Having someone referred to your business is one of the finest compliments. Naturally, you want to extend a warm thank you to the referrer. That referrer chose your business over all the others. The thank you may take the form of a handwritten note card, a gift card, flowers, food, event tickets, or cash to name a few options. You decide what you’re comfortable with plus what will hold meaning to the referrer. Not all thank yous need to be identical for all referrers, nor identical for repeat referrals from the same referrer. You set the rules.
Two Cautions
Two areas to take heed when preparing your thank you are:
If the size is in proportion to the projected earnings from the new client. Too frequently I’ve heard of colleagues who over-extend a payout amount or gift value presuming the client will generate a certain amount of income for their business and the client doesn’t pan out for whatever reason.
Paying out $100 (cash or gift value) to the referrer when the client does $300 worth of business with your company in month one and then leaves may be steep. (Remember there are no guarantees for how long a client will conduct their business with your business.)
Here’s why: say that $300 is based on 10 hours of work at a rate of $30/hour. By paying out $100, off the top, the client will still get $300 in value-packed projects from you but your hourly rate just dropped to $20/hr for the 10 hours to compensate for the expense of the payout. (Yes, in accounting terms it is an expense.) From the $200, deduct your cost of doing-business type expenses to get to your base rate profit. Is this profit amount acceptable and enough for your business?
I remember a colleague who paid out, in cash the first of the month, for six months a specific amount to her referrer – never realizing that these payouts were lowering her hourly rate and from that same rate she still needed to pay her subcontractors. She struggled during those six months because her payout was too high for the income level the new client brought to her business. Additionally, she had made this same deal with a referrer that led ten new clients to her. That referrer was earning profitably and the clients stayed on with her a minimum of nine months, with only a handful staying well past a year. What would have happened if the client(s) left in month 7 – the colleague’s first month to fully earn her full rate? Looking back, she realized her mistake but felt she couldn’t go back on her word to the referrer. In the end was the referral worth losing money just to say thank you for sending a client to the business? What do the bookkeeping figures say?
In this example the colleague gave away too much as the thank you, for too long of a period. Be discerning when you create your thank you plans and programs. The livelihood of your business depends on it. Gratitude for a referral should never jeopardize your bottom line.
Marketing that you use an invoice percentage as the cash payout amount. Refrain from saying, “We will pay you 10% of the invoice amount” or “Get 25% of the invoice amount for 3 months.” Stating in your marketing that you pay out a percentage of the new client’s invoice balance, regardless of the period of time, breaks client confidentiality with the new client. It’s simple math for the referrer to know the exact invoice amount when you market it this way. No one but you and your client should EVER know invoice amounts. Period. It’s no one’s business. It’s unprofessional on your part to disclose this information. I doubt anyone who markets for referrals is disclosing to the client “Hey, I’m paying 20% of your invoice amount to X. You don’t mind if they know how much your invoice amount is, do you?” To me, this is as sensitive as asking someone how much they earn annually.
A better way is to pay out a conservative flat fee or use a percentage as the formula and keep this formula method as proprietary internal information. Consider rounding to the nearest 5 or 10 amount. You’ll then be compensating a whole number rather than writing a check for a very specific amount. Again never disclose your calculating formula in your marketing materials its over-sharing and crossing boundaries with your new client that shouldn’t get muddy. In a few months if you feel the referrer has earned a higher compensation then send a second thank you gift and express how well you’re enjoying working with the client and say that you both wanted to send a warm thank you for introducing the two of you.
In the end, determine if your thank you is compensating for a converted lead generated or is compensating for sales generated. Which one best fits with your business model