A referral program: how it works and why you need one
In 2019, a lot of our partners cited sales and marketing as an ongoing challenge. That’s unsurprising: the managed services landscape is competitive, so standing out from the crowd can be a constant challenge. Attracting new business can often be difficult, time-consuming, and costly, with no guarantee that your efforts will pay off.
You’re probably already familiar with the often-stated stat that acquiring a new customer is up to seven times more expensive than retaining an existing one. But there’s one instance where that isn’t true: customer referrals. By leveraging the loyalty and enthusiasm of your existing client base, you can add new revenue streams to your business at a minimal per-customer cost.
Creating a referral program is cheap, sustainable, and requires relatively low effort compared to complex, multi-channel marketing campaigns. Here’s why these programs are so useful—and how to build one effectively.
Referrals vs. traditional advertising
- Trust factor
Word of mouth is a powerful tool. That’s because hearing about something from a person who uses a product or service every day will always be more compelling than hearing about it from the company selling it. While decision-makers understand that traditional advertising is designed to present a company’s services through rose-tinted glasses, they trust that a friend, former colleague, or fellow business owner will say what they really think. And if that person raves about the service, the decision-maker is much more likely to try it for themselves.
- Conversion rate
In a study by Influitive and Heinz Marketing, 75% of sales leaders agreed that referral leads have a higher conversion rate, and 70% said they close faster. These prospects enter your sales pipeline already confident that your company is the real deal, so they take far less effort to convert.
- Cost savings and profitability
Referrals also tend to produce the best leads, with 59% of B2B companies reporting that referred customers have a higher lifetime value than those that come from other sources. And since your existing customers are doing half the work for you, customer acquisition costs are around $23 lower for referred clients. If you think how many new clients you hope to acquire each year, that adds up to a big saving.
So, how can you generate more referral leads? A customer referral can happen spontaneously, but to increase the likelihood that your satisfied clients will give one, it’s worth starting a referral program. That same Influitive and Heinz Marketing study found that 65% of B2B companies that have a formalized referral process say it’s very important to their sales success. Yet only 30% of companies have a program in place—so creating one can give you a competitive edge.
The secret to a strong referral program
The majority (83%) of satisfied customers are willing to give a referral—but only 29% actually do. The reason? Most likely, they just didn’t think of it.
- Ask for referrals
Having a referral program can serve as a reminder to customers that your company has helped them, and it could help others in their network. But even with a program in place, not every customer will give a referral without an incentive. After all, it requires an investment of some time and effort on their part, and when your clients are busy, the last thing on their mind might be doing their MSP a favor.
- Offer an incentive
Incentives can come in many forms, from a discount to a free month of service to a complimentary add-on. It shouldn’t be something that’s disproportionately expensive to the worth of the referral lead, but it must be worth the effort the client has to put in—otherwise, they won’t bother, and they may feel slightly put back that you asked.
- Keep it simple
Once you’ve settled on your incentive, it’s important to make it as quick and easy as possible for clients to take part in your program. The fewer hoops they have to jump through, the more referrals you’ll receive. Consider adding an easy-to-complete form to your website that you can point clients toward and make any terms or conditions clear—like stating that they’ll only receive their reward after the referred lead makes a purchase. That way, no one feels like the wool is being pulled over their eyes, and clients can refer with confidence.
Referral programs are so useful that ConnectWise has one, too!
By creating a simple, rewarding referral program, you can turn your best customers into your most vocal and passionate fans. In doing so, you not only increase the return on investment from every customer, but you can grow your client base without increasing your marketing spend. And since everyone involved gets something out of it, referrals can increase customer satisfaction, too.
At ConnectWise, we know that referral programs work because we have one ourselves. If you refer a US or Canadian company that buys one of our core products within 180 days, you can earn up to $7,500. And since we really do appreciate your support, we’ll even send you a tin of delicious brownies. It’s just our way of saying thank you for being a great customer.