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The Ultimate Guide to Referral Partnerships

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Referral partnerships offer a low-cost, high-impact way for businesses to expand their reach and attract new customers.

When done correctly they can be a force multiplier for your business offering an effective way to increase revenue, and also lead to customers that have higher overall lifetime value that directly sourced customers.

In fact, according to a study conducted by Wharton School for Business, shows that referred customers have a 16% higher lifetime value than average customers.

However, referral partnerships are also difficult to set up and maintain, requiring ongoing effort and attention in order to be successful.

In this ultimate guide, we will break down the ins and outs of creating an impactful referral program covering what referral partnerships are, the critical components of a successful referral partnership program, in addition to outlining some of the mistakes that are commonly made in referral programs and how you can avoid them when building out your own program.

Whether you’re starting from scratch or looking to reinvigorate an existing referral program, this guide is for you. So, let’s get started and learn how referral partnerships can help take your business to the next level.

How do referral partnerships differ from resell partnerships and affiliate partnerships?

To better understand referral partnerships, it’s important to distinguish them from other types of partnerships, such as reseller and affiliate partnerships.

Resell partnerships typically involve a company selling your product or service as their own, adding a margin to the price, and handling the marketing and sales process. In contrast, affiliate partnerships involve a company or individual promoting your business through content, with a link directing people to your website. Affiliates typically do not have a direct relationship with the customer and may send a large volume of leads with low conversion rates.

Referral partnerships, on the other hand, rely on word-of-mouth recommendations to drive leads and new business. Referral partners typically have an established relationship with the customer they are referring , which adds credibility to the referral. Unlike affiliate partnerships, referral partnerships typically result in a one-time referral commission paid to the partner for any business generated.

By understanding the differences between these types of partnerships, you can choose the one that is best suited for your business needs and goals. In this guide, we’ll focus on how to build and maintain successful referral partnerships that can help drive growth and increase revenue for your business.

Referral Partnerships

Affiliate Partnerships

Reseller Partnerships

Low number of leads, high quality, high conversion rates.

High number of leads, low quality, low conversion rates.

Medium number of leads, medium quality, medium conversion rates

Promote your product through word of mouth, little investment in marketing of your product.

Market your product through content, and links, sending people to your website.

High investment in marketing your product, significant dollars spent on going to market.

Own customer relationship

Don’t own customer relationship

Own customer relationship

One time commission payment for referrals closed

One time commission payment for referrals closed.

Margin, baked into the price of the product.

Step 1: Define your referral program

The first step of creating an effective referral program is to firstly outline what the program will look like.

Although many referral programs make the mistake of recruiting partners first and then defining what the program will look like, this is in fact the wrong way to do it.

As with anything in partnerships, you only get one shot to impress partners, and so by not having a defined partner program, it can lead to frustrated partners from the outset, who will likely not refer business, and may even stop being a referral partner.

There are a few things to figure out prior to recruiting referral partners.

Determining a commission structure

Referral partnerships typically operate off of a one-time commission payment for every referral sent over.

This one-time fee is important to get right as you want to find the right commission payment that will interest the partner enough to send leads your way, but also not have a negative impact on the cost of acquiring new customers.

If you think about the typical customer lifecycle of a new customer, let’s imagine you receive a lead from a referral partner, which closes. You will then be paying the referral partner a %, plus in most cases the sales team a percentage on every deal that closes.

This double payment can impact your cost of acquiring a customer.

There is not a “set” amount to pay a referral partner from a commission perspective, with some partner programs.

From an industry standpoint, the % given to referral partners differs, with some partners paying one-off commission payments from 5-25% of year one revenue for any referral leads that convert into new business.

Other companies offer a $ fee for warm leads, and then a percentage for any of these leads that convert into paying customers.

The only caveat to the above that is often seen in the market is if you have agencies as partners.

Typically, a one-off commission payment is not attractive to agencies who typically are more interested in building services around your product which they can then make additional money on. When partnering with certain partners, don’t be surprised if they are more interested in the services they can provide around your offering more so than a one-off referral payment.


VP of Partnerships at Lead Forensics

Agencies typically want a % of the recurring revenue of the customer for every referral sent and are unlikely to be swayed by a one-off payment or % of year one revenue.

Another thing to think through is ongoing or recurring payments to referral partners.

“Some partners may ask for payments on every renewal, and for most companies, this isn’t possible,” says Chris Murray from Lead Forensics.

“We only pay on initial contract length, be it 1/2/3 years, after this, payments stop,” he adds. “The reason we do this is because the partner is not involved in securing the renewal, this is led by our team, so there is no reason to pay them out on the second contract.”

