In many areas of business, referrals are among the most effective ways to increase sales. After all, most referrals are done for people who are already looking for a particular product or service, so they are highly qualified opportunities.
B2B companies often ask us if they should implement a formal referral program to increase sales. We're usually cautious about recommending them, because we've seen mixed results. A new report by Influitive (an advocate marketing company) called “What You Should Know About B2B Referrals – But Probably Don’t” shed some light on referral programs for B2Bs. The study included a survey sent to 600 B2B professionals across North America, in all sectors and positions. The results of the survey brought out a few interesting findings.
How Important Are Referrals?
Referrals close much faster than other types of leads for B2B companies. 69% of respondents to the survey indicated that referrals close faster than any other form of lead. 71% of respondents also say that referrals have a higher conversion rate, and 59% reported that referrals deliver more value over a lifetime. 56% of sales reps who were surveyed said that they deem referrals “very valuable.”
However, despite these strong stats, only 30% of B2B companies have some sort of formal referral program.
That may seem counter-intuitive given the results that referrals appear to generate. But I’m not surprised, as I’ve seen that it’s much more difficult for a company to cultivate referrals through a structured program than it is to accept referrals when they come. Depending on a company’s size and nature, referral programs can be difficult – awkward even – to implement, and they can often backfire.
When Does A Formal Referral Program Work?
According to the report, companies who typically have formal referral programs to increase sales are larger and have lower acquisition costs than those who don’t. That makes sense to me, as I know from experience that putting an effective referral program in place isn’t a small undertaking, and often smaller companies have better ways to increase sales. Referral programs also appear to be associated with companies who have sophisticated sales machines: the survey found that in companies with more than 200 employees, 87% of the companies who considered they had “highly effective sales efforts” had referral programs, while 42% of companies who didn’t rank their sales effectiveness as highly had referral programs.
Should Your Company Have A Referral Program?
So, given the varying returns of referral programs (great results for some organizations, negative returns for others), what does it mean for your business?
First, the report shares a method for helping you assess if a referral program might work for your business. There are six parameters to consider in order to implement a successful referral program:
- Community – You must create an environment where customers can interact with each other in order to make asking for referrals easier
- Customer Channels – Aside from emails, you need to be engaging customers in other ways (eg social media, events)
- Content – Does your business have a program for creating value-added content? If so, you can involve customers in creating interactive content and give them incentives to give you referrals
- Context – Are your sales and marketing processes built on an understanding of the customer buying journey, so that the company can find the right time and place to ask and provide referrals?
- Collaboration – Sales and marketing should be working effectively in the organization in order to make the most of any referral program.
- Infrastructure – You need proper tools to make the referral process easier for customers, as well as for sales people to follow-up on leads.
That list is a loud wake-up call to the reality for B2B referral programs.
Relatively few B2B companies are in a position to create a strong referral program. And I think that’s an appropriate take-away, and something that Influitive knows: referral programs work in large businesses with good systems in place. Most small and mid-sized B2B companies are better suited to putting other sales and marketing tools in place in order to increase sales. Referral programs are farther down the priority list.
The best alternative to a formal referral program
But that doesn’t negate the value of referrals! I've found that the simplest and most-effective referral program is to profusely thank and recognize those clients who do refer you. Send them a thank-you card, send them a gift, let them know how much you appreciate the referral (regardless of whether it turns into new business). That tends to be the best way to encourage referrals, with minimal effort, for small and mid-sized B2B companies.
Looking for other tactics that will work for your B2B company? Download the first section of The Radical Sales Shift, a book written especially for small and mid-sized B2B companies on how to increase sales by using marketing.