We recently surveyed professional services advisers on the topic of Referral Rewards – both as a giver and receiver. In our Clients By Referral® training experience, the topic of Referral Rewards is always raised and, indeed, we include a small discussion on the topic. This survey was designed to see if our current recommendations were matched by market data. And by and large they did…with a few interesting exceptions.
What’s the most motivating reward?
We asked professional services advisers what type of reward would motivate them to think about referrals – i.e. We wanted advisers to think of themselves as a client of another professional adviser. We then wanted their feedback on what would be the most motivating reward they could be offered.
The results were interesting. We had typically recommended offering Experiences (cooking classes, bridge climb, etc…) figuring that these luxuries would be more desirable and create a little story to tell their friends (for a little word of mouth marketing). In this survey, however, the top choices were Vouchers and In Kind Payments. Respondents appeared to want rewards focused more on necessities than luxuries. Perhaps also the time commitment required for Experiences makes them less attractive?
What Reward do you currently provide?
When we next asked advisers what rewards they currently provided, the vast majority (90.9%) provided a Voucher – which is good, as this appears to be the most motivating reward. However, only a single adviser offered an In Kind Payment as a Reward, despite it being almost as preferred as a Voucher. Conversely, 45.5% of advisers gave away Gifts as Rewards even though they are not seen as motivating.
Do you publicise your Reward to clients upfront?
Of the 41.9% of advisers who provided motivation to their clients on referrals, the vast majority used a Reward. A Reward is when the client is not told about any motivation for referrals upfront, and instead receives an unexpected surprise after providing a referral. This does not surprise us and is the recommended strategy for most B2C advisers.
Less than 10% of advisers used the other type of motivation called an Incentive. An Incentive is when the client is told upfront that they will receive something in exchange for a referral. Incentives tend to be more frequently used in B2B situations or for product/retail businesses (e.g. Foxtel or a gym).
How much do you spend on Rewards?
Most advisers spend $66-$100 on a Reward. Very few spent more than $100. We have long recommended that your Reward spend should be <3% of gross revenue. Mature, stable companies tend to spend around 3% of gross revenue on marketing – so if you can spend less than that on each reward, it will keep referrals as your cheapest form of marketing. Businesses requiring rapid growth, however, could increase this amount in an attempt to drive higher client numbers.
When do you give a Reward?
54.5% of Advisers give their reward only after the referral has become a client (after “closure”). That seems reasonable when there are monetary rewards. Still, 36.4% of advisers give their reward at the time the referral is provided by the client. This also makes sense – the client has done as you asked (provided a referral) and it may be many months before “closure” of that referral. There is no reason why you can’t do both – something when receiving the referral and something at closure. It doesn’t need to be monetary in both instances. Many clients appreciate a well written letter of thanks…
Do Referral Rewards work in practice?
Of the advisers who give a Reward, 54.6% have actually paid it three times or less in the last 12 months. Only a single adviser had utilised their Reward more than eight times in the last 12 months.
So are referral rewards worth it?
We think yes, but with realistic expectations.
If you can provide an Incentive (an upfront message to a client that any referrals result in a payment), then your Referral Incentive can act as another Referral Seed to keep reminding clients about referrals and keep the topic front of mind. On the margin, it might even prompt a client to think about a new referral. However, most referrals occur because of genuine need by the person being referred, which an incentive cannot change.
If you instead provide a Reward (the client provides a referral and then receives a surprise thank-you at a later date), then your Referral Reward is simply a token of professionalism and respect. You have saved money in the acquisition of a new client and providing the Reward will only strengthen your existing client relation. On the margin, it might even prompt them to think of a second referral.
However, in professional services, we see no evidence that Referral Rewards will suddenly motivate a flood of new referrals from your client base. To repeat again – most referrals occur because of a genuine need by the person being referred. Referral Rewards do not address this fundamental problem, but they can form a useful secondary tool in your overall Referral Process.