Making the Case for Referral Incentives

Over the past few years, referral incentives have become more researched and understood. More people are understanding their value, learning how to properly implement them into their channel. But in spite of this growth, there are still some people who consider incentives to be suspect at best — or at worst, unethical.

People who are against referrals generally consider them to be bribes, and worry about the ethical implications of “buying” referrals from partners and customers. They believe that partners and customers should be giving referrals because they genuinely believe in their product or service, not because they are expecting to get something out of it.

And that much, at least, is perfectly true! Great referrals come from people who are genuinely happy with your product or service and want to pass on that knowledge to other people, and an incentive should not be the sole motivator for a referral.

But does that mean that incentives are bad?

The dictionary definition of incentive is “something that incites or has a tendency to incite to determination or action.” It’s easy to see how some people might look at this and come away thinking of incentives as simply “bribes.” But for referral partners and customers, this definition is far too limiting.

Because the incentive rarely “incites” the referral. Instead, incentives are a way to say “thank you” to a partner or customer for giving it.

After all, our partners and customers are busy. And they’re taking the time they could be devoting to something else to make a referral for you. When looking at it that way, it is easy to see why incentives matter. Incentives show that their referral is appreciated, and that you don’t take their work for granted.

They also make referrals fun. Trying to get that next incentive or reward is like a game for some partners and customers. And who doesn’t like games?

But what about . . .?

Even with this major misconception out of the way, some reservations about referral incentives linger.

For example, some might worry that incentive programs aren’t sustainable. But with automation software, this is no longer a concern. Automation also helps combat the worry of fraud or abuse of the system.

Still others are put off by the cost that referral incentives have inherently attached to them. But when you consider the fact that referral partner leads convert at a much higher rate than standard leads, and when you consider how incentives can encourage repeat referrals from partners, then the investment quickly becomes worth it.

But what incentives should I use?

Even if you’re considering an incentive program, it can be difficult to know what kind of incentive you should be giving your partners and customers. Turning to research can help you figure out where to start.

For partners, The trend is moving towards ACH rewards. The most popular amount is between $101-1000, with the average reward amount being $182.

For customers, gift cards are king, taking up 52% of referral incentives. The most popular incentive amount ranges between $41-100, with the overall average being $110.

These statistics offer a good baseline, whether you’re looking to start an incentive program or if your current program isn’t delivering the results you want for the investment that you’re putting into it.

How do you build a incentive strategy?

Building an incentive strategy is simple, but not easy. You need to find the correct mix of appropriate amount, structure, and motivation.

There are, as we’ve touched on before, 7 factors that go into a good referral strategy. When planning, you should consider the following:

  1. Calculation
  2. Timing and Multi-stage
  3. Multilevel
  4. Accrual
  5. Prospect reward
  6. Campaign Bonus
  7. Sales

While this can seem overwhelming, it doesn’t have to be. Exercise 11 in our Referral Guidebook is all about calculating incentives, and it comes with interactive worksheets that make this step — and every other part of building a referral channel — much less stressful.

New data: The referral incentives that customers find irresistible [Infographic]

Customers have the ability to drive the stickiest and highest quality leads. But customers have a lot going on on a day-to-day basis. So how are companies keeping each customer’s head in the referral game? They are providing irresistible referral incentives that motivate customers to dominate the referral play. This make understanding the type of referral incentives that drive success vital to your referral strategy.

By analyzing current companies’ customer referral incentive practices including the type of referral incentives offered, the average amounts, and the highest converting amounts, benchmarks were created to inform customer referral incentive practices and measure against.

The referral incentive data sighted here comes from the new data report, The State of Business Customer Referral Programs. These benchmarks are a result of millions of customer referrals made in business customer referral programs run on Amplifinity’s referral software.

What type of incentives are companies offering customers?

One of the hardest parts of managing successful referral program is determining what type of reward will motivate advocates to take that leap and refer. And while many who start a referral program want to start small with merchandise, the data shows that cash is still king with:

  • 52% offering gift cards
  • 29% offering check
  • 5% offering bill credit
  • 5% offering merchandise

The majority of companies that used gift cards utilized them digitally. Checks, which came in second, were normally used when customer referral programs had variable reward amounts or offered a percentage of revenue.

But you may ask that if cash is king why did bill credit tie for last place with merchandise? Both bill credit and merchandise place an extra burden on the business to fulfill. Gift cards and checks can be automated so the burden is taken off the business. These are also both monetary rewards that go straight back to the customer for them to use at their own discretion as opposed to bill credits which can be easily overlooked on a statement.

What is the average amount of referral incentives companies are offering?

