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Giving Incentives for Referrals

It pays to encourage people to spread the word about your business.

Opinions expressed by Entrepreneur contributors are their own.

Q: How important is it to offer some type of incentive for people who give me referrals?

A: Everybody loves referrals, and one thing I've learned is that they also love to be recognized for giving referrals.

In a survey I conducted with Robert Davis (published in our book Business By Referral ), incentives were found to be one of the most important methods of generating referrals for successful business professionals. Incentives can range from simple recognition, such as a thank you, to monetary rewards based on business generated. Nearly one-quarter of all respondents in this international survey considered incentives an effective generator of referrals.

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.

I've heard many novel ways businesspeople reward those who send them referrals. A female business consultant sends bouquets of flowers to men. A music storeowner sends concert tickets. A financial planner sends change purses and money clips.

I know of an accountant who thanks those who successfully refer a client to him by paying for a dinner for two at an exclusive restaurant located at least an hour drive from their homes. This approach firmly plants the accountant in the minds of his referral sources: They won't be able to use it right away, because the distance requires that they plan for it. As the date approaches, because it has been planned, they'll be talking about it (and probably about the accountant). Later, when the referring party runs into someone else who might need an accountant, who will he recommend?

One realtor I met in Northern California told me that for almost six years, he offered a $100 finder's fee to anyone giving him a referral that resulted in a listing or sale. Yet during that time, he had only given away about a dozen finder's fees. He decided it was time to try another kind of incentive.

Since he lived on a large parcel of land in prime wine country, he had begun growing grapes in his own vineyard. A thought soon occurred to him: Why not take the next step? He began processing the grapes and bottling his own special vintage wine. After the first harvest, he had a graphic artist design a beautiful label, which he affixed to each bottle. He told all his friends that he did not sell this wine; he gave it as a gift to anyone who provided him with a bona fide referral.

He gave away dozens of cases in the first three years-half the time it took him to give away a dozen cash finder's fees. Yet each bottle cost him less than $10 to produce. This special vintage wine makes him infinitely more money than giving away a handful of $100 finder's fees.

It sometimes amazes me, even now, how something as simple as a bottle of wine can be such a powerful incentive for people to give you referrals. But the explanation is really quite simple: It's special. A bottle of wine that can't be bought can be worth 10 times what it cost to produce when it's traded for something as valuable as a business referral.

Remember, finding the right incentive is a big challenge-especially if you want to score big by building word-of-mouth business. To make it easier on yourself, get opinions and feedback from others who have a significant interest in your success.

Don't underestimate the value of recognizing the people who send you business. A well-thought-out incentive program will add much to your word-of-mouth program.

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