tech-company, customer-developmentSo I’ve been thinking about putting a line like:
Got a friend/colleague looking for web development work? Refer them and you both get _____. See Terms for full details.
at the bottom of my invoices. So I’m wondering what is the minimum bonus that is likely to actually encourage referrals? I mean obviously really good service will be of primary importance but in terms of straight forward benefit to the act of referring/taking advantage of the referral. Full details include minimums invoices to apply said bonus to. Is there any non-straight forward $ off invoice bonus that I should consider offering?
This is for a web development/design business.
I think there are too many variables to give a straight answer to this. So I would approach it from a slightly different angle. Here’s why and what that angle would be:
Do you do web development for a specific niche/industry?
If the industry you’re in is one that is technologically averse - one of those holdouts where many of the businesses still don’t see the value of a website… or where if they do have one it’s looks like it was built in 1995 and/or has no useful information on it - then you’re likely going to have a hard time getting referrals.
If you’re in an industry where they place a high value on a quality website, they’re more likely to talk to their colleagues about this guy that did a really great job on their website.
In either case, the extra incentive on their bill may help, but how big it needs to be and how much it will help will vary.
It also depends on how much you’re billing. I don’t know what kind of service you offer.
Are you charging a $100 one-off fee to set up a Wordpress site with a nice template and a couple of static pages? If so, $50 off for a referral would be a significant incentive to someone paying $100 for their website design. But it also eats away a ton of your profit.
Or maybe you’re charging several thousand a month for a full service package developing and maintaining highly sophisticated SaaS solutions - perhaps even including some SEO and marketing services as a part of the overall package? If so, a $50 incentive isn’t a huge part of your profit margin, but it also isn’t that great of an incentive for someone willing to pay thousands a month for your services.
How much of an incentive you can reasonably give is in question here too. And a referral in that second scenario is worth way more than the first scenario.
So perhaps the best place to start in figuring this out is to calculate the average lifetime value of a new customer. Does your average customer buy one Wordpress theme from you and never come back, making their lifetime value $100. Or do they pay a large monthly fee for your service and stay with you for years to come giving them a very high lifetime value?
Once you determine the lifetime value, you’re in a much better place to decide the important question of how much would you be willing to pay for a new customer with that value?
(I realise if you are just starting this service it will be hard to fully nail down the lifetime value. But you should try to crunch numbers that you do have access to and see if you can hit a ballpark for what you expect it to be. The point still stands that the lifetime value of a customer buying a $100 WP theme is much different than the lifetime value of a customer paying a monthly fee.)
If you knew I could give you a customer that you would earn $X from over the next few years, how much would you pay me to bring you that customer? What is the absolute most you could pay and still have it be worthwhile? What number would be more ideal number for you to work with?
Once you nail down some more of those numbers, you’re in a better place to start answering your initial question.
If $Y is the absolute most I would be willing to pay for a new customer, would that be motivating for my customer base to give me referrals?
What about 1/2 of $Y or 1/4?
Sometimes you may just need to test it and see. Send out invoices with a notification that you’re giving 1/4 $Y as an incentive and see what happens. Not much response? Guess what, this month we’re boosting it to 1/2 $Y!
Alternatives to a straight $ value off or a % off the bill could be offering a free/discounted add-on service. Set up a mobile ready version of their site, include some more thorough on-page SEO checks, do a bit of marketing for them, give them a discount on a design for a FB page. Or maybe offer an eBook on how to grow their online presence, how to do some basic SEO, or your 10 favorite social media tips that are guaranteed to bring in more business! Want to make it even more effective? Make it niche specific for whatever industry you’re working in if you have a specific industry you specialize in working with.
Really what you can offer and how effective it will be is limited mainly by your knowledge of your target demographic and your imagination.
Happy clients will do this for free or something symbolic. Give them an hour of your time, buy them some flowers, invite them for dinner, get them two tickets to a sport event or to the theater, whatever gift makes most sense to them.
Rephrase that clause to something like:
“Know anyone else who is looking for web development work? We’ll be grateful if you refer them!”
And then check back with them three months later. Ask if the outcome of their project turned out the way they wanted – and if so, ask for a testimonial and for referrals, and ask if they need you again. Check back in another 3 months, and again a year later. (And ideally once per year or more thereafter.)
Short aside on social psychology… There’s a slew of research that suggests that you internalize commitments more when the rewards are smaller. In a nutshell:
This leaves two sweet spots:
Between the two thresholds, there’s a gray zone that you want to avoid. Within it, your referrers don’t actively seek referrals because it makes no financial sense for them to do so, but still get to pocket an out-sized commission for being around at the right place and at the right time.
Oh, and don’t forget to do the same for them: if you know someone who can use their service, be sure to send that someone their way. Because if you do, they’ll be in your debt and try to return the favor.
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