Making Referrals More Than Opportunistic

New 2112 research finds that defined missions and formal structures make referral programs more consistent and valuable to vendors and partners.

By Larry Walsh

No one is a stranger to referrals. Long before the days of social media, people would ask family, friends, and peers for advice on products and services. Indeed, everyone knows someone who “has a guy who knows a guy.” That’s the nature of referrals.

Often, people think of referrals as an influencing medium in the consumer world. Referrals are good for figuring out where to eat, vacation, and shop. Many people don’t typically associate referrals – in the traditional sense – as something of note in the enterprise or B2B world. That’s not to say people in B2B, the technology market, or the channel don’t think referrals happen. They just view referrals as mostly opportunistic.

At least that was the premise here at The 2112 Group when we took on the task of studying B2B referrals in the channel. We wanted to see exactly how referrals work from both the vendor and partner perspectives. We thought perceptions and practices around referrals would follow conventional wisdom – opportunistic and informal.

What we found is extraordinary.

Two-thirds of vendors feel their referral programs are ineffective or only somewhat effective. An equal number don’t believe they get a very worthwhile return on investment from those programs.

Conversely, partners see a lot of value in referrals and vendor referral programs. Almost three-quarters of partners budget against referral as a source of revenue. And the average partner attributes 10% or more of their average revenue to referral compensation.

The “2019 Referral Program Success Factors” report, recently released by 2112, finds that vendors don’t perceive a higher value in referral programs because they don’t approach them with the same level of structure as conventional channel programs. Successful referral programs, our research finds, are those with missions, qualifications, investment, automation, transparency, and equitable rewards.

The underlying question is why partners see high value in referral programs. The answer is largely the same as it is when we’re talking about peer relationships and collaboration. Referrals are a means of satisfying customer needs even when a partner lacks the capabilities and capacity to address specific technology challenges. Partners routinely engage in referrals with peers to offset gaps in their capabilities or to expand capacity.

Vendors, distributors, and master agents corroborate the idea when they tell 2112 that they’re seeing more partners that lack advanced technology skills and capacities turn to referral sales. When they identify an opportunity in software-defined networking, security, business analytics, or cloud computing, partners are increasingly willing to refer that sale to a vendor in exchange for some form of compensation.

The calculus is simple: Partners are using referrals to get “something” out of an identified opportunity rather than getting nothing when the customer slips away to another provider.

The message from this new 2112 research is clear. Vendors can’t afford to give referral programs short shrift. They must treat these initiatives as another route to market, complete with the formal structures that provide partners with the access, processes, and resources they receive in reseller and service programs. If vendors want to get more out of their referral programs, they need to invest. As a result, they could end up with a consistent source of high-quality leads that convert to higher-value sales.

The “2019 Referral Program Success Factors” report is available to 2112 Brainstorm members and for individual purchase through the 2112 Library. For more information about 2112’s referral research or other strategy programs, contact 2112 at info@the2112group.com.

Larry Walsh is the CEO of The 2112 Group, a business strategy and research firm servicing the IT channel community. He’s also the publisher of Channelnomics, the leading source of channel news and trend analysis. Follow Larry on Twitter at @lmwalsh2112 and subscribe to his podcast, Pod2112, on iTunes, Google Play, Spotify, and other leading podcast sources. You can always e-mail Larry directly at lmwalsh@the2112group.com.