Over the last couple of weeks I’ve had three separate occasions to talk to small business owners about referrals. (The most recent in Brazil for the launch of the Portuguese version of The Referral EngineMáquina de Indicações)

Referral Motivation

KiltBear via Flickr

In each of these sessions I was asked about the best way to keep referral sources motivated and, more specifically, if you should pay for referrals.

My answer in each case was this. I believe that the key to motivating your referral sources is to first understand why they refer.

In a perfect world your referral sources are motivated to refer because they believe in your company and they want to help the person they are referring receive some of the same value that they have already received from your company.  This is what I call a referral for social reasons.

When you offer payment for the act of referring you turn this social act into a financial one. That may be okay in your particular instance as long as a financial reward is the thing that truly motivates your referral sources.

When a referral source is motivated by a true belief in the value of what you have to offer, they will always be a much more potent representative of your brand to their friends, neighbors and colleagues.

Think about this for a moment. If someone was raving to you about a company you should try and then they disclosed that if you were to in fact try that company they would get a cash reward for referring you, would that change how you viewed the information they shared about the company?

During one of my presentations a young woman told a story about a company that she had done business with. She had a very positive experience and over time became a great source of referrals for this company.

The company decided to try to create more referrals and sent her a letter telling her that they would pay her $10 for every referral and all she had to do was upload her entire contact list.

She went on to say that this approach actually turned her off to the point that she was no longer interested in referring business to this company. Her motivation was purely one of the joy of sharing something she found with others that occasionally needed it. This companies’ failure to recognize that not only cost them future referrals it cost them a strong evangelist.

Understanding your client’s referral motivation can be a tricky thing. You have to strike the perfect balance in order to keep your referral sources active, while presenting a logical reason to be so.

If you can create referral messages and campaigns that match the motivations of your most active referral sources and keep the idea of referral generation close at hand it can pay long-term dividends.

The answer to perfect blend of motivation may be as simple as asking your customers.

I once worked with a remodeling contractor that had a long-standing referral policy of paying $1,000 for each referral. In a series of meetings with past clients we learned very quickly that the money was not a motivating factor at all, and, as I suspected, was actually a deterrent to active referral participation.

Remodeling a home is not for the timid and these very happy clients did not refer this contractor lightly. If they told a friend they should use my client’s services they did so emphatically and without reservation, but they did not do it for the money. They did it because wanted to help a friend avoid the headache of choosing the wrong contractor. They certainly did not want their friends to they did it for the money and in some cases asked the contractor to give it the referred friend or donate it to a local charity.

So, we wanted to know what would be a creative way to keep them thinking about my client when it came time to refer. What would be a reward of sorts that they would brag about receiving to their friends?

As it turned out several clients told us that what they really needed more than cash was a carpenter. What they could really get excited about was the use of a carpenter for a day to fix all the little nagging household projects that never seemed to get done, but were really too small to get someone to come out and do.

It’s funny but their “Carpenter for a Day” referral program actually cost the contractor far less to implement, but seemed to strike the perfect chord with their clients. It still allowed them to refer for social reasons, but the payment felt more like a show of appreciation and was something they gladly shared with their friends.

In fact some talked about this little perk as much as they did about the remodeling process.

My belief is that if your first choice in creating a referral program is a straight monetary reward then you probably don’t understand enough about the real value of your products or services or the thing that truly motivates your clients to tell others about you.

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John Jantsch

John Jantsch is a marketing consultant, speaker and author of Duct Tape Marketing, Duct Tape Selling, The Commitment Engine and The Referral Engine and the founder of the Duct Tape Marketing Consultant Network.
  • Liz

    This is a good article and brings up a great point about the sincerity of lead referrals.   However, in the instance of B2B situations, I think monetary is fine.   If your product/service stinks, that will reflect on the referrer and they will stop sending leads.  So if the service is stellar, then no matter the reason, it will keep the referrer well… referring.

    The example of the lady who gave you her story is unfortunate.  I think the main issue I’d fine disturbing is not that they were willing to compensate her, but the fact they asked for her entire contact list which is just not good business practice in this type of situation.

