MSPs: How to Build a Referral Program

If you don’t know what a referral program is, it’s a way of marketing and promoting your services to new customers through referrals from your existing customers, suppliers, or partners; usually this happens via word-of- mouth. However, you can influence this by setting up a dedicated program to encourage people to spread the word about your business.

Why should you have a referral program? The most obvious answer is to get new customers, but that is a mammoth oversimplification. In the IT support and managed services business, word-of-mouth advertising is always best, because there is a high degree of trust required by the client, and this trust can be immediately inferred through the referral process.  

In addition, referrals (even if they are well-rewarded) are relatively inexpensive, given the quality of the lead. I gave out $5 gift cards for each referral up to a maximum of 10. This meant giving a possible $50 to each of my clients. That sounds expensive, but considering each one of those names is a fully qualified lead that does not need to be convinced of your trustworthiness, you are much further ahead than if you’re relying on cold calling—or “dartboard” marketing, as I like to call it.

So what do you need to start a referral program or campaign?

First, decide if it is going to be a perpetual program or just a campaign. If you are concerned with the expense of the rewards and want to test it first, just do a campaign. If you want to build a perpetual referral engine that continuously feeds qualified leads into the top of your sales and marketing funnel, then create a program. Once you make this decision, here are five things you need to get things rolling:

1.  Happy customers 
   If you’re not making your customers happy, you may have trouble getting referrals. If most of your customers are neutral and below, tailor a campaign to your best customers and save a program for later—until at least 50% of your customers are better than neutral. Use NPS (Net Promoter Score) surveys to quantify how your customers feel about you.
2. Have a worthy incentive for your clients
   There is a certain amount of time it will take and a certain amount of “relationship capital” they are spending.  Your incentive must be able to overcome both of those. If your NPS score is very high, you may not have to offer an incentive.
3. Ensure you have a way to capture and track the referrals
   The easiest way to do this is to have customers email you referrals, but that is very manual. It is better to use an automated tool that handles things for you and integrates with your CRM, if possible.
4. Decide if you are going to pay for duplicate referrals
   It is not uncommon to get the same lead from multiple clients (especially in less dense, rural areas).
5. Set a budget for your program or campaign
   The average cost per lead for IT/technology services is $45. Therefore, as long as you keep it below that, you are within industry norms. You can divide it by two or three ($22.50 and $15.00, respectively) to account for duplicates. If you want to be more scientific about it, work backwards from the LTV (lifetime value) of a customer and figure out a reasonable price per lead.

How to ask for referrals

Once you have designed your program or campaign, you have to actually ask for the referral. Here are some ideas:

1. Direct email campaign (least expensive)
2. Phone campaign (more personal)
3. Direct mail campaign (more formal)
4. Invoice inserts; email or paper (low cost, easy to repeat, low response rate)
5. Quarterly business reviews (face to face, very effective)
6. Email signature (low cost, easy to repeat, low response rate)
7. Any time you create a “happy moment” with the customer
8. When their NPS score goes above 8 for the first time

Then what?

Once you get a lead from a customer, treat it like gold. Like I mentioned earlier, referred leads have most likely already overcome the barrier of trust, which is so pivotal in the IT/MSP business segment. Track your leads in your CRM and categorize them somehow as a referral, so that you can treat them differently.

In conclusion, referrals can be the most cost-effective way to generate leads. It is highly targeted because they are coming from your existing client base. They have high conversion rates because trust is already established, and there is an implied mutual relationship between you, the referrer, and the lead. You already know that word-of-mouth is your greatest source of new clients—leverage that to increase the lead flow into your sales funnel, and build greater revenue.

Eric Anthony is Director of Customer Experience at SolarWinds MSP. Before joining SolarWinds, Eric ran his own managed service provider business for over six years.

You can follow Eric on Twitter^® at @EricAnthonyMSP

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