Should you reward client referrals?
Referrals are always a good source of new business and can work both ways for practitioners and their existing clients. Rachael Power reports on recent exchanges on the subject.
An AccountingWEB member recently faced an ethical and moral dilemma when his client asked for a referral fee for introducing him to a contact who could attract lots of new business.
Michaelbeaver turned to Any Answers for advice: “Curious to know if anyone else does this routinely, and if so what do you offer?”
The answers ranged from staunch support of referrals to those who were “gobsmacked” by the thought of paying clients.
PracticeWEB's demand generation specialist Alex Tucker also took an interest. “Looking at the thread, it struck me that only one participant felt that rewarding referrals is wrong. They thougt if you do a good job, you should get referrals without having to offer cash,” said Tucker.
"The statement assumes that you have the right to referrals business if you do a good job, and also that prospects don’t have several people making a range of equally good recommendations."
Tucker believes that practices do need referrals. Research on customers of a German bank by Christophe Van den Bulte at Wharton University found that:
- Referred customers generated higher margins for the first 1,000 days
- Referred customers were about 18% more likely to stay with the bank than others
- The difference in margin combined with the difference in customer retention amounted to a disparity in long-term customer value of 16% to 25%.
But offering rewards for those referrals is optional and can range from informational, financial, time and reciprocal referral rewards, he added.
Aside from Jennie Gillam, the member who thought it was morally and ethically questionable to reward referrals, AccountingWEB members offered a range of practical suggestions:
- Offer non-fiscal rewards Some members suggested offering a non-fiscal reward and 'nice' gestures for those who refer clients. This way, it feels more like a gift rather than a sort of pay-off, and is a polite way of showing the client that you appreciate what they have done. Or, simply offer them reciprocal leads.
- Check with your professional body Innkeeper advised those unsure of offering rewards to check with their professional bodies and get their views of it, lest it be frowned upon.
- Will rewarding pay off? Firstly, calculate the cost of getting a new client, advised Peter Kilvington. His firm offers existing clients 10% or a capped amount off their accounting bill for new clients they introduce, depending on fee level. For him, referrals work out at 25% of the cost of gaining new clients through other means. And only pay the referral reward/fee when you get paid by the new client. However, make sure and stick to your word - even if clients don't come back and ask for that reward or fee, if you've told them about it, you should honour it.
- Think about who you offer it to She001, a bookkeeper, is more inclined to refer business to the accountant who offers her a 10% referral fee. So referral rewards are not just for clients, but for bookkeepers and other professionals too - even if it takes the shape of reciprocal referrals.
- Advertise or not? Two members differed on whether to advertise that they offer discounts or fees for referrals. Merlyn said their firm doesn't advertise as they "don't want to sound desperate". But marks does, and makes existing and new clients fully aware that they do so. Another member, rawa363, suggested the fee should be at least £100 to encourage people to push prospective clients forward.
- Consider what you want Thinking about the type of clients you want and what business you need will help to determine whether or not rewarding referrals is right for you and your firm. Ireallyshouldknowbut mentioned that it is complex and if you turn down the prospective client, the referrer can be left "a bit miffed". For those looking for "anything that pays" to boost turnover, then rewarding referrals could work for you. But if you're looking to be picky and gain grade 'A' clients for example, it may not be the best option.
Do you see rewarding referrals as a moral or business issue? Do you provide rewards? Why and why not, if no?