    • I agree Liz on the fact that they pretty much sent the message that they didn’t really care about her so much as about her contacts. They took what was a relationship and reduced it to a transaction.

      There are some situations where the B2B will work, I guess I choose to believe there are better ways.

  • This is a great read.  Referrals are great, and finding out WHY they love your services is a great reminder.  Hey, be sure to add a Google +1 link here!  That’s how I found you, I will plus 1 it from Google.  Great share, thanks!

  • “In a perfect world your referral sources are motivated to refer because they believe in your company” is such a true statement and as you described later on, a lot of time is the true motivator.   Money can both encourage and as well discourage.  Finding that balance is a talent mastered by few.  I liked where you discussed some of the hick ups, with offering a cash reward and that this some times caused a natural emotional response of guilt or at least a felling of discomfort with receiving financial reward for promoting a service/product.   So maybe in a perfect world every one would promote that fast food value meal for a free large fry.  Well perfect in the sense of knowing how to motivate referrals any how.   

  • Thanks for the article John.

    I personally believe that any referral where an exchange of money or goods are involved is a bad thing. 

    If your business offers something of great value and you can build an honest and transparent community around your business then natural referrals should result over time. 

    Like you say, you need to understand what really makes your customers tick and what they need and do your best to provide that. The rewards should follow.

    If you have to buy referrals then your business cannot have much to offer. It’s a bit like lobbying is it not?

  • Rschissler

    One of those great wake-up calls that is right in front of you but you “can’t see the forest for the trees.” The relationship with your referral source is the key to receiving great referrals.

  • Natosha

    I’m new to marketing and this post was very helpful for me, in understanding some do’s and don’ts about referrals, which i know nothing about. I will definitely do some more research on the subject. Thank you

  • Kmdangel88

    I couldn’t have said it better! Being a customer who has referred some friends to businesses, only refer them because I truly believed they would benefit from using the certain business. I myself have been completely turned off by businesses trying to get referals from me for money. It just ends up giving me a big headache and doesn’t give you a genuine feel for that company. On that note, I hope alot of businesses get some good feedback from this discussion!

  • Veronica

    The article was good. I believe if the product or service is promising the referrals will generate them self. 

  • Great post and referral about “Carpenter for a Day”was too good and loved it. Really motivating one…

    Online Business
    Virtual Assistant

  • There are many ways to motivate people and I think that the best results will be achieved when there is a kind of combination between diferent motives!

  • Andrewm

    I remember this sort of thinking way back when I was being trained about hygiene and non-hygiene motivators. And you’re right, increasing someone’s salary was in the non-hygiene category. Workplace environment of ranks salary most of the time.

  • I totally agree John, money is not the best motivator in all circumstances. If a company only wants to generate referrals by offering monetary rewards, well they have completely lost focus on offering quality products and services. I would rather have a dedicated business with trusted employees and actual satisfied customers who refer my services because they received the highest quality opposed to customers who are looking for a quick buck and were not truly satisfied with my services.

  • Jose Fernandez

    When selling services business transactions take weeks, even months to close. In many cases they don’t arrive to a positive end (for the seller). My challenge is how to motivate contacts to reffer me, even if they didn’t buy because many reasons that don’t disclose but not negative about me.
    What would be some techniques that would capture their attention, motivate and encourage them to reffer me?

  • Hi John, I was considering a monetary reward (50% off of your next visit!) as one of the primary referral offers in a new Facebook-based system I’m building, but after reading your article I’ve reconsidered and will do a bit more digging with each customer to try and discover what truly motivates the customers of each business.


    CEO, http://thesocialbusiness.com

  • Jules

    Great article, thank you! It makes me wonder though – do you consider a discount for services the same as a cash payment? I would like to reward my clients as a surprise when they refer someone to me or buy a gift voucher for a friend for my services (ie not make it known beforehand that they’ll get a reward), and a discount for them is the only thing I can think of.

  • It is nice article John. And I totally agree with you. As you said, money is not the best motivator.