• Should I or should I not pay referral commissions?
• If pay, how much?
• Should I use a specific formula like a percentage of sales or flat amount?
• Or should I be giving gifts?
• And what types of gifts would be the most appropriate and effective?

These are all great questions. And even though I don’t think a simple answer that would work well in every situation is possible, here are some principles that may help you find an answer for you and your business.

1. Be Aware Of Legal Implications

In some occupations (particularly those related to healthcare and finance) paying referral commissions could considered illegal. If your industry is regulated, you may want to check with the governing authority in your field about their position on referral fees. Make sure those legal implications don’t become legal complications.

2. Appreciation Is A More Powerful Motivational Force Than Money

Dan Ariely is his recent book, Predictably Irrational tells a story that illustrates this point. A group of lawyers was asked to donate their time and provide legal help to the people who couldn’t afford to pay their $350/hr fees, for free, as an opportunity to “give back to the community”. A certain (relatively high) percentage of lawyers agreed.

The second group of layers was approached with a similar request, only this time they were offered a small hourly rate of, say, $35/hr. Every single one of them said they weren’t interested.

Now, isn’t $35/hr better than $0/hr? As the song goes, ’tain’t necessarily so.

I distinctly remember being a bit ticked off when a friend of many years went out of his way to pay me for the referral I gave him. All I wanted was a sincere thank you for helping him and his fledgling business. I didn’t want it to look like I did it for the money.

(Now, for the record, I’m not the anti-referral-commission type. Referral commissions represent a significant chunk of my business’ revenue. In some cases there is a formal contract in place that clearly states how much money I earn by helping someone generate more sales.)

3. Thanking Is Good. Recognizing Is Better.

Thanking people for referrals is one-on-one. Recognizing is public, one-to-many.

Some ideas for recognizing those who give you referrals:

• Put their name, picture, and contact details in your company’s newsletter, printed or electronic. If you don’t have a newsletter, start one today. The easiest and the cheapest way is to use software such as http://www.iContactSoft.com (that’s what I use).
• Write about them on your website.
• Announce their names at a client appreciation event and have them come up to the podium so that others get to see them.
• Send out a greeting card or a letter recommending them to your network (which is bound to result in more referrals for them).
• Take them out to a lunch and send a stretch limo to pick them up at their place of work. They are guaranteed to be the gossip of the day.
• Send them a box of brownies to their office. They won’t be able to finish the whole box by themselves and will share it with the co-workers.

When you recognize people for giving your referrals, you reinforce their actions and send a message to the rest of your network that you want and appreciate referrals. By seeing that others give you referrals, some of the “non-givers” will receive the social proof they needed to join the ranks of “givers”, and those who have been giving you a few referrals may become true referral ambassadors for your business.

4. If You Decide To Pay Commissions, Be Generous

Don’t just focus on one transaction. Consider how much a new client is worth to your business over their lifetime and use that number in your calculations.

5. Do Unto Them As They Would Have It Done Unto Them

Remember, it’s not about you. It’s about them. There is no one-size-fits-all solution. Learn about them and about what they like and appreciate the most. Fulfill their dream. Give them something they’d like to get but wouldn’t necessarily spend their own money on.

Instead of giving them cash, pay for their romantic getaway. Buy them a ticket to a seminar, a concert or a game they’d like to go to.

How did you answer these questions in your business? How do you thank people for giving you referrals? Post a comment below.

Alas, nothing can be further from the truth.

Every successful business that I have studied and that generates a lot of referrals, has a systematic, well-thought-out referral process in place. Referrals don’t “just happen”! No matter how great a job you do as a business or a professional, it is never enough to attract a sufficient number of quality referrals.

The sad truth is, people take good service and good experience for granted. They are much more likely to tell their friends about their bad experience than good experience.

There is a psychological reason for that: Most of us humans are preoccupied with negative thoughts. We all like to vent. And given a chance, we do.

Which is confirmed by a customer behavior research company called TARP, based in Arlington, Virginia. Here’s what TARP research has to say on this:

• A happy customer may share their experience with just a few friends;
• These friends will not remember much and will not share that information with anyone at all.

And that’s it. The message stops there (unless you use deliberately designed referral tools to carry it down the channel) and you get no new business.

Now let’s imagine you messed up. Here’s what’s going to happen to you, according to TARP:

• A disgruntled customer will share their bad experience with the average of 12 other people;
• Each of those 12 people will in turn mention it to 6 others

Let’s do the math: We are talking about (1 person who has had bad experience) + (12 people that person has talked to) + (12 groups * 6 people they have contacted) = 85 people will no longer think very highly of your business or service just because of a little mess-up!

Bad news certainly travels fast.

Here’s what this all means to you and your business:

• Doing a good job is still important (as they say, “you can’t brand crap”). However, it’s not enough to attract a reliable stream of referrals.
• To get more referrals, you need to build and implement a referral system that you can control and rely on (the type of the system we teach at the Small Business Referral Seminar).
• When you make a mistake, you need to go out of your way to admit your mistake, apologize, and make it right again for customer. For example, you can send a nice “apology” greeting card to them, possibly with a small gift. Chances are, this person will become one of the most loyal of your customers (sometimes they will become a bigger supporter of your business than those customers who have never seen you make a mistake).

So doing a good job is important to avoid the negative word of mouth. However, doing a good job is never enough to get all the referrals that you need and that you can handle. That task is only accomplished by creating a systematic referral process.

Did you think that was a little manipulative?

C’mon, admit it! Did you?

If so, you completely missed the point.

