Why You Don't Pay Cash for Referrals

by Judy Murdoch

Published on this site: October 13th, 2006 - See more articles from this month

From time to time, a business owner will ask me whether it's ok to give customers cash payments in exchange for qualified referrals.

It seems reasonable: companies pay their sales people to develop new business; aren't customers and colleagues who send referrals the equivalent of sales people?

The answer is NO because what motivates a sales person is entirely different from what motivates a referral source. And the source of motivation makes all the difference in the power of the sales message.

Sales people are motivated by money. I don't mean to imply that money is the only thing sales people care about. The good ones believe in their products and services and are jazzed by the idea of building a business. Still, if the money wasn't there, they'd go sell for someone else.

People make referrals because it makes them look good to others. When you solve someone's problem by referring them to a company whose products and solutions are a perfect fit, you have passed on a bit of "secret" information (they didn't know about the business after all) and you have enhanced your credibility and reputation.

This is what gives referrals such extraordinary power: someone is so certain the referred business will do a superb job that they are willing to put their reputation on the line. Indeed, they believe that giving the referral actually will improve their reputation. That's quite a testimonial.

When you pay someone for making a referral, you taint the motivation and they lose credibility as a referral source. Think about paid celebrity endorsements. You see a well-known actress touting exercise equipment on TV. Does she use that equipment? Probably not. It's more likely that she has a personal trainer and uses state of the art fitness equipment to remain a size 4. We assume she's doing the promotion because the company is paying her to do so.

On rare occasions, a cash gift might be appropriate, perhaps when it is entirely unexpected and is truly a gift. But as a policy, cash for referrals are a bad idea.

Judy Murdoch - helps small business owners create low-cost, effective marketing campaigns using word-of-mouth referrals, guerrilla marketing activities, and selected strategic alliances. To download a free copy of the workbook, "Where Does it Hurt? Marketing Solutions to the problems that Drive Your Customers Crazy!" go to http://www.judymurdoch.com/workbook.htm
You can contact Judy at 303-475-2015 or [email protected]