How Incentives Can Drive Customer Referrals
What if you could double, triple, even quadruple the reach of your sales force, with no additional expense? Mindbridge, an Intranet software company, is doing just that. Mindbridge’s secret is a referral program, with incentives that reward current customers for introductions to new customers.
Businesses of all sorts value referrals. The acquisition cost of new a referred customer tends to be very low, and the quality of the lead is high. Sales conversion rates are stronger and faster than those with leads from any other source. And the cost to service referred customers can be lower. “Referrals are the best business there is,” says Scott Testa, Mindbridge’s vice president of marketing. “Our objective is to get as much of it as we can.”
A privately held company in the Philadelphia suburbs, Mindbridge’s lead product is called IntraSmart, a kind of “Intranet in a Box” solution that allows companies to set up an Intranet easily, or extend the functionality of an existing Intranet. Mindbridge has found plenty of traction in the marketplace, with installations at such well-known organizations as CBS, the March of Dimes, Fidelity Investments, LSI Logic, the University of Michigan and the United Nations.
Mindbridge’s referral program is incentive based. Simply put, they pay a fee to any current customer whose introduction results in a new customer for the company. Generally, the amount will represent 10% of the net sale, which can amount to a substantial reward. Depending on the account, IntraSmart can cost as much as $200,000 to $300,000, with a single “seat” priced at $65.
Of course, some companies forbid their employees from accepting any kind of referral reward, and others set limits on the amount acceptable. So Mindbridge is very careful to sound out company policy in advance, and adjust the offer. If the acceptable amount for an employee is set at a certain level, then Mindbridge will issue an Amazon gift certificate for that amount to the referring individual. If the employer wants the benefit to accrue directly to the company, then Mindbridge will apply the finder’s fee to the balance due owed by the client.
“This way, everyone’s happy,” says Testa. “Our salesperson covering the referring account handles the transaction by hand. The paperwork is quite simple, once we put the processes in place. We’ll offer the fee in the form of cost reductions in our licensing prices, or maintenance and update costs, whatever suits the client.”
To promote the program, Mindbridge remains relatively low key. One of the main drivers of program participation is a button on the Intranet software application itself. Buried in the administrative area of the software, the message will be seen by whomever is setting up the software or making adjustments. The button appeals with a quiet question saying, “If you like this product, please introduce us to your friends.” The button can be disabled, if the client finds it unwelcome.
The referral program is also promoted by the sales team, who happily follow up on the leads due to their high close rate.
The program results have been gratifying. Testa estimates that 5-6% of his new business is now flowing from this source. And there is probably more that is untracked, since some clients will make referrals but then refuse the reward. Referral business is highly profitable for Mindbridge, given the very large variable margins on software. “Our primary expense is SG&A, so when we can acquire new customers through a 10% referral fee, we are getting off cheap,” says Testa.
Another benefit of the program is customer loyalty. Mindbridge views its installed base as a community of users. When any one in that community refers a colleague, the community as a whole is strengthened.
To encourage the program’s growth, Mindbridge has several enhancements in the works. First, they are building an Extranet that will allow installed users to meet and discuss product applications and trouble-shoot problems. The second step is creating a distribution list for regular email idea-sharing among the users and prospects. Finally, Testa is now restructuring the sales force compensation plan to increase the commission rate on referred closes. “Our ten sales reps really like the referral program, but if I want to grow their enthusiasm further, the best way is through their pockets,” notes Testa.
When asked about the advice he would give to companies considering a formal referral program, Testa answers, “Take it slowly.” Mindbridge experimented quietly with the program, refining the process and building the organizational infrastructure to support it. There was never any big announcement. Instead, they just began talking to customers and introducing the program to the installed base.
“In the tech marketplace, it’s important to avoid hype and sustain credibility, with both customers and with the sales team. We wanted to postpone a big announcement until we really knew what we were doing. In fact, we ended up never making an announcement at all.”
But the word is spreading. As rewards are paid, the enthusiasm rises for the program. “We figure that any employee at a client company is likely to migrate to at least three more jobs during his career. He’ll be taking along word of our product. One guy participating in our program has been responsible for 15-16 deals already,” says Testa.
How are his competitors reacting? Testa believes that Mindbridge is the leader in the Intranet market, and he expects his competitors to keep an eagle eye on his marketing activities. “I am positive my competitors are doing something like this—they’d be crazy not to. I haven’t seen it yet, but it’s sure to come.”
The Mindbridge referral program is based on careful planning and low-key promotion, but the lynchpin is the generous incentives to the referring party and to the sales teams.