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Incentive Programs That Really Work

Get creative in your efforts to drum up new business by encouraging existing customers to send friends your way.
August 25, 2003
URL: http://www.entrepreneur.com/article/64090

Q: I am part owner of a graphic design company in Tulsa, Oklahoma. We want to give referral fees to individuals who pass out our business cards and obtain new clients for us. Can you offer some advice on this?

A: You can greatly enhance your word-of-mouth-based business by designing creative incentives for people to give you referrals. Yet of all the key techniques for making the system work, this one seems to frustrate people the most.

Historically, finder's fees, or referral fees, have been used as an incentive for giving someone referrals. Although finder's fees can be appropriate, I don't believe they are necessarily the best technique to employ in most situations. (And sometimes, they may even be illegal, depending on your profession and the state in which you practice--so consult your attorney before you offer them.) Here is an excellent example of a non-monetary incentive system:

Years ago I went to my chiropractor for a routine adjustment. Several weeks before, I had referred a friend to him who had recently been in an accident. As I walked into the waiting room, I noticed a bulletin board that was displayed prominently on the wall. The bulletin board read, "We would like to thank the following patients for referring someone to us last month."

Actually, there was nothing unusual about this sign. It had been there on each of my previous visits, except this time my name was posted on it. I took notice and was pleased, but I didn't give it a second thought until a month later, when I returned and saw that my name was no longer on it. Instantly I thought, "Who else can I refer to the doctor so that my name will be put back up on the board?" For the record, I did come up with another referral for the good doctor.

Something like this may not work for everyone. But if it worked on me, I'm sure it will have a positive effect on others. The key is to select several incentive options so as to impact as many people as possible.

An incentive in this context is anything that gets people to refer you to others. Many doctors' offices use the technique listed above (after asking their patients for permission first due to privacy concerns). It works well for at lest two reasons:

  1. The bulletin board is a continual reminder to patients that the office wants their referrals.
  2. People like to be recognized for their efforts.

Some health-care professionals offer a free visit when a referral becomes a new patient. Other business professionals send small gift baskets, bottles of wine, flowers or certificates for their services or the services of other businesses in the community. Depending on the type of product or service you offer and the relationship with your referring parties, you may also employ:

When you offer any type of discount or novelty item as an incentive for referrals, keep in mind what your cost would be to generate a new client or customer from scratch, including the cost of printed literature, advertisements, sales calls, phone time, meetings, appointments and so forth. You can readily see that the cost of gaining a new client through a referral incentive program is almost always lower. Incentive programs also help you sell more products or services more frequently to your existing customer base; again, these are sales that are generated at a far lower marketing cost and effort.

No matter what form of incentive program you use, the fact that you offer incentives means that your potential for generating word-of-mouth business will increase. The question is, what type of incentive will work for you?

To meet the challenge of finding the right incentive program, tap into the assistance and insights of other people. An effective way to do this is to invite about 10 people you know to meet with you. Include a representative sample of your customers/clients/patients, business associates, partners and friends. Their purpose is to think up incentives you could offer to produce more word-of-mouth for your business. Host a lunch or dinner for the group, and either take copious notes or tape-record the meeting. Invite those who are willing to donate about two hours for your benefit (and receive a free meal, of course).

Creativity is the key to any good incentive program. People just naturally like to help each other, but especially when they know their efforts are successful. Let your contact know when a referral he or she has made comes through, and be as creative as you can.