Where you have a referral partner who isn’t involved in the customer relationship at any point up to renewal, there is typically no reason to comp them past the first contract amount.

When setting a referral commission %, work with your internal teams in both finance and sales to reach an equitable solution.

Create guidelines around your referral partner program

Once you’ve established a commission structure for your referral program, the next step is to create programmatic guidelines that clearly outline the program’s rules and any restrictions that may apply to referral partners. 

The first step in creating these guidelines is to define the process for submitting referrals.

Most programs require referral partners to submit a referral form that’s integrated into your CRM.

To ensure effective communication with your referral partners, you should establish a process for updating them on their leads.

This could include informing them when a lead has been accepted, providing updates on the status of the sales process, and giving them an estimated payout date.

As a partner manager, you’ll receive an alert when a referral is submitted, allowing you to approve or reject the referral. It’s important to provide clarity around when referral partners will be paid out for closed referrals and how payments will be made.

Restrictions are another important consideration when setting up your referral program. You may want to consider placing a time restriction on referrals, such as setting an expiry date for leads. 

This will help prevent leads from sitting in your CRM for an extended period of time and ensure that you’re working with up-to-date information.

Announce the referral program to your organization

The final pre-launch step that needs to be addressed prior to going out and recruiting your first referral partners is to announce the referral program to your organization.

Informing the entire organization about the program before its launch ensures that the sales team is aware of this new source of leads and understands how to collaborate with referral partners for closing leads.

In some situations, it may be beneficial for the referring partner to participate in the initial demo call. Therefore, it is crucial to help sales teams coordinate with their partners to provide a smooth experience for prospective customers.

Alternatively, you may have a lead registration form where the referral partner submits vital information about the prospect before the call. In this case, your sales team should know how to access this information before conducting a demo call.

Announcing the referral program and its associated logistics before the launch is critical to avoid confusion and possible frustration for partners.

Step 2: Referral partner recruitment

You have your program prepped and ready, and the logistics above have been completed, the next step is to get some actual partners into your program.

An important first step is to build out an ideal referral partner profile, which outlines the core attributes that make up your ideal referral partners.

Who makes a good referral partner?

One effective approach to identifying your ideal referral partner is to search for companies that share a similar customer profile as yours without being a direct competitor.

Jay McBain, Chief Analyst at Canalys, describes this concept as capturing the “sphere of influence” surrounding your customer. This refers to the organizations, individuals, and media that your ideal customer engages with, which can become potential partners to help drive more business for you.

To illustrate this idea, let’s consider an example:

Suppose you have developed a CRM software specifically designed for commercial real estate agents.

To identify suitable referral partners for your business, consider the end customer, in this case, real estate agents, and identify the other entities they interact with and trust.

Potential referral partners in this scenario might include marketing agencies specializing in real estate, consultants offering courses on improving real estate agent skills, or real estate associations where your ideal customer is a member.

These partners would be advantageous because they target the same customers without offering competing software products.

Another excellent source for potential referral partners is within your existing customer base. 

Returning to the previous example where you provide a CRM solution for real estate agents, consider that these agents typically interact with other real estate agents within the same industry. 

If your current customers find value in your product, they are likely to share their positive experiences with their peers. This makes them promising referral partners to recruit, especially when incentivized with a referral payment.

How to reach out to referral partners

Armed with your list of potential partners, the next step is to initiate contact and gauge their interest in a partnership.

To do this, research their companies using platforms like LinkedIn, and try to determine who is most likely responsible for managing partnerships within their organization.

For larger companies with dedicated partnership teams, contacting that specific department would be the most logical approach. However, in the case of smaller companies or individual consultants, the founder or CEO may be the appropriate contact.

Once you’ve identified the right person at the organization, approach them in a similar manner to how you would prospect customers, ultimately aiming to secure a pitch call.

Utilize various outreach methods, such as LinkedIn messaging, email (sourcing their contact information from tools like ZoomInfo or Apollo), or cold calling, to capture their attention and schedule an initial call.

How to pitch to a referral partners

By utilizing the information provided above, you should be able to determine the types of partners best suited for your partner program and get them on an initial pitch call.

Even though these partners may appear to be perfect fits on paper, it remains necessary to demonstrate the value of becoming a referral partner.

During your initial call with potential partners, focus on presenting the value your partnership offers. This value statement may vary depending on the type of referral partner, but instead of emphasizing your product and its features, your goal should be to convince the prospective partner of the benefits your product offers to their customer base, as well as the advantages they will gain from being a referral partner.

