There are many different mechanisms to incentivize your referral partners. The key is finding the right mix of appropriate amount, structure and motivation – while ensuring you can handle the fulfillment! In this article in our Building a Referral Partner Channel series, I’ll cover those elements and provide best practices so you can make these key decisions.
Choosing the best reward amount for referral partners
Referral partner fees typically fall between 5%-25% of first year revenue. While many programs use percentage of revenue, for those with a more repeatable product price a simple flat-rate bounty can work as well. The factors to choosing the appropriate reward amount are:
- Consider if you want to reward higher amounts/percentage of revenue for higher tier partners.
- Consider if you want to motivate repeat referrals by having an escalating reward based on the number of successful referrals within a time period.
- Consider if you want to vary the reward based on deal involvement or lead stage.
According to The State of Business Partner Referral Programs – Annual Report, the average reward payment for a referral partner is $182. Keep in mind, this is an average across many partner referral programs with a high variance in purchase amount for the various products and solutions. The best way to checkpoint your reward amount strategy is to work with marketing to determine their cost per acquisition (CPA) of a customer coming from inbound efforts (see calculation below). Your referral fee should always come in much lower than the marketing CPA.
Structuring your reward to meet business needs
There are 4 key factors you need to consider when structuring your reward:
- Calculation – This can be a flat bounty, a bounty by product purchased or percentage of revenue. And per the amount discussion, you may want to offer different rates for different partner types or deal involvement.
- Escalation – Setting a achievement levels with higher payouts is a great way to incentivize repeat referrals.
- Timing – If you’ve got a subscription product, you may want to consider a retention period before payout to the partner to insure that the new customer is sticky. In these scenarios, you may want to consider rewarding at multiple stages to keep the partner engaged. For instance 25% of the reward at purchase and 75% after 6 months retention.
- Accrual – For highly productive programs, it may make sense to accrue reward payments to reduce transaction fees and provide higher accumulated payouts.
With any incentive plan, make sure it is manageable for you to execute on. The more you can automate in your referral system, the easier this will be to handle. Paying partners fairly and quickly is a key factor in success.
Adding motivation for repeat referral activity
Structuring your rewards with higher levels of achievement and payout is a great way to motivate referral frequency. Additionally, you can consider special reward promotions to encourage volume during slow business periods. Some examples of this are:
- Holding a “partner day” where the sales team and the partners have extra incentives to collect referrals. This can be an increased reward for any referrals that came in that day or could be raffle prizes.
- Incentivizing the sales team to collect referrals from your partners is a great way to drive activity. Talk with sales leadership as this is sometimes frowned upon as a “double incentive”, but many sales teams appreciate prizes or swag for quarterly referral winners.
- Add a big goal reward that would be beneficial to strengthening the relationship with your best performing partners. Set a bar for a high number of successful referrals that is reachable for your top referral partners. The incentive for reaching this does not have to be a cash payout, but perhaps they could get a trip to meet with the CEO or be invited to sales club trips. If the partner is also a user of your product, the incentive could be a free year of your product/service.
Key steps to reduce operational hassle
Anyone who has worked in an incentives or sales ops group knows that incentive programs can be a challenge to manage on the back end. For the scale that you can achieve with referral partners, you’ll need to automate this process or else it will become unmanageable without a drastic increase in headcount. Here are the key steps to automate so that you can focus your time on engaging partners:
- Automate the collection of tax information. You can do this either at registration or have it triggered when the partner reaches the taxable limit in reward payouts.
- Set hard-fast rules for reward calculation based on data collected in your referral system and/or from your CRM. If you can’t collect data on it, don’t make it a factor for the reward amount. Once you have clear rules based on data, automate reward calculation so there are never disputes.
- Similarly, make sure you have clear escalation rules and data so that reward increases can also be managed automatically.
- Integrate your referral program with a fulfillment/payments vendor so that you don’t have to deal with paying out the rewards. Payouts should be triggered automatically once the success criteria is met (typically purchase).
- Provide real-time information on rewards earned and paid to your referral partners within their personal referral portals. No one wants to field calls on payments so make it very easy for them to access this information. Additionally, automate email communications to the partner when a reward is earned so they are informed right when it happens.
Now that you’ve figured out how to incentivize your referral partners, you’ll want to ensure you have a smooth process for onboarding. I’ll cover how to onboard referral partners in the next article in this series.
In the meantime, become informed on the benchmarks that demonstrate a successful partner referral program in the report, The State of Business Partner Referral Programs.