Unbound Growth Blog

Referral Fees and Referrals

Posted by Rick Roberge

 10/9/17 6:23 AM

A few days ago, a business owner asked me, "Who do you pay a referral fee to when a new customer is sent your way and why? Current clients? Employees? People in your professional business network? Friends and family?" The answer is simple. The reason is complicated and multi-faceted.

Why do we like referrals? If you look at the funnel in this article, you'll notice that the author suggests that there are 10 steps between 'stranger' and customer. If someone that you respect says, "Hey, I just listened to this podcast about a guy that got a 4x ROI on his investment in sales coaching. You should check it out." You will probably check it out. This is an example of an online referral. Notice that if you are thinking that you might need sales coaching, you have skipped all the steps in the first half of the funnel. They are unnecessary.

Yesterday, I was talking to Marshall Katz about selling our house. He asked, "Do you have a lawyer?" I told him that I know many lawyers. He asked, "Do you want me to introduce you to my guy? He did it all and thought of stuff that I didn't know to ask about." You need to know that Marshall has been my friend and insurance guy for over 40 years. He's one of three people that are in my inner circle, that I'll seek advice from and who's judgment I trust, sometimes more than my own. I've already reached out to his lawyer. The funnel depicts that as an evangelist's introduction. When the lawyer talks to me, he'll know that I trust him because Marshall trusts him. He doesn't have to sell me. He just has to fix the thing that needs fixing. I don't push back or haggle. Notice how many steps Marshall's evangelistic introduction has skipped in the funnel.

So, why do we like referrals?

  • The prospect already has the need.
  • They are pre-disposed to like and trust us.
  • They have less steps to take in their buying process and will close quicker.

So, why don't we have enough referrals?

I've included links above that may help with trust and asking for referrals. Enjoy! Developing relationships is something else. Look at this table. This table analyzes the relationship building capabily of a sales manager and their 14 person sales force. It's not great.

Relationships.jpgNotice that developing rapport is only 1 of the 6 components of developing relationships. Also, notice that all but one of these people don't believe that the relationship is a key factor in winning the business. Seriously? Relationships aren't necessary to maintain MRR or ARR or getting someone to make a 5 figure decision?

Let's wrap this up and answer the question. Who benefits from a referral? Did your friend share the podcast because they wanted to help Michael Douglas? Noah? Unbound Growth? or were they hoping that you would get value from the podcast. Did Marshall mention his lawyer because I'm a great customer for his friend, the lawyer or because he's a great lawyer for his friend, Rick. The best referrals are the ones that happen because a the 'buyer' being referred will benefit the most because the 'vendor' being referred will help the buyer with a need. The referrer expects the 'vendor' to help his friend, the 'buyer'. Look back at that funnel and do the math. 1 referral is worth 16 inbound leads and 128 website visitors.

Bottom line is that your evangelist doesn't need a referral fee because they want you to help their friend, but the more important reason to not pay referral fees is that it eliminates the possibility that the prospect might wonder whether the evangelist referred me because I'm the best solution to their problem or because I pay the biggest referral fee.

We just finished the first week of 4Q17. How many referrals did you get? How many would you like to get? What if next year, every customer sent you another one? Start now.

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