Over the last couple of weeks I’ve had three separate occasions to talk to small business owners about referrals. (The most recent in Brazil for the launch of the Portuguese version of The Referral Engine – Máquina de Indicações)

In each of these sessions I was asked about the best way to keep referral sources motivated and, more specifically, if you should pay for referrals.

My answer in each case was this. I believe that the key to motivating your referral sources is to first understand why they refer.

In a perfect world your referral sources are motivated to refer because they believe in your company and they want to help the person they are referring receive some of the same value that they have already received from your company.  This is what I call a referral for social reasons.

When you offer payment for the act of referring you turn this social act into a financial one. That may be okay in your particular instance as long as a financial reward is the thing that truly motivates your referral sources.

When a referral source is motivated by a true belief in the value of what you have to offer, they will always be a much more potent representative of your brand to their friends, neighbors and colleagues.

Think about this for a moment. If someone was raving to you about a company you should try and then they disclosed that if you were to in fact try that company they would get a cash reward for referring you, would that change how you viewed the information they shared about the company?

During one of my presentations a young woman told a story about a company that she had done business with. She had a very positive experience and over time became a great source of referrals for this company.

The company decided to try to create more referrals and sent her a letter telling her that they would pay her $10 for every referral and all she had to do was upload her entire contact list.

She went on to say that this approach actually turned her off to the point that she was no longer interested in referring business to this company. Her motivation was purely one of the joy of sharing something she found with others that occasionally needed it. This companies’ failure to recognize that not only cost them future referrals it cost them a strong evangelist.

Understanding your client’s referral motivation can be a tricky thing. You have to strike the perfect balance in order to keep your referral sources active, while presenting a logical reason to be so.

If you can create referral messages and campaigns that match the motivations of your most active referral sources and keep the idea of referral generation close at hand it can pay long-term dividends.

The answer to perfect blend of motivation may be as simple as asking your customers.

I once worked with a remodeling contractor that had a long-standing referral policy of paying $1,000 for each referral. In a series of meetings with past clients we learned very quickly that the money was not a motivating factor at all, and, as I suspected, was actually a deterrent to active referral participation.

Remodeling a home is not for the timid and these very happy clients did not refer this contractor lightly. If they told a friend they should use my client’s services they did so emphatically and without reservation, but they did not do it for the money. They did it because wanted to help a friend avoid the headache of choosing the wrong contractor. They certainly did not want their friends to they did it for the money and in some cases asked the contractor to give it the referred friend or donate it to a local charity.

So, we wanted to know what would be a creative way to keep them thinking about my client when it came time to refer. What would be a reward of sorts that they would brag about receiving to their friends?

As it turned out several clients told us that what they really needed more than cash was a carpenter. What they could really get excited about was the use of a carpenter for a day to fix all the little nagging household projects that never seemed to get done, but were really too small to get someone to come out and do.

It’s funny but their “Carpenter for a Day” referral program actually cost the contractor far less to implement, but seemed to strike the perfect chord with their clients. It still allowed them to refer for social reasons, but the payment felt more like a show of appreciation and was something they gladly shared with their friends.

In fact some talked about this little perk as much as they did about the remodeling process.

My belief is that if your first choice in creating a referral program is a straight monetary reward then you probably don’t understand enough about the real value of your products or services or the thing that truly motivates your clients to tell others about you.