You’ll be receiving each chapter via email over the next few weeks. Keep an eye out for Chapter 5 in your next email from BOSS.
Table of Contents (for previous chapters)
Section 2 – Building Powerful Referral Alliances
Chapter 4 – Tap Into More Markets with Less Marketing Money (Forge Business Referral Alliances)
There are businesses out there right now who are in contact with your ideal prospect. Companies that have spent a lot of marketing dollars building up that relationship. You can leverage their contacts by developing an alliance with them which we call a host-beneficiary relationship.
The Business Chain
The first step is to figure out what other businesses are in your “business chain”.
Let’s say your business is a fitness centre. Think of your health club as one link in a chain. Now what other links might there be – what other products or services (that you don’t offer) would your clientele be interested in?
Your clients may very well want athletic wear and proper shoes. Doctors might have patients that they recommend get into better shape. Those are links that come before they get to your club. They may want to head for a relaxing massage, a spa, or maybe a health-conscious restaurant after they visit you – these links come after you in your business chain.
You as the Beneficiary
When you’re getting in touch with the other links in the chain you’re going to want to show them that you’re worth partnering up with. In the health club example you can offer potential partners a free pass for a month, with a discounted pass for the rest of the year if an alliance is formed.
Your approach is this – tell the CEO or owner of that potential company that you want to do a deal that will offer the chance to make an extra $10,000, $20,000, $30,000 a year (whatever amount you think is applicable) and they won’t have to risk any sort of investment at all. Business owners are going to have a hard time saying no to at least listening to your proposal.
Once you have their attention, hit them up with the following points:
- Your product or service doesn’t compete with their product or service (it may even complement their offerings).
- They don’t really have to do anything. If they do care to become more active in the promotion, all the better.
- This proposal will in no way risk their current profits. It only stands the chance of adding to their profits.
- You will create and pay for all the marketing materials (you can offer to let them have approval on the materials). If they want to help pay for the costs then you can offer them a bigger slice of the profits.
- You’ll indemnify their company and they will be held harmless (if there’s ever any problem with your product or service you’re promising that you’ll fix things and that their company won’t be held responsible). You’ll also guarantee every item or service that you sell.
- The host company can have all of the orders routed through them for verification.
All of these points take away reasons for the other company to say “no” and show how much confidence you have in the venture.
If possible, make projections. Tell the host that if your projections are correct (“if my projections are correct” is a good phrase to use) then you can expect to be handing them a check for $20,000 six months from that point.
If this is going to become an ongoing situation, get them thinking about what they can do with that extra $40,000 a year. This makes the money more concrete, makes it part of their business plans, and now they’ll have a harder time imagining their business without the money that will come from your deal.
Discuss all the things they could do – hire on a new person, get updated equipment or expand their location, or run more ads on television – make the possibilities concrete.
Also try to build in some kind of automatic deal renewal that triggers when your partner receives X amount of money. That way your partner won’t be able to shake you off to set up a similar deal of their own or go to one of your competitors for a similar style of deal. If you’re the benefactor of the referrals then you want the relationship with the host company to be exclusive.
Below is an email campaign an insurance broker sent to accounting firms.
You as the Host
You can also reverse the situation – you act as a host company promoting other people’s businesses in exchange for a percentage of the profits.
In this case you want to try to get a bigger slice of the residual pie. Offer to pay a quarter or half of upfront costs in exchange for a similar split of residual profits.
This is still a tremendous deal for the company you’ll be promoting because they get a boost in their clientele with A-list targeted clients (who are much more likely to convert) for a fraction of the cost of traditional advertising.
Now, with every new client you bring in you not only have the traditional fees you would have made, you also have additional revenue streams coming from the same client. It’s like gaining two (or more) clients for every one actual client that you land. The more benefit deals you have in place, the more revenue streams.
Your clients are now worth more to you. You can now afford more marketing to bring in more of these new beefed-up clients.
If you are the referring company (the host) you’ll want to avoid exclusivity contract stipulations. You’ll have more bargaining power if you’re able to end the deal and go to the beneficiary’s competition or if you’re not locked into a perpetually renewing contract.
Make it worthwhile for your customers and clients
None of these revenue streams are going to work however if the special promoted deals aren’t all that special.
Your customers have to feel like you really negotiated one heck of a deal for them.
How to Split the Profits
Make sure that the profit split is in writing.
There is no hard-and-fast rule in how to split the profits; it will depend on the costs of the marketing and on the particular businesses involved.
If you’re handling all of the marketing costs then make sure that these costs come off of the top.
It’s possible that you may be in a situation where you offer all of the profits to the host company because you intend to make your own money off of further residual sales from the new returning customers that the deal will provide for you.
The percentages can be based on overall sales, or perhaps you pay the host a certain amount for every referral that makes contact with you. (In this case you’re rewarding the referrals and not actual conversions into paying customers – just like with your clients’ referrals it’s up to you to convert, not the other business.)
It could be a fixed fee for doing the promotion.
Whatever the split remember that you’re paying a very small fee for access to a database of prospects and clients that the host company has dedicated substantial time and money building up.
Countering the Two Main Objections
Worry #1 – The company you contact is worried you’re not going to honour your part of the deal.
One solution is to let them handle all of the money, so that they pay you your cut.
Another is to set up a joint account at a bank that acts as escrow. The account can be set to automatically transfer the proper percentage of every earned dollar to that company’s own account.
Worry #2 – You’ll sell their client list to outside parties.
Observing the Australian Privacy Act the promotion should be via their marketing system and you shouldn’t be expecting to get a list of their contact information to import into your marketing database.
Validation Makes It Easier to Create More Deals
The first of these deals you make, whether you’re the beneficiary or the referral company, is a test run. Make sure you document everything you can – the profits, the costs, how much each company benefitted, and so on.
This way you have documented validation of the idea so that when you approach the next company with such a deal you’ll be able to point at your documentation and prove that such a relationship benefits everybody.