Referral compensation

Here's a question I've had for a long time. Should you compensate others who send you a referral? I've asked many of my friends and everyone's answer is different.

Thank you in advance for your help.

Hmmm... compensation. [thinking,thinking... ding!]

Well, if there was no referral agreement between the two parties and it was a one-time referral... I don't believe a form out "compensation" other than a show of gratitude would be necessary. It might be nice but not necessary.

Originally Posted by Vince Here's a question I've had for a long time. Should you compensate others who send you a referral?

Never--unless you have a pre-existing business arrangement that requires you to.

I recommend that such arrangements be avoided.

Gary, what do you mean? I shouldn't give compensation or I should have arrangements.

Originally Posted by Vince Gary, what do you mean? I shouldn't give compensation or I should have arrangements.

You should not make it a practice to give compensation for referrals. That includes money, dinners, gifts, etc. That policy includes not making business arrangements that would require you to do so. With few exceptions, it's bush league.

I know it's a common practice. I know they even have names for it like "bird dog" fees. Well, I'll tell you--if one of my clients ever heard me refer to him as a bird dog, I think I'd lose a client.

When you unexpectedly send compensation to a person for a referral, you can expect never to get another referral from that person. It's embarrassing, and it robs the person of the good feelings he/she gets from trying to help you.

You want to give back? Then start or continue to do some serious referring in your own right.

Originally Posted by Gary Boye You should not make it a practice to give compensation for referrals. That includes money, dinners, gifts, etc. That policy includes not making business arrangements that would require you to do so. With few exceptions, it's bush league.

IMO, if you're in an industry such as real estate/investment where "bird dogs" are part of the food chain then it makes sense to capitalize on the resource via a referral agreement.

With that said, lacking this type of scenario I agree that you could be shooting yourself in the foot.

Originally Posted by Gary Boye . With few exceptions, it's bush league.

I've heard this expression before, but am not clear on what it means.

I've recently been toying with the idea of compensating comsumers who are responsible for the coming about of a new business subscriber to one of my websites (although I have not even thought it through to the point of HOW exactly it would work). Here is how it would apply in my business. I have a pizza coupon website. Consumers email me every day requesting coupons from a specific restaurant in their area who is not currently subscribing to my service. (We don't require these consumers to identify themselves or provide us their email address)

So here I sit with piles of these requests. I call Gino's Pizza in toledo and tell them how they can benefit by offering their coupons online and that one of their customers is specifically looking for their coupons on the site. Of course, they figure it is some marketing ploy and disregard me.

I was toying with the idea of letting the customer print out some type of promotional page to give to the restaurant to tell them they would like the convenience of being able to get their coupons online and somehow compensating the consumer (a free large pizza or something) if the restaurant became a subscriber.

Do you think this is a bad idea?

I don't know any off the top of my head but I would imagine there a more than a few industries where "bird dogging" or whatever else you want to call it is par for the course.

Originally Posted by RainMaker I've heard this expression before, but am not clear on what it means. Consumers email me every day requesting coupons from a specific restaurant in their area who is not currently subscribing to my service. (We don't require these consumers to identify themselves or provide us their email address).... So here I sit with piles of these requests. I call Gino's Pizza in toledo and tell them how they can benefit by offering their coupons online and that one of their customers is specifically looking for their coupons on the site. Of course, they figure it is some marketing ploy and disregard me....... Do you think this is a bad idea?

I think it's an excellent idea that needs refinement. Here's what I would do.

First, I would drop the part about rewarding the consumers.

Next, I would include a feedback form on your site that encourages referrals. For instance: Can't find your favorite pizza business here? Let us know!
Its extremely important that you configure the form's properties with your own text such as: We would really like ______ to offer coupons on your site. They are in _______.

The reason I say that is most feedback forms seem to come back with a real economy of words--like the sender was being charged per character.

As far as the "sounding like a ploy" part, it probably does. So I would send a copy of the form or email to the business with a simple note: "I thought you might be interested in this...etc.

By the way, emails are obviously more impressive than feedback forms to your prospect, so it would probably pay to have two requests for referrals--one link to a form and one link for mail.

I don't know your anticipated conversion rate, but it sounds like this form of lead generation would justify both the 37 cents for postage and the phone call. With regard to your phone conversation, I do see a flaw:

You said:
I call Gino's Pizza in toledo and tell them how they can benefit by offering their coupons online and that one of their customers is specifically looking for their coupons on the site.

I understand the maxims of feature-benefit presentations--but benefits should not be included in a prospecting offer by phone. I would simply give two features in the offer.

Thanks, Gary. This is a way-underutilized aspect of my website, that has been completely neglected for too long. I am knee-deep in another project, but your comments have motivated me to move this up on my priority list!