Prepaid Referral Bonus - A Simple Way to Convert One Customer into Many

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With so many competing businesses and service providers, every business and hence every entrepreneur is struggling in making “that one more sale”. All of us are trying our best by giving discounts, commissions, advertising, marketing, networking, and making almost every possible effort to make more sales. 

While doing all this, we come across a very typical group of customers – prospective customers/ leads who come to us for products and services and have little or no budget to pay for it. We don’t know what to do with these leads, should we give a bigger discount to make it affordable to them or should we let them go to our competitors?

By giving a bigger discount, aren’t we undervaluing our product/ service and hurting future pricing with these customers and their future referrals? By letting them simply go to our competitor next door, aren’t we just handing more business to the competition?

There should be some way out to this situation, where is that happy medium, where we both the customer by getting the product/ service for an affordable price and the client by making an extra sale (or possibly many…keep reading,) can be happy in such situation…

Yes, let me tell you what worked for me - A prepaid referral bonus. Basically, a client has an option to pay for his services in a combination of cash and referral bonus.

Here's how it works, if your client is short on cash or for any reason wants to pay in a combination, they may choose to pay for the services in a combination of cash and earning referral bonus with your firm. Let's say client’s project/ services are $1,000 worth of services from your firm, client pays a fraction $500 (in this case) in cash and for the rest $500 the client promises to earn that fraction as a referral bonus which means @ 10% (choose your own % or cash bonus) referral bonus, the client promises to refer a total sum of at least $5,000 business to your firm in next six months, if not then pay cash at the end of 6 months. Simple.

As simple as it is, it's certainly a bit of extra work on bookkeeping, keeping a track of these accounts, and following up, but for the accounts that it works it multiplies the $$$ and clients take it very positively as they see it as a prepaid referral bonus.

Now, the last piece of advice, make sure to document a simple statement of understanding/ agreement to keep the transaction fair and enforceable. Add a clause in your service agreement, something like:

Estimated Cost & Payment Arrangement: US$1,000 only – To be paid in full on or before MM/DD/YY. The $1,000 will be paid in form of a combination of cash, and/or referrals for business, as agreed later in the agreement.

Mr. XYZ of ABCD Inc. hereby agrees to pay the project cost of $1,000 in the following payment structure:

Mobilization/ Retainer Installment

Give some timeline, dates etc for the project start and amount due.

$500.00

Final Installment - Referral/ Cash:             The referral bonus will be calculated at 10% (set your own %) of the project revenue resulting from the referral. For example: a $1,000 project closed resulting from a referral will earn $100 bonus, and a $500 project closed resulting from a referral will earn a $50 bonus.

 Mr. XYZ agrees to refer a sum total of equal or more than $5,000 business to (name of your firm) in order to earn the $500 (10% of $5,000) to pay of the $500 towards the project in agreement. Bonus earned over or under $500 will be paid back to Mr. XYZ or Name of your firm as applicable.

$500.00

Benefits to you:
  • Instant sale
  • Full amount sale with no discounts or loss
  • More business
  • Satisfied customers

Benefits to your clients:

  • NO (minimal) upfront cost
  • Instant and cost effective solution/ service/ product to satisfy their needs
  • 0% APR for the term (if they couldn’t refer business they settle the account on the agreed date)

This is how you multiply one customer into many and also help some fellow entrepreneurs and businesses. Good luck and don’t forget my cut ;-)

Devesh Dwivedi is a successful Management Consultant, Entrepreneur, with a diverse professional background, consulted and worked for a wide range of businesses from start-ups to Fortune 50. One of the all time Top Experts in Small Business & Startup category on Linkedin and an open networker available to help entrepreneurs and businesses. For more information please visit www.idea2inception.com

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