If you were to try to manipulate your contacts using this Swap & Drop approach (“swap” your business cards with them, then “drop” a special kind of a greeting card in the mail), you wouldn’t be able to get far. People are quite savvy and can see your plot right through.

The reason this method worked for me was because of what I call The Referral Intent. Simply put, I really did want to find out more about them and find a way to help them.

Zig Ziglar says that you can have anything you want in life as long as you can figure out a way to help other people get what they want.

Well, that is absolutely true.

Business owners and professionals attending networking meetings want referrals. This is obvious: They all do. That’s why they invest their time and money to go there. And most of them leave these networking meetings disappointed by the lack of results.

If you can find a way to plug them into your own network — however small that network may be at the moment — you will start building a relationship of trust, which will eventually result in more referrals for you. And how can you refer them if you don’t know that much about them or their business? That’s why it’s critical that you meet with them in person or on the phone and get to know them.

Alas, the technique that I gave you last time can be used to manipulate people. And some lowly life form of a salesperson may try that only to discover that this approach backfires and ruins their business — and rightly so.

I suggest you use it to add value to your network.

It’s your intent that defines the outcome.

I gave you the tool. Now it’s up to you to decide how you are going to apply it.

Business networking is something a lot of people love to hate: It is time-consuming, expensive, and in most cases very inefficient.

I can bear the “time-consuming”…

I can even live with the “expensive”…

If – and it’s a big “if” – it produces results!

…

Which it typically doesn’t.

Most people who attend networking meetings are only interested in themselves. They don’t care about your product or service; they just want to pitch you theirs.

Now, for the record, I am not opposed to networking: I am a member of the Rotary Club, I am a Toastmaster, I visit various Chambers of Commerce and Boards of Trade. I have and still do belong to several business networking groups. I also go to a number of industry shows and events.

So I am not anti-networking.

What I am is… anti-networking-with-no-results-to-show-for-it.

Here’s how I went from networking with no results to networking that produces a constant, predictable and measurable inflow of prospects for my business.

I attended a breakfast meeting at the local Board of Trade. They had the usual: 30-second presentations by all businesses in attendance, the cookies and the coffee, followed by “natural” networking.

I met 13 new people at that meeting. I came back to my office with 13 new business cards in hand. Once I entered all these contacts into my list, I sent them a simple greeting card that said this:

Dear [name of the person],

If was nice meeting you at the networking breakfast earlier today.

I really enjoyed our conversation about [topic we have discussed]

I’d like to learn more about your business so as I could know who is a good referral for you. Please call me at (000) 000-0000 when you receive this card.

Thank you & I look forward to speaking with you.

One week later, 6 people called me to thank for the card I sent them.

Let me tell you something important about my business: It DOES matter who calls whom first. In this case, they called me, something that has never happened before! 6 people out of 13… that’s 46%! Not too shabby in my books. With such a response rate, this is serious business.

And as of the time of writing this, out of these 6 people, 2 became clients and one has referred a number of other businesses to me. 2 out 6 is 33%! Any way you slice it, it’s a fantastic ratio.

Or at least, referrals are not very likely to happen just because you have sent out a bunch of holiday cards.

Here’s why: Everybody sends out Christmas cards, or “Season’s Greetings” cards, around this time of the year. Your card, when received by your client, will have to compete for their attention with so many other cards from other people.

Does this mean you shouldn’t be sending out holiday cards?

Not at all. You should use any and every occasion to “ping” your network, and the month of December is ripe with oppotunities.

However, if you want to see some really amazing results from holiday cards, pick a different holiday! How about sending a Thanksgiving greeting card? Or an April Fools card? Or some other bizzar holiday cards, be it Mardi Gras or The Groundhog Day?

Be inventive. Take a closer look at the calendar and use all the weird and fun holidays as a reason to contact your network and see your referrals grow as a result.

I met a lot of people who think that these 3 words mean essentially the same thing. And they don’t.

If you have ever been confused by all this, I’m about to make it all clear for you.

The only thing common about these three is the fact that they all give you a way of getting more business without advertising. That’s it. That’s where the similarities end.

Networking is a way of establishing new contacts by meeting people where people congregate. There are business functions (networking meetings, conventions, trade shows, exhibitions, seminars, workshops, association annual general meetings, etc.) and social functions (parties, outings, church events, hobbyist & enthusiast events, etc.) that you can attend. To me, this is hard labour. Sweaty, unpleasant grunt work which you still do because that’s the quickest way to expand your network. (You may have figured out by now that I’m not a naturally-born networker. You may like networking a lot more than I do, which is a good thing for you.)

Word-Of-Mouth is an “organic” process of turning your customers or clients into raving fans and ambassadors for your business. It’s a great thing when this happens. The issue with the word-of-mouth is that it’s hard to control or to influence.

Referrals, on the other hand, are typically the result of having the right referral system in place that automatically attracts qualified referrals to your business every day of the week. A good referral system doesn’t happen by chance. It needs to be engineered, tested, and put to a good use. And once it’s in place, it’s like having a referral tap in your office: Open the tap and the referrals pour in, credit card in hand, wanting to do business with you.

Both the Networking and the Word-Of-Mouth can be made a part of your Referral Process:

By implementing a Networking Referral System in your business, you can become a much more effective networker.

By creating special incentives for your customers or clients to refer your business, you can stimulate and control the word-of-mouth.

Referral systems go far beyong just networking or just word-of-mouth. This entire site is devoted to helping you engineer a system that will attract an endless stream of referrals to your business.