In the fast-paced world of B2B sales, where competition is fierce and customer acquisition is a costly endeavour, businesses are constantly on the lookout for strategies to boost their revenue and expand their customer base. A sometimes overlooked yet highly effective tool in one’s arsenal is referral selling. Referral selling is a sales tactic whereby customers are promised benefits upon providing the details of another potential customer or referring them to the business. In many parts of the world this practice is illegal if customers do not receive those benefits unless their referral results in a sale. Be cautious of this.
What referrals mean to a business
Establishing trust in a B2B relationship is important for a long-lasting relationship. Referrals are essentially a shortcut to earning some of that trust. When a customer is referred to a business by another customer, the initial barrier of skepticism is removed assuming said referrer is trusted. This has been shown to lead to a higher rate of conversions. Furthermore, these referrals typically lead to higher-quality leads. Since the referrer already understands the nature of the business and its value proposition, they are more likely to refer customers whose values or needs align with the business.
Essentially, it’s a form of marketing. It is incentivised word-of-mouth marketing. Customers who are satisfied with a business are likely to refer others to the business anyway, but referral selling aims to increase acquisition through word-of-mouth marketing via incentives.
Do’s and Don’ts of referral selling
There are many businesses who use referral selling in a predatory manner. In these cases, referral selling is often illegal in many parts of the world. Others would prefer to use a different term to better suit non-illegal methods of referral selling called “referral marketing” to indicate that the goal is customer acquisition through referrals and not direct sales through customers.
Do provide incentives. Referral selling is founded on incentivising customers to refer other customers. Incentives boost referral rates. A rewards programme for referrals that include benefits such as discounts, rewards, or exclusive access is one way of incentivising customers to refer others.
Don’t withhold benefits until a sale. The goal of referral selling should be acquisition and not conversions. Customers should get benefits from the referral alone (confirm if need be). The practice of only doling out incentives only after the referred customer buys a product or service is illegal in some places.
Do track referral success. The incentives in referral selling would ideally cost no money, but sometimes discounts and rewards can cause a business to lose some revenue. This is the cost of acquisition after all. Nevertheless, referral selling will not work for every business and every customer so tracking lead sources and conversion rates are important.
Don’t put most of the work on the customer. For referral selling to be effective, the customer needs to be incentivised by the rewards and not be put off by the work required to authenticate their referral. Streamline the referral process with referral forms, online platforms, or dedicated email addresses.
Referral selling can be a potent tool for businesses to acquire customers. It can even have a snowball effect in that the more customers a business has, the more referrals they will get theoretically. However, businesses should be wary of laws against certain practices in referral selling such as requiring conversions to offer benefits.