Once the type of incentive is established it’s time to dive into the incentive amount. The amount of the referral incentive companies were offering ranged from $20 to $2,500 with:

  • 82% offering $41 – $100
  • 2% offering $20 – $40
  • 2% offering $101 – $1,000
  • 4% offering $1,001 – $2,500

The overall average reward amount was $111. While $111 can be considered high for a referral payment when compared to the common cost per acquisition of a new customer it is actually quite budget friendly.  Looking at the 82% majority who offered $41 – $100 it might be deceptive that many are offering the lower end of the spectrum but most were much closer to $100 than $41.

 What referral incentive amounts are most successful?

While it is always good to see the types and amounts of referral incentives other companies are offering, it means very little unless you can see the success of these incentives. The conversion rate of incentive amounts from leads to deal was:

  • 13% for $41 – $100
  • 9% for $20 – $40
  • 6% for $1,001 – $2,500
  • 5% for $101 – $1,000

When looking at these conversion rates, the question is that if incentives are such an import part of generating customer referrals than why do the higher incentives have lower conversion rates? The reason behind this is that larger deals require more work and are more highly rewarded but due to the nature of a larger deal they consequently have a lower success rate even when more profitable than smaller deals. This data doesn’t show that lower reward will get you better result, but that the referral incentives need to be in proportion to the size of the deal and the amount of work it will take.

Start visualizing how to offer motivating customer referral incentives that dominate the referral game:

referral incentives. customer referral program ideas, referral rewards

Successful Referral Programs Offer Escalating Incentives to Drive Customer Engagement

Originally published on Loyalty360 by Jim Tierney

Customer referral programs are seeing considerable growth due to changes in buyer behavior, which has created an urgency for companies to reach and influence buyers in a different way.

That is a central theme in Amplifinity’s paper, “The State of Business Customer Referral Programs – Annual Report.

“The most successful programs have variable or escalating incentives which ensure customer advocates are being rewarded appropriately for their efforts and encourage repeat referrals during the year,” AmplifinityCMO Trisha Winter told Loyalty360.

Marketing, sales, and customer success all interact with customers and should be trained and managed toward driving advocate recruitment and asking for referrals from customers, the report notes.

“Marketing also needs to provide customers with the tools they need to make referrals to their network,” the paper says. “This additionally keeps customers engaged and informed during the referral process through to reward fulfillment. While the programs analyzed had varying levels of maturity in running their referral programs, the objective they are all working toward is to run customer referrals as an always-on channel for customer acquisition. To do this, referral selling becomes a part of normal operations for the company.”

Six methods customers refer to are email, lead forms, print cards, social media, shareable URL, and verbal.

In 2016, the average number of customers enrolled in a business customer referral program was 5,850.

Customer programs continue to organically grow as a company grows its customer base. The largest customer referral program in 2016 had 115,230 customers enrolled. But, enrollment doesn’t mean that all were actively making referral shares in 2016. Customers may refer at a point in time, but if they aren’t being regularly asked to refer as a part of engagement with employees, they may become inactive. Additionally, customers may leave the company where they use the product, in a sense this is advocate churn and is a natural part of any program over time.

Of the 5,850 average customers enrolled, an average of 2,106 made referrals in customer programs. This means that 36 percent of customer advocates made referrals in a given year.

Here are some key takeaways from the report:

Referrals need to focus on 1:1 interactions.

When it comes to choosing referral methods, companies should survey their customers to better understand how they prefer to connect with their network.

Engage advocates to increase referral activity.

Automate your referral channel.

“The increase in the lead to deal conversion rate by 17 percent proves that referral selling is an integral part of a successful referral channel,” Winter explained. “Marketing can drive some activity, but sales is in a perfect position to recruit customers to become advocates and ask for referrals. And when sales and marketing work together, conversion rates improve!”

The report’s data supports the concept that marketers already know, Winter notes.

“Personalization improves conversion,” she added. “The same goes for referrals. Social media, which is typically used as a one-to-many referral method was the most used, but the least successful. Referral programs need to enable one-to-one referrals with methods like verbal; which had the highest success rate. Some purists believe that a referral from a customer does not need to be rewarded. If referral collection is ad hoc, I don’t disagree. But if the goal is to get a consistent flow of leads from customers and get repeat referrals through the year, those customers need to be rewarded for their time and effort in making the recommendation and influencing the deal. In fact, I’d argue that relative to the average CPL/CPA that most companies aren’t rewarding their customers enough. When you can enable and incentivize customers to market and sell your product to their professional network, and do it at scale, it’s easy to see how lead quality ad conversion to purchase would skyrocket.”