Should You Offer Commissions For Customer Referrals?
For some small business owners, maintaining a steady stream of customers can be a constant uphill battle. Customers will play favourites, give up on products and services after only one trial or come up with any number of reasons to stop buying an item they enjoyed—it's hard enough to keep your current customer base engaged without having to worry about new customers coming in the door.
One way that many small businesses combat this problem is by offering commissions for customer referrals. If you have a good product that your customers are happy with, increasing your customer base will help reduce the risk of acquiring new buyers who might not be as satisfied with your product or service, while also meaning more people to spread word-of-mouth and boost advertising efforts.
It's easy to see why offering referrals in this way can be beneficial, but there are aspects of the policy that some business owners may feel they need to consider before going ahead with sales commissions. While your company might benefit from new customers coming into your fold, you'll also want to be aware of any potential risks.
Encouraging Referral Customers To Give You Additional Business For Furthering Your Relationship
If you ask a customer for referrals, it's easy for them to imagine how happy their friends will be if they were able to use those referrals when making their own purchasing decisions. It's also easy to picture your customer thinking, "My friend likes this product so much that he wants me to get it too. Knowing my friend, I'm sure he'll want to use this business again the next time he needs something."
If you offer referral customers an incentive for sending new business your way, you could be encouraging them to purchase additional goods or services from you beyond what they initially intended when they placed their first order. If a new customer intends to place only a single order with you, and that customer is encouraged by your offer of commissions for referrals to place additional orders as well, you might find yourself being pressured into providing more service or product than originally agreed upon.
It's important to note that the "reward" you want to offer your customers should be in line with what they originally agreed to when they made their original purchase. It is also important to consider that you may not be able to offer cash incentives for additional purchases. If you choose to provide additional items as an incentive, it's best practice to do so as discounted stock or through a coupon or discount code.
It may also be worth considering if there are other reasons for a customer to send you referrals besides receiving a commission for doing so. For example, single family homes are considered one of the biggest obstacles for home buyers today; however, some owners might see referrals from those homeowners as an opportunity. If your customers have family members looking for homes, offering these homeowners a break on their own home purchases if they send you referrals could be an easier sell.
Ensuring That Your Referral Incentives Are For The Right Customers
If you want to offer referral commissions as a way of boosting your customer base, it's important to consider who you're referring new customers to. Going back to the idea of increasing commissions based on the number of additional sales referred, it's important that people receiving those referrals were intending to purchase additional goods or services when they originally made their order from you.
You might not want to offer referral commissions for customers who purchase your products and services, then decide they don't need any of your additional items or services after all. You also don't want to refer new customers to someone who can't provide them with the service or product that they'll be expecting.
With that in mind, there are a few ways you can determine if someone is a good candidate for referral commissions when you speak with them or receive an email or phone call from a potential customer. If you're on the phone with someone, start by asking questions about their buying habits. If they're likely to purchase additional products or services from you, they'll be more likely to refer others your way.
Note how the new customer responds to the question as well; if they say something along the lines of, "Oh no, I have everything I need," or "I'm not sure what else I need," it's probably best that you don't offer them a commission for referrals. If you receive an email from a new customer asking about any additional products or services that might benefit them, it's also worth considering whether your company would be willing and able to provide those products and services. If not, it's probably best that you don't offer referral incentives in this case either.
What's important is to ensure that if you decide to offer referral commissions, you're providing those rewards when they're most effective. While it may seem counterproductive in the present, you want to offer referrals for customers who are more likely to buy additional items or services from your business. Offering a reward for referrals that are otherwise unlikely to happen is not only a waste of time and resources, but it can leave a customer disappointed when the person making the referral isn't offered a commission.
The Benefits of Referral Commissions
Providing commissions for referrals is one way that small businesses can increase their customer base and boost overall sales without having to spend more on advertising or additional staff. Not only can you increase your business's volume, but you'll also make a larger profit with referral commissions than any other type of advertisement.
When customers are satisfied with the service they receive from your business, it's easy for them to recommend your business to their friends or family members. Instead of having to pay for these referrals or make a special effort to bring in new customers, you can provide an incentive to your existing customers so that they refer others without losing focus on their own needs and wants.
When offering referral commissions, it's important that you consider the potential risks involved before putting any type of policy into place. Make sure to outline the agreement or policy in writing with each customer, keeping these tips in mind. If you put in the time and effort to present referral commissions as a benefit for your existing customers, you should be able to see a significant increase in your sales.
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