I read a great article yesterday on the topic of companies paying to incentivize getting their customers to provide word-of-mouth referrals.  The article was titled “The Real Truth About Referral Incentives” and the author Jeff Riddle puts into context a lot of what I have been blogging about over the last week.  In my last post, I suggested that putting your best customers at the center of your advertising strategy was the first thing you should do to work towards achieving the coveted viral loop. In this post I want to share a few of Jeff’s ideas in the context of your desire to create a viral referral loop for your business.

The main premise of Jeff’s article is that you should never tell customers that you will pay them for referrals.  Without regurgitating what he already eloquently stated (go read his article before this one), the fact of the matter is that money will not motivate your customers to refer you to their friends.  One of the key reasons for this is a concept I never considered. The message this payment is sending to the friend being referred is not a good one.  Once the friend knows the referral he or she is getting is being incentivized by payment, that referral becomes less valuable.  Now they are unsure if they are being told about you because you’re the best option to solve their problem or if they are just a tool to solve a financial problem for their friend.

This concept has actually played out in my personal life. I have a cousin that is always trying to figure out a way to get me to switch to DirecTV so he can get $100.00. The way the DirecTV referral program works is that both the current customer and the referred customer gets $100.00. However, every time my cousin tries to convince me to switch, this benefit is all he talks about. He never mentions the great customer service he receives, the picture quality, or any other signal of why I would be happy with DirecTV service over the long run. Since satellite service is so expensive, this $100 amounts to barely one month of service and doesn’t even cover the cost of my time for the effort to switch.

So this begs the question, what does motivate your best customers to send you referrals?  Well I think there are two things you should focus on:

1. Treat your customers noticeably better than your competition
2. Make them look like a hero in the eyes of their friends they refer

The reality is, by definition, most companies provide average customer service.  All you have to do is go beyond average.  Offer free bottles of water, share relevant, interesting, and surprising news about your industry in an opt-in newsletter, spend 5 minutes catching up with repeat customers like you would an old friend, check on them when you haven’t heard from them in a while, and deliver your product or service with passion and care.  Last but not least, be sure to acknowledge any and all referrals you get both with a simple thank you and occasionally with something more tangible.

To make them look like a hero to the friends they refer, Jeff Riddle had a great idea in the article I mentioned at the start of this post. He suggest that you give the referred friend something special and tell them they are getting it just because of their association to their friend. How cool is it to say to a friend, “mention my name and you’ll get the hook-up.”  The friends I have who always know where to get the proverbial “hook-up” are like my personal heroes.   Especially when it comes to home improvement contractors, who doesn’t love getting the hook-up?

The bottom line here is that your goal is to create an unlimited stream of new customers by creating a viral referral loop.  The only way to do that is to get your best customers to refer at least 3 people to your business every month/quarter/year (depending on the sales cycle of your business), and then get at least 50% of those referrals to do the same.