Referrals Not Earning Small Firms Commission

Credit where its due - cashing in on the referral economy

Credit where its due - cashing in on the referral economyChris Stening, MD of Easynet Connect argues that the ‘referral’ economy is alive and well, but small businesses are missing out.

In their latest report, Credit where it’s due – cashing in on the referral economy Easynet looked at the value of, and the barriers to, referral schemes in the SME market. The ‘referral’ economy, whereby businesses refer their favourite suppliers to others in return for a small amount of commission, is a natural development of the personal recommendations that businesses make every day. They found that that a staggering 81% of SMEs regularly refer business to others, while failing to earn a single penny in commission for doing so. SMEs make, on average, three recommendations every month, with the average value of the referrals being £7,500 each. This equates to some £270,000 of referred business every year being passed on – with SMEs failing to receive any reward in return. However, with 19% of SMEs never recommending the business of others, some are missing out on this important aspect of business interaction and networking.

The ‘referral’ economy is clearly important and businesses are recognising the networking opportunities it offers. But SMEs often don’t appear to be compensated financially for the vital contribution they make. Whether as a formalised, accredited channel partner or straightforward sales agent, the potential revenue available to businesses that sign up to referral schemes is impressive, as well as opening up new markets for them and being a significant reputation builder. This could make all the difference to an SME’s survival today, and is one of the reasons why Easynet launched their own Sales Agent Referral Scheme in June this year.

Other key findings from the report:

  1. SMEs make an average of three recommendations per month, equating to £22,500 worth of business or £270,000 per year
  2. Smaller businesses, particularly those with 1-4 employees, are least likely to recommend the services of others; with 42% never making recommendations and 44% only making 1-2 a month
  3. 43% of SMEs would not establish a formal commission arrangement with those they recommend due to the available commission being too low or simply not having the time to set one up
  4. 28% of small businesses accept not earning commission because they consider recommendations as a natural part of business, while 17% have not established referral schemes because they consider them too complicated to set up
  5. Larger companies are generally less bothered about earning commission from referrals. 39% of organisations with 50-249 employees and 31% of those with 250+ are happy not earning commission

With so much business being referred by SMEs every week, there are clear revenue-generating and reputation building opportunities for those companies that find a way to monetise this good will. While the traditional sales channel provides many businesses with a consistent, low-touch means of generating new customers, for many businesses, such a formalised process is not practical, can be daunting to set up, and is time-consuming to manage. This view is reflected by the research, with 43% of SMEs surveyed not participating in or establishing referral schemes simply due to a lack of time, or the schemes themselves being too complicated to set up. These SMEs are missing a good revenue opportunity, and the chance to enhance their own reputation, network and potentially sell to new markets.

What are the barriers to successful referral schemes?

Despite SMEs referring an average of £7,500 worth of business with each referral, 43% would not establish a formal commission arrangement with those they recommend due to the available commission being too low or simply not having the time to set one up. 28% of small businesses accept not earning commission because they consider recommendations as a natural part of business, while 17% have not established referral schemes because they consider them too complicated to set up.

Nothing stops 29% of businesses from recommending the good service of others, yet nearly 44% would not recommend good business either because the other supplier could potentially be a competitor of theirs or their perception could actually be wrong. It’s not good for a company’s reputation to recommend a bad supplier!

The research highlights the difficulties faced by many small businesses when trying to formalise commission structures with those businesses they regularly recommend and network with. While some issues – such as a lack of time – are hard to fix, others are more straightforward. This is a clear call-to-action for all businesses who serve SMEs to simplify their referral schemes and ensure the commission they earn is reflective of the effort involved. If they do, they could soon reap the rewards as more business is sent their way.

Money should never be the sole reason for recommending the services of others, but the intangible value that referring a business can bring to a company’s reputation and business contacts is considerable.  If moderate incentives actually encourage more businesses to take the time to refer the good services they enjoy, then the whole of the business world will run more efficiently. Good suppliers will be rewarded with more sales, and those that sing their praises will get a return on their networking as well build their own profile.

For more information please visit: http://www.easynetconnect.net/ and http://www.easynetconnect.net/Home/Sales-Agents.aspx

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