 These benefits can vary, ranging from monetary compensation, the enhanced experience your solution provides to their customers, or even the potential co-marketing opportunities resulting from your partnership (in many cases, partner programs will feature a public-facing directory listing referral partners, which can lead to passive lead generation for companies).

Understanding your partner, conducting thorough research, and leading with value is essential for successfully convincing potential partners to join your program. Additionally, by demonstrating how your partnership will benefit both their customers and their own business, you can build a strong foundation for a mutually advantageous relationship

Step 3: Activate and enable your referral partners

Once you have established your referral program and signed up a list of suitable referral partners, the next step is to provide consistent training and enablement to ensure your product stays top-of-mind and your partners send you qualified leads.

It’s important to remember that your referral partners often have their own businesses, products, and services to promote, which means your product may not always be a priority for them.

As a partner manager, it’s your responsibility to ensure that your solution is always on their radar so that they think of you first when there is a need for your product.

A critical aspect of referral partner enablement is to ensure that they understand your target customer, the pain points you solve, and how you solve them. 

In order to increase this understanding, give your referral partners (and if applicable their sales teams) with battlecards, slide decks and other relevant marketing materials to help them sell your solution.

This understanding will increase the likelihood of them recognizing opportunities that would be a good fit for your solution.

Another critical factor in enabling your referral partners is to provide them with regular updates. 

By remaining in regular contact, whether through calls or a scalable methods such as email, you can ensure that they are aware of your solution and more likely to recognize leads that might be a good fit.

A good tactic to drive scalable referral partner communication is to create a partner newslterre which is a regular update sent to your referral partners, which perhaps includes things like customer case studies and product updates, all with the intention of your solution staying top of mind with them.

Step 4: Track and evaluate your referral partner program

Once your program has launched, there is nothing else to do but sit back and watch the leads roll in.

This is far from the truth.

You should regard your referral program as something that is iterative and made to be changed.

There are so many different factors that you need to look at once launching a referral partner program that need to be looked at iterated on regularly.

The main metrics that you are going to want to attract include:

Leads generated

While revenue generated is an important metric to track in your referral partner program, the number of leads generated is also a key indicator of success.

Tracking the number of leads generated provides insight into the overall pipeline being built by your referral partners. It also allows you to identify any discrepancies between the number of leads generated and the number that have closed.

If you notice a high number of leads coming in but not many closing, it may be time to re-educate your partners on the value proposition of your tool. This can help ensure they are sending over more qualified leads, ultimately driving greater revenue for your program

Revenue generated

As a revenue-generating role, it’s important to track the overall revenue generated by your partnership program. However, it’s also beneficial to take a closer look at the types of partners that are contributing the most revenue.

By diving deeper, you may identify a specific type of referral partner that is performing particularly well in your program. This insight can inform your recruitment efforts, allowing you to focus on attracting more of this type of partner to drive even greater revenue for your program.

New applications to the partner program

As your referral partner program gains traction, you will likely receive an increasing number of applications from individuals and companies seeking to join your program.

This influx of new applications is a positive sign that your referral program is gaining recognition in the market. It also means that you can spend less time actively recruiting new partners and instead focus on activating the ones that already exist.

Inactive partners

The 80/20 rule, where 80% of your revenue comes from 20% of your partners, is common in most partner programs. However, it doesn’t have to be that way.

By keeping a close eye on the partners who haven’t sent any leads, you can develop a more intensive enablement campaign that includes calls and emails to reinvigorate them and encourage them to send more business your way. If successful, this can help shift the 80/20 rule to a 60/40 split, resulting in a significant increase in revenue for your partner program.

Bottom Line About Referral Partners

In conclusion, referral partner programs can be a highly effective way to generate revenue for your partner program. However, success requires significant upfront effort, including establishing a compelling commission structure, creating the program, and educating your internal teams on the new partnership motion.

Additionally, recruiting the right type of referral partner, effectively pitching and enabling them, and continuously evaluating and iterating on the program are critical for long-term success.

When done well, referral partner programs can be a consistent revenue-producing part of your business. By following the key learnings outlined in this guide, you can build a robust referral program that will help your business expand its reach and attract new customers. Keep in mind that building a successful referral program is an ongoing process that requires ongoing effort and attention, but the rewards can be significant.

If you have enjoyed the content contained in this post, check out the Allbound blog for more tactical partnership content, additionally tune into the “Channel Partner Podcast” to hear from partnership experts, who have built successful programs.

Ali Spiric
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