead. A criterion for non-acceptance of the referral would be if someone in your organization has already been in contact with the lead, is an existing client, or has purchased from you in the past. The choice is all up to you, depending on what rules you want to set.
If the lead closes, you need to determine how much you will pay for the referral.
Typically this is a set percentage of the overall revenue collected. This amount can be anywhere from 5-10%. Do not be greedy here. Set an amount that will motivate your partner to provide you with qualified leads. Think about the cost and time it takes for you to get a lead and the sales cycle involved. This lead should already be pre-qualified, so your sales cycle should be shorter.
Determine whether you want to pay the referral partner for ongoing sales generated from the customer account.
For example, many pay referral programs pay a referral fee on that account for a set amount of time. This feature of the program is entirely at your discretion.
Determine how often you will pay your referral partners.
You want to ensure that you have collected the revenue from the client and leave enough time to account for any returns. Most programs I have seen pay quarterly. The referral partner will need to be made aware of the closed sales and amounts to invoice your business. You will need to know what taxes to apply based on your local tax laws.
Step 2 – Application of the Referral Partner
There should be a short application that the referral partner fills in, providing whatever background information you want to keep on the partner.
The application should be fairly basic, with contact and company information about the partner.
Your rules and regulations should be outlined as part of the application, and have them agree to the restrictions online or sign and return the application document.
It would help if you let the referral partner know they have been accepted and have them sign a contract with all the terms and conditions. You will need to determine any reasons to reject a referral partner.
Step 3 – Lead Application
There should be a form online or one that the referral partner submits to you in a document format. The form should have as much information as you feel you need to qualify the lead. The information will differ by business. You will need to capture all of the contact information about the company.
The referral partner should know that this should not be a blind lead and should not be a shock to the prospect that you are calling, so you might ask about any prior correspondence between the two parties.
Once they submit the lead, you should quickly determine whether you will accept it and let them know. If you accept the lead, you will need to supply the referral partner with how long the lead is valid.
Step 4– Lead Tracking
All leads should be tracked in some type of system. This can be as easy as monitoring them in a spreadsheet.
It would be best to track when they close and how much money you owe the referral partner.
Contact the referral partner and let them know the list of leads that closed within your payment period and the amount of the invoice that needs to be submitted for payment.
You also need to contact all referral partners when their leads expire.
Summary
A referral program is not a complicated process or program to implement and can prove to be a very cost-effective way to generate leads and create a low-cost channel to market for a small business. If you have a group of trusted referral partners who provide qualified leads to you on an ongoing basis, this will help reduce some of your overall sales and marketing expenses.
You will need to advertise that you have a referral program on your website and in other materials. Referral partners could be consultants from your industry, vendors, and companies that sell complimentary products and services. If you use sales agents or resellers, you might even start them off as a referral partner first to see how they perform and pay them a bit more if they are involved in the sale.
If you would like to understand how to set up a referral program in your business, this is something that could be done through an advisory session or business coaching.