Building a Referral Partner Channel: Step 4 – How to Incentivize Referral Partners

By Trisha Winter

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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: