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Creating a Reverse Referral Program for Your Business

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Working with professional partners has been a large part of my life. Traditionally, partner models are used to work down the supply chain from a vendor to a distributor to a retailer

When we established The Brazil Business we intended it to generate leads for our consulting firm. What we hadn’t anticipated was the amount of inquiries we received related to services and industries in which were we weren’t consulting .

In this post I will explain how creating a reverse referral model can earn you cash that otherwise would be left on the table.

What is a Reverse Referral Program?

I assume you know what a referral program is. Typically, businesses will give a percentage of the sales amount to the source of the referred customer. The program is created by the business that receives the referrals.

In the scenario of a Reverse Referral Program, it is the business that sends the lead that has created the program and decided what commission it should receive.

A System Will Give you Leverage

In the first attempt to monetize on the amount of the leads we generated, we approached our law firm that we trust and would gladly recommend. Our suggestion was a referral partnership.

Sure, they were interested, but what would be the correct commission?

The negotiation went back and forth because none of us had a system in place. We realized that most professional service providers have taken their time to create a referral program.

Creating a system or a model gives you leverage in any partner process where no solid framework is already established.

After having created a system, we never had to negotiate conditions with new partners ever again; it’s a simple take it or leave it offer.

It’s a Custom Built Referral Program

There are millions of referral programs that you can find online today. However, a majority of them aim to sell either consumer goods or cheap domain names.

By utilizing a reverse referral program you can select the companies that you want to direct business to.

It will require a bit more of a sales job from your side to make sure that the company you select will actually take part in your reverse referral program. If you have created a reasonable program, the sales job should not be difficult; most companies would not turn down referral business.

How to set the commission

As an eager entrepreneur, it is tempting to ask for a 75% commission from your referral partners, but in reality you will not get any businesses to refer to with such conditions.

I believe the best model for establishing a reasonable commission rate is to look at the average Customer Acquisition Cost in the industry you are targeting.

Keep in mind that many company owners have no idea about their Customer Acquisition Cost so quoting reliable sources can make the sales process much easier.

Ask for Lifetime Value

Always ask for commission upon the lifetime value of the client you refer. Including commission upon Lifetime Value is a relatively simple condition that can make a huge impact on the payment you receive.

Many customers will place a small first order to test out a new provider so only receiving commission from the first order can become very bad business for you.

You can of course not ask for a commission payment on the expected Lifetime Value, so you will have to agree with your partner about a way to report the lifetime value.

Ask for Sub-sequential Commission

When asking for commission upon Lifetime Value you should also ask for sub-sequential commission. Just as the Lifetime Value commission, this usually is a simple condition to get your partner business to accept.

However, some companies will argue that it is unfair when you claim your sub-sequential commission. After all, if the lead you refer to the business also starts to refer the same business, you ask to receive a commission of his referral job.

Make yourself irreplaceable

By generating good leads for a business you will make yourself irreplaceable. This will of course give you leverage to negotiate better conditions as the partnership moves forward.

You will have to be smart, never just increasing the commission rate you are expecting, as this seems greedy. A common model is to create different partner levels. The negotiation will then be that you will give more in return for a higher commission.

What you provide in return can be very simple and inexpensive, but still provide a value for your partner. Here are some ideas:

  • Exclusivity (everybody wants this!)
  • Better visibility
  • Preferred referral destination
  • Guaranteed number of referrals

Exclusivity does not mean a global or industry wide exclusivity. It can be as narrow as the only accountant in São Paulo state.

Demand vs. Supply is the key to success

When setting up your reverse referral program you will need to manage the demand (being the lead) vs. supply (being the partner).

If you have too many leads with too few partners you face the risk of partners being swapped and not able to manage all the requests. On the other hand, if there are too few leads and too many partners, you risk to be forgotten by the partner who rarely hears from you.

At The Brazil Business we have found that 10 qualified leads per partner per week is a good balance.

Who can benefit from a reverse referral program

So you are reading this but you do not believe that this can be applied to your business?

I urge you to rethink this and think about complimentary products or services to what you already sell. Here are some ideas to get you started:

  • Wine stores can refer to cheese stores
  • Painters can refer to paint stores
  • Incurrence brokers can refer to contractors
  • Bloggers can refer to consultants

6 Action Points to Get Started

Getting started is easy and you should be able to do so with a minimum of effort:

  1. Start collecting referral leads
  2. Create a program contract
  3. Create a one page introduction aimed at partner businesses
  4. Sign-up the first partner businesses
  5. Set-up reporting routines
  6. Start sending leads and invoices

This can all be one in a weekend and might be the most profitable time you ever invested.

PS: Start collecting leads before starting to sign-up partners. If you fail to collect leads, the reverse referral program will have not had any value for you or your partners.

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