Discounts for Referrals

Hello everyone. Do you think giving a discount to clients who give me referrals would cheapen my service? Do you think it's a good incentive to give referrals?

There is a difference between giving an incentive for referrals and giving a discount.

Incentives can be used very effectively in referral generation--as long as the incentive is within reason. Too large an incentive can raise questions in both the client's and the prospects mind about just how much you're making. Too small and it can make you look cheap. It has to match the product or service's cost (not value).

However, creative incentives that don't cost much can be even more effective than more expensive incentives.

I have a number of clients who have developed highly personalized incentive programs for their clients. One accountant gives a $5 Starbucks gift card for ever referral, whether they become a client or not. And for every referral that does become a client, the client gets a $25 gift card. The trick is the gift card is chosen specifically for that client based on the client's interests. One of her clients collects old and rare books--when she gives a referral that turns into a client she gets a $25 gift certificate to a local rare book store. Another of her clients is a big hunter. When he gives a referral, he gets a $25 gift card to his favorite sporting goods store. Another likes the theater. Guess what he gets? A $25 gift certificate to a local theater. Highly personalized and very much appreciated by her clients.

Discounts on the other hand tend to commoditize your service. Realtors are already commoditized to some extent and discounts are expected by many listing their homes. I wouldn't think you'd want to encourage that. Tying the referral to what you charge is dangerous.

You're probably better off by offering an incentive rather than a discount.

I'm of the opinion that getting and getting referrals when in the sales profession are a part of the master plan and I don't expect to pay for them nor do I expect to get paid for them.

Having said that, giving someone something like a personalized promotional item ( I sell those, so I'm biased) to strengthen the relationship between us is the key to building a network of business associates. It could also be something like a gift card for coffee as well.

Chuck

Paul and Chuck thank you for lending your expertise.

Won't people think gift cards are too small since commissions are large relatively speaking?

It's important to differentiate between a "referral" and compensating someone who's actually "bird dogging" for you. To my mind a referral is a professional courtesy and is handled as such.

If I hire someone to bird dog for me then I expect to compensate them adequately and then a portion of the commission makes sense.

Chuck

Originally Posted by Sales Pro 1000 It's important to differentiate between a "referral" and compensating someone who's actually "bird dogging" for you. To my mind a referral is a professional courtesy and is handled as such. If I hire someone to bird dog for me then I expect to compensate them adequately and then a portion of the commission makes sense. Chuck

I don't have bird dogs but I want to encourage past clients to keep thinking of me when someone they know could use my help. Don't you think people will feel they should get something in return if they keep referring people to me?

This is where my bias shows because I sell promotional products to many realtors to help them keep their name in front of their customers. Most of those items are inexpensive to buy, such as, refrigerator magnets, calendars, pens, letter openers, jar openers, and fly swatters just to name a few.

People are pleased to provide the names of those from whom they've purchased products or services where they've received exceptional customer service and value.

Chuck

For my book on referral selling I interviewed about four dozen of the top producers in the US and Canada--all make over a million dollars a year. Many are realtors. The vast majority of them get 50% of more of their business from referrals and only 2 actually give incentives of any kind for referrals.

An incentive doesn't have to be expensive to be appreciated--it depends what it is. You can learn how to generate a large number of high quality referrals--the traditional way of getting referrals, the old "do a good job and ask for referrals," isn't going to hack it--and you aren't stuck with having to "buy" business.

On the other hand, if you don't want to learn how to do it right or if you want to buy business, then, yes, you better pony up with something that will catch their eye.

Originally Posted by realtor I don't have bird dogs but I want to encourage past clients to keep thinking of me when someone they know could use my help. Don't you think people will feel they should get something in return if they keep referring people to me?

Most if not all states have rules regarding compensation and unlicensed individuals. Routinely compensating bird dogs or clients for referrals can land you in hot water with your licensing body.

Originally Posted by AZBroker Most if not all states have rules regarding compensation and unlicensed individuals. Routinely compensating bird dogs or clients for referrals can land you in hot water with your licensing body.

How do other Realtors do it without causing problems?