Friday, December 24, 2004

Referral Development - The Low Cost/High Return Way to Build Business

Ned Barnett
(c) 2004

Referral Development is the art and science of turning others – including current, former and prospective clients – into defacto marketing agents for you and your business. These individuals I’ve come to call Referral Development Sources (RDSs), and they can be a vital element of your overall success. Turning individuals into RDSs is a skill that many businesses need, but few businesses master.

Creating and supporting a successful referral development program, one that delivers productive RDSs, is not hard. However, it does require focus, consistency and a real understanding of the human motives that turn disinterested strangers into active and aggressive, motivated and productive referral sources.

Experience shows that the two essential keys to successful referral development programs are motivation and communications.

Motivation can be recognition (either real or manufactured), as well as financial remuneration or something else the individual values, but isn’t likely to be able to obtain on their own. Real recognition can come through a peer-to-peer group, an association or other organization already respected by potential RDSs; “manufactured recognition” is anything that you create that will influence those hungry for recognition (think Who’s Who). For those individuals who crave recognition, a plaque on the wall and an “appreciation” dinner can be more motivating than a five-percent commission. Volunteers for charitable non-profits often put in endless productive hours for a walnut-and-etched-brass plaque and a “grip-and-grin” photo in the local newspaper.

However, not everybody hungers after a plaque on the wall (or the equivalent). For them, you’ve got to provide something more specific – generally something with a monetary value.

For example, while working with wealthy physicians (and trying to turn them into productive RDSs), I found that run-of-the-mill recognition doesn’t work – they’ve got an MD framed and hanging on their wall, and frankly, that’s a hard act to follow. Just as important, for individuals earning upward of a half-million dollars a year, a motivating level of remuneration was usually financially out of the question.

I had one successful surgeon laugh in my face over an offer of $20,000 a year to participate in a referral development-related marketing program. “Son,” he said, “I can make that anytime I want to, just by keeping my office open an extra half hour a day.” Which told me he brought in $10,000 for every fifteen-minutes-a-day he stayed open, and also told me that I wasn’t even close to playing ball in his league. At least not of the game was “bucks for bodies.”

So I had to come up with motivators that worked for doctors – and what I learned can easily be applied to other referral development groups.

One motivator for that physician group (or others who are relatively immune to manufactured recognition) was peer-to-peer recognition. This is something fairly easy to create if you have the resources of a major hospital behind you (as I did at that time), or if you are able to use a professional society to provide the recognition. However, this approach can be rather difficult to create if you don’t have influence of control over a peer-group body.

This same principle applies to other businesses: If you can control or influence a group of peers to which the RDSs belong – or if your RDSs are individuals who might respond to more direct recognition, you can go with recognition without remuneration. However, if you don’t have such a group to work with (and through), or if your potential RDSs are relatively immune to manufactured recognition, you’ll need to find a more material form of motivator.

However, over time, I discovered that doctors respond to entertainment-related gift certificates (fancy dinners, for instance) or activities such as day-cruises. The important element of these incentives seemed to be that they were something they could share with their wife or husband – a “reward” for their long hours away from home, and perhaps also something to “prove” that the doctors are VIPs.

Motivation will differ from group to group (and from individual to individual); however, referral development motivators generally do not deal in “deferred gratification” – to get people to act as defacto marketing agents, you’ve got to quickly and memorably deliver on the motivator.

The other essential element of a successful referral development program is communications – specifically, an ongoing communications program designed to keep individuals’ roles as potential (rewarded) referral sources “top of mind.”

Because these individuals are, by definition, not intimately involved with the product or service, “out of sight, out of mind” is a daily reality for referral development programs. These communications programs will have to be tailored three ways:

  • To you and your product or service
  • To the target audience
  • To the motivator incentives that you’ll be providing

However, every company’s (and often every product’s) referral development program will require a very specific, carefully designed set of rewards, recognitions … and communications.

Nonetheless, there are some commonalties to keep in mind – including what I call:

Barnett Marketing Communications’
“Top Ten” Elements of a Successful Referral Development Program

1. Identify Your Ideal Referred-to-You Client: To generate qualified, high-value referral leads, you have got to be able to swiftly, clearly and effectively communicate to prospective Referral Development Sources the specific the nature of persons or businesses you’re looking for in the way of referrals. In sales, this is often called the “elevator pitch” – a brief, concise statement you can deliver between floors in a crowded elevator. To have an effective elevator pitch describing your target referral, you have to take the time to boil down your laundry-list of prospect identifiers into a simple, short one-paragraph statement you can give in your sleep – when you’re there, you’ve got the message you need.<>

2. Identify Your Specific Target Market of Potential Referral Development Sources: To succeed with a referral development program, you’ll need to craft a very focused target list of companies and individuals who can be motivated to consistently make high-value referrals. These can be clients (current, former or even prospects). They can be trade association execs. They can be independent business contractors in an allied business. All of this depends on the nature of your business, your product and your service mix. Tailor your list of referral prospects to those people (or companies) best positioned to make referrals. Be creative, and be open to odd-but-effective approaches. For example, in Las Vegas, I once ran a referral program that had casino hotel concierges and taxi drivers referring Vegas visitors to my hospital’s chest pain center – it’s not the kind of program that would work everywhere, but it was remarkably successful in this 24-hour town.

