By Chris Stening, MD of Easynet Connect

The ‘referral’ economy is alive and well, but small businesses are missing out.

In our previous report, “Credit where it’s due – cashing in on the referral economy,” we looked at the value of, and the barriers to, referral schemes in the Small to Medium-Sized Enterprise (SME) market.

The ‘referral’ economy, whereby businesses refer their favourite suppliers to others in return for a small amount of commission, is a natural development of the personal recommendations that businesses make every day. We found that that a staggering 81% of SMEs regularly refer business to others, while failing to earn a single penny in commission for doing so. SMEs make, on average, three recommendations every month, with the average value of the referrals being £7,500 each. This equates to some £270,000 of referred business every year being passed on — with SMEs failing to receive any reward in return. However, with 19% of SMEs never recommending the business of others, some are missing out on this important aspect of business interaction and networking.

The ‘referral’ economy is clearly important and businesses are recognising the networking opportunities it offers. But SMEs often don’t appear to be compensated financially for the vital contribution they make. Whether as a formalised, accredited channel partner or straightforward sales agent, the potential revenue available to businesses that sign up to referral schemes is impressive, as well as opening up new markets for them and being a significant reputation builder. This could make all the difference to an SME’s survival today, and is one of the reasons why we launched our own Sales Agent Referral Scheme in June this year.

Other key findings from the report:
– SMEs make an average of three recommendations per month, equating to £22,500 worth of business or £270,000 per year

– Smaller businesses, particularly those with 1-4 employees, are least likely to recommend the services of others; with 42% never making recommendations and 44% only making 1-2 a month

– 43% of SMEs would not establish a formal commission arrangement with those they recommend due to the available commission being too low or simply not having the time to set one up

– 28% of small businesses accept not earning commission because they consider recommendations as a natural part of business, while 17% have not established referral schemes because they consider them too complicated to set up

– Larger companies are generally less bothered about earning commission from referrals. 39% of organisations with 50-249 employees and 31% of those with 250+ are happy not earning commission

With so much business being referred by SMEs every week, there are clear revenue-generating and reputation building opportunities for those companies that find a way to monetise this good will. While the traditional sales channel provides many businesses with a consistent, low-touch means of generating new customers, for many businesses, such a formalised process is not practical, can be daunting to set up, and is time-consuming to manage. This view is reflected by our research, with 43% of SMEs surveyed not participating in or establishing referral schemes simply due to a lack of time, or the schemes themselves being too complicated to set up. These SMEs are missing a good revenue opportunity, and the chance to enhance their own reputation, network and potentially sell to new markets.

What are the barriers to successful referral schemes?

Despite SMEs referring an average of £7,500 worth of business with each referral, 43% would not establish a formal commission arrangement with those they recommend due to the available commission being too low or simply not having the time to set one up. 28% of small businesses accept not earning commission because they consider recommendations as a natural part of business, while 17% have not established referral schemes because they consider them too complicated to set up.

Nothing stops 29% of businesses from recommending the good service of others, yet nearly 44% would not recommend good business either because the other supplier could potentially be a competitor of theirs or their perception could actually be wrong. It’s not good for a company’s reputation to recommend a bad supplier!

Our research highlights the difficulties faced by many small businesses when trying to formalise commission structures with those businesses they regularly recommend and network with. While some issues — such as a lack of time — are hard to fix, others are more straightforward. This is a clear call-to-action for all businesses who serve SMEs to simplify their referral schemes and ensure the commission they earn is reflective of the effort involved. If they do, they could soon reap the rewards as more business is sent their way.

Money should never be the sole reason for recommending the services of others, but the intangible value that referring a business can bring to a company’s reputation and business contacts is considerable. If moderate incentives actually encourage more businesses to take the time to refer the good services they enjoy, then the whole of the business world will run more efficiently. Good suppliers will be rewarded with more sales, and those that sing their praises will get a return on their networking as well build their own profile.

Case Study

Roy Castleman, Managing Director, Prosyn

“As an IT services company focusing on IT solutions for small to medium size organisations, our business and reputation is founded on giving the best impartial advice to our customers, so referring products and services is a key part of what we do. We’ve been involved with Easynet Connect’s sales agent scheme for a few months now, and already we’re gaining rewards. We’re making the same recommendations that we had been making previously, but this time we’re earning commission.

As a business, we’d never feel comfortable recommending any products or services solely because a commission was being offered, as we’re not prepared to take the risks of giving a recommendation that’s not right for our clients. The fact is, however, that many businesses barely recognise referrals, let alone reward them! If you repeatedly recommend or refer someone’s services without any form of compensation, financial or otherwise, you begin to question their brand and your willingness to recommend them further.

Easynet Connect has planned its sales agent scheme the right way by starting with quality products and then implementing the referral scheme. We are great believers in the value of referrals and we’ve actually implemented our own scheme for clients who give us new trade. Reward schemes aren’t about buying sales leads, but about turning your customers into ambassadors for your company.”

Steps to setting up a sales referral scheme

Identify your sales agents
Think about who would come into contact with your potential customers in an advisory capacity. It ought to be someone that your potential customer trusts, whose role means that the recommendation of your product or services is complementary to the service or product that your sales agent provides.

Make the referral system a simple process

If you can’t summarise it 5 steps or less, then you have probably made it too complex.

For example:
I. Agent gives details of referral to you
II. You validate the referral and issue a reference number for tracking
III. Agent is advised when successful sale is made
IV. Agent issues invoice for referral fee commission
V. Agent is paid

Make sure the new process fits in with your existing systems
Talk it through with the people in your organisation who will be involved in this on a daily basis and try to use as many of your existing systems as you can. Lead management, sales team organisation and supplier payment process are all-important examples, or it will become too complicated internally. If it is not simple inside your company it is unlikely to be simple for the agent.

Get people using it
We contact existing customers initially, as they are the ones most aware of the excellent products and services they receive from us and are most likely to recommend Easynet Connect. We offer them the opportunity to become Sales Agents if it is complementary to their business. We are also contacting prospective businesses that we believe can take advantage of this additional revenue steam. We will encourage them by sharing success stories of existing Sales Agents and ensuring that they have a relationship with a named Account Manager to assist them with any questions or support needed.

Maintain the interest of your sales agents – keep them up to date
The best way to keep your sales agents using the scheme is to make it easy for them to hear about the successful sales they have referred, and to track how much commission they have earned. This could be via a regular update from a named contact within your organisation, or through web-based access to a sales agent account showing your status. Which method you choose depends on the systems that you have in place already, and what fits best with them.

Make sure they get paid!
When a sales agent is set up with Easynet Connect, we add them to our suppliers list in our purchasing system. This enables us to issue a reference number against each referral which, when successful, can be approved for payment on an invoice from the sales agent – very simple.

Potential complications, and how they can be avoided
I. The key consideration here should not be forgotten – the end user. The customer that is referred to you and their experience of you as a supplier will set the tone and the reputation of both yourself as the vendor, and the sales agent that has referred them to you.

II. Document the flow of the lead from the time it comes into your business through to the point of payment on a successful referral. Make sure you have a way of checking whether you already have the referral as a customer or prospect, so that there is not a debate later as to whether this was a genuine new business referral.

III. You need to ensure that you tell people you are running the scheme, either directly, in the press, on your website or at events.

IV. Think carefully about the right fee for a successful referral; it needs to be attractive to both parties to make this partnership a success.

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