How to Define and Pay Referral Fees?
The Basis for Defining a Referral Fee
Reducing the commission by increasing the number of new customers a person refers is improper yet common method in calculating the present customer’s profit. Some companies define a limit for commission and, no matter how much a customer increases your sales through referring new customers, he/she won’t receive a commission more than the defined monthly amount. For example, they won’t get more than 500 dollars per month. In this case, the broker or the person who refers a customer eventually will postpone referring other new customers to the next month if the monthly limit of a commission is met. At the long run, such method of referral will work to the company’s disadvantage.
Don’t put a monthly limit for customer referral commission.
Instead of putting a limit on commission that can be earned through referral, depending on your profit, define different percentages of commission for selling each product or service. You may be able to pay a certain percentage of commission for a certain type of product or service based on the prime cost of those products and services, and you can pay different percentages for other products and services.
Based on the price and type of your services, define a payable commission to the person who refers a customer.
If you define the commission based on the sales volume, you can increase the commission as the number of customers who are referred increases because with more customers and more sales, you have gained more profit as well. Let’s say your service price is 250 dollars. If you pay 10% commission for any customer referral, but the customer or the broker has referred you five customers instead of one, then because they have increased your sales, increase the commission percentage and don’t decrease it. That way, the customer will be ready and happy to refer more clients to you. The way some companies work is that they pay for example, 10% commission for the first referral and then they reduce it for the next referrals. This method is completely wrong and it discourages the broker from referring more customers to the business. You need to improve the strength of your applications so you can perform such calculations. In that case, the efficiency will increase. Sometimes, modern tools are used for implementing the same old-fashioned methods and as long as applications, websites and several other sources are in hand, such old methods aren’t effective anymore; while this customer referral system can be the most pivotal tool for development of a business.
Technical Function of a Smart Referral System
There are prepared applications for calculating the amount of a referral commission. If these applications are synced with your electronic business system, you can apply them. These applications will connect to the accounting sector of the company and update the accounts. To facilitate the payment of commission in the customer referral system, you need to provide software infrastructures that can do that efficiently. Register each referrer in the application when you register a customer. When a customer who has been referred by a certain person makes a purchase, the commission is automatically paid to the referrer’s (broker’s) account. Such procedure is not possible in conventional methods or when writing in a ledger because you can’t always keep looking for people’s name in the ledgers. Even in case of B2B (business to business) where you are dealing with some enterprises, the whole process gets extremely complicated. One way is to, first of all, announce on your website that you have launched a customer referral system. Then, design banners to inform people of your products. Link each of these banners to the code of a broker (referrer) who could be your previous customer. The referrer sends the link of products or services to different people who are your potential customers. For example, the broker shares the link on his/her Facebook page; when someone clicks on the link, it’s clear who has referred this new prospective customer. After a purchase is made, a commission is transferred to the broker’s/referrer’s account.
Affiliate System (Affiliate/Referral)
New applications are designed in a way that purchases are traceable and if someone clicks on a referrer’s link with out making a purchase and makes the purchase after a few months, the referrer is still identified and a commission is paid to them. This method is also called affiliate system. As mentioned before, an affiliate system is the same as a “modernized referral (affiliate)”.
If you can promote this system in your business, your success will be guaranteed to a great extent. The proper way to pay the commission to a referrer is that if the customer purchases other products from your website, besides the first purchase, the commission of the broker or the referrer must still be paid because this new customer has been linked to you through a referrer.
The smart thing to do is to pay the new customer referral commission to the referrer constantly, meaning as long as the referred customer makes purchases from you, you keep giving the right percentage to the referrer.
While it rarely happens for the companies to pay commission always without a time limit in exchange for every purchase a customer makes, the smart and the right thing to do is to pay commission to a referrer as long as the new customer keeps making purchases from you. I always use this method in my business and I have seen the results.
The Importance of Type of Customer in Paying Referral Fee
One of the complexities of a referral system is that to calculate commissions, you need to define formulas according to your services and your customers. If you have different categories of customers, the system must be able to distinguish these differences and calculate different commissions based on the amount of profitability of a customer for a system. Some companies had special customers or so-called “golden customers” who make continuous and major purchases. Obviously, the commission for referring a golden customer must be more than the commission for referring usual customers, and this is what should be applied in the application which calculates the referral commissions.
An Example of the Function of a Smart Referral System
One of the important principles of this system is its simplicity. When a program gets complicated, people won’t follow it. You should be able to teach people the following concepts in the simplest possible way: “Refer a customer and get commission. At the same time, don’t worry about the commission not being paid because we use up-to-date applications and it’s not hard to know that you refer a customer.” In most of the websites of my collection, there is a section titled ‘Make money with us’. When someone clicks on the link, a section comes up. This section explains the affiliate system and tells the audience, “You can make money by referring a customer”. The audience would open an account. A reference link is instantly created for them. After that, they see a text titled, ‘Introduce your friend’. One of the methods that can be used for the introduction of referral system is writing the customer’s email address. An email is sent to the customer immediately after entering the email address. A person doesn’t need to send the email by himself/herself; the email is directly sent through the website. In the email, it is written, “Your friend (the name of the person is also written) has introduced you to us so you can use our services.” Having known the introducer, the new person opens the link. When the link receiver opens an account in the website, the system notifies the introducer via a message. This is the best way to build trust. From that moment on, a commission is calculated and registered in a referrer’s account in exchange for every purchase a customer makes.