3. Create Your Referral Development Lead Offer: The referral development lead offer is the heart and soul of an effective, productive referral development program. This offer has to communicate a number of important messages to prospective RDSs, including:

  • What does an effective, qualified referral prospect look like;
  • What, specifically, is “in it” for the RDSs in exchange for providing effective referral prospect, as well as how (and when) that incentive will be delivered;
  • How the RDSs should to about making their referrals; and,
  • What steps you are likely to take when following up on their referral if an effective, qualified prospect (who is likely to be persons of some significance to the RDSs – they have a stake in what you do with the referral)

To create a referral development lead offer that works, you have to try to get inside the minds of your target referral sources – then create a series of offers that will motivate those specific people to want to refer you. Ideally, your motivating incentive should work, not once, but again and again. While each product or service’s incentives will be different (and there may be additional differences among the various RDSs), my experience suggests that it is very nearly absolutely essential that you provide an immediate (or timely) incentive, rather than some long-term “points” system or other deferred (i.e., “annual”) incentive. These are too easy to ignore, and offer too little in the way of action-motivating inducements to be – in most cases – truly effective.

4. Test Your Referral Development Lead Offer: Once you have a message you think will work, you’ve got to test it. In concept, this is no different than testing direct marketing or advertising messages. You can even use the same approaches – for instance, focus groups can work quite well. The means of testing are less important than the fact that you’re actually testing messages, refining them until you have ones that work.

5. Create and Test Your Core Referral Development Message: This is another elevator pitch. It has to clearly explain the value you offer to RDSs for their referrals. The message must be brief, succinct and strong enough to capture and hold your prospective RDSs attention. It will be very distinctive to your offer, and – as with the offer itself – you should test this, too, on representative members of your target market audience.

6. Communicate Your Core Referral Development Message: Develop a system whereby you can get in front of potential referral sources – and while in front of them, present your core message. The second part of this system is follow-up – once you’ve got them interested in the bait, you’ve got to be able to hook them, reel them in and land them – the RDS fish who get away are of no use to you.

7. Design and Implement Your RDSs “Education” System: When you finally land a RDS who has the potential to increase the number and quality of referrals you receive, you still have to educate them. With the proper information about your product or service, they can improve their performance. They have to understand the product or service – and especially the benefits offered – sufficiently well that they can communicate these to their targets. If they are clients, this education will also help to reinforce them in their decision (and very likely enable them to make better use of your product or service). But that’s a side-benefit – the real benefit comes through more and better qualified referral leads.

8. Identify and Implement A Referral Follow-Up Plan of Action: To bring your referral system full circle you need to devise two follow-up steps.

  • A way to continue to market to your referral leads that don’t immediately turn into clients; and,
  • A way to systematically communicate the progress of a referral back to your referral sources to keep them motivated.

9. Create An Effective Referral Development Lead Conversion Strategy: Referrals have little value if they don’t become clients. To be sure that referrals don’t fall through the cracks of day-to-day operations, develop, test and implement a specific set of internal steps (probably involving marketing and sales departments and staffs) that will convert leads into new clients. Your staff needs to know what they need to do when the phone rings or emails arrive from your RDSs – they need priority, consistent treatment.

10. Develop a Method of Measuring Your Referral Development Program Success: This will, of course, be specific to your referral development program – but it is an essential component of ultimate success. Only by measuring and evaluating performance can you fine-tune and improve your referral development program.

Conclusion: Create a referral development program that is suited to your organization, to your product or service, to the nature of your RDSs and to the nature of your ideal prospects. Support that program actively, make sure your incentives are sufficiently motivating – then measure your success and let the program evolve. Done properly, an effective referral development program becomes a valuable, low-cost/high-return adjunct to your other marketing programs, adding value to your bottom line while helping to build buzz – word-of-mouth that has a value all out of proportion to your effort.

A Warning Note: There is one thing that you do not want to do – and that is trying to tell your RDSs how to go about pitching their own network of friends, colleagues – and even competitors (you’d be surprised how often business competitors will make referrals). This is highly personal to them, and you need to leave it up to their own best judgment. If you try to coach or direct them, they’ll feel like underpaid commission sales force members – more likely than not, they’ll resent this and become ineffective or even counter-productive.

Credits: I’ve been creating and managing referral development programs for more than 20 years; still, I know that I’m learning new information and ideas every day, and so it has been with the development of this material. Specifically, I’d like to recognize John Jantsch, a marketing coach and the creator of the Duct Tape Marketing System (, whose web-published ideas on building a referral marketing program added some useful insights as I developed this material.