Explaining Referrers vs Agents vs Resellers for getting Word of Mouth sales
Word of Mouth has always the holy grail of customer acquisition. It’s what separates companies like Apple who can draw new customers just from their near cult like followers who only buy their products.
At my last startup, Gimmie, we always tried to help companies understand the psychology of their customers so that they could create turn key like rules and triggers to incentivize the right behaviors that might reward customers to obtain word of mouth referrals.
While there is no magic formula, there are several well established ways to get people in your community sell your products and services, essentially rewarding their word of mouth referral.
Referrals are for rewarding your current customers to acquire you new customers (once).
In the past I’ve often had conversations with marketers about driving retention and loyalty, when often what they wanted instead was to acquire new customers.
The difference is similar to an AirBnB guest who has a referral code vs someone with Airline frequent flyer miles.
The person who has a referral code main motivation is to increase her benefits from the platform or company she is already a customer of. In the above example, whenever I invite my friends with my AirBnb referral code I get more benefits from AirBnb (like credits on my next trip).
Once I have completed that task and my friend makes a booking(often times getting rewarded as well), then I obtain my reward.
Now if I don’t need to use AirBnb for any trips will I still refer? Most likely not, as I then lose my incentive. This is why most referral programs are so aggressive to new customers, because for existing ones it becomes increasingly hard to convince them, unless there is some other lever, such as points or rewards or even cash.
Another challenge is, how do I get my friend to make multiple bookings? Thats where referral programs often stop, since I acquired the new customers for AirBnb, I have been rewarded for that work, and I should instead focus on finding new customers.
For getting me to resell to my friend thats where I need to become either an agent or reseller.
Agents are like proxy employees that sell for commission. They sell services and products from a company, just like employees, but lack all the additional perks, often choosing flexible hours and out of office work instead of a more structured salary.
When it comes to word of mouth, agents serve a good purpose because they are trained by the company to sell. Most MLM sellers are agents of that company, sometimes called ‘sales representatives’ or other cute names. In essence, they are rewarded not just for acquiring a new customer for the company, but to drive repeat sales ( for MLM sadly to mainly recruit).
Compared to someone doing a referral, there is a far greater pull for the agent to sell, because of either fixed or variable pay that may be of greater value than just additional value on a platform such as credits.
Agent Networks therefore, can be an extension of a sales force where word of mouth is directly being paid for by the company owning the network.
If however the costs or structure of having direct agents is not desired, there is one other option for companies to consider which would be in creating a reseller program.
Resellers may or may not be working for a company. They could be someone independently selling another companies products, or they could be part of a network competing with other resellers.
When resellers use word of mouth, it’s often times not as controlled as if they were an agent, since resellers have more freedom over what they want to sell.
A reseller for instance, often times will choose to sell multiple products from different companies. Distributors are a classic example, who to maximize profits often choose to resell a few different brands for their market.
Agents on the other hand, such as those in banking, insurance or real estate, typically get locked down and are afraid to cross sell from other agent networks since it is usually not allowed, and there has already been some commitment on their part to get trained and work for that company.
Companies that want to get new sales through resellers, don’t need the reseller to be a customer thus expanding the scope from referrals since non customers can also promote. Unlike agent networks that may require technology or headcount investment to manage, resellers can often work with less direct supervision since they don’t have the same fixed expectations of results that agents do.
Takeaways on finding the best way to get word of mouth
Referrals work well at scale, less so when starting out.
If you want to only acquire a new customer using your existing customers, then creating a referral program is a good way to do that. Types of companies that typically benefit are ecommerce companies who always need cheaper channels for acquisition, and loyalty to ensure repeat purchase. Referral programs get the word out by rewarding your current customers, but keep in mind for companies not called Apple, you may not have the millions of die hard fans or a cult like following yet if you are new company. Therefore, if we use a basic 10% conversion rate (depending on your market this could be substantially higher than your industry average also), that means that out of every 100 visitors to your store, only 10 will become customers.
This means that 10 people can become eligible to refer. Sometimes the number if reduced if a customer can join the program just with an account (and not be a paying customer) but even so conversion for such programs is usually low.
So your word of mouth potential started with 100 people, but ended up with 10.
If we assume that only 1 out of the 10 people actually acquire you a customer, then you are left with a Word of Mouth Conversion of 1% for acquiring a new customer.
Agents can do a good job of spreading sales through their direct word of mouth marketing, but at a high cost
If you wish to expand your sales through having your own channel, then creating a network of outsourced sales agents (think Insurance) helps provide a direct touch and more personalized way to get word of mouth.
Imagine now that of your 100 visitors, anyone can become an agent and get to sell your products.
The only gotcha, is that they might need to receive training, attend a workshop, get all of your direct sales materials, and perhaps invest time to learn the sales process and technology used to track sales.
So let’s assume 10 agents are signed up, per 100 visitors.
And each agent since they are financially committed, almost like an employee, we can assume that 50% of them complete a sale and acquire a customer.
Thats’s 5 new customers acquired.
But, agents are not referrers so they might try to sell to their customers a second time.
If 2 of them do so, that would be an additional 2 sales, meaning the total
Word of mouth Conversion would be 7% for new customers acquired per 100 visitors.
The only problem is that whereas the referral program might have only cost a very small SaaS type investment to setup from a vendor, the agent program to setup and manage could greatly outweigh the benefits of obtaining these 7 new customers. That’s typically why MLM companies using an agent model get products with such high margins, or companies that rely on agent networks like banks and insurance companies tend to be very large companies that can front the bill for marketing and training.
Resellers can obtain both new sales and repeat sales at more manageable costs
For 100 visitors to your site, someone who is interested to resell your products for commission (like affiliates) doesn’t need to be a customer.
Therefore, instead of 10 out of 100 potential sellers, your program could have far more since the signup process is often much lighter than those who wish to be your agent and receive training etc.
So if 20 resellers signup, and lets say 50% of those resellers make a sale, thats 10 new sales. Using the same math from agents, if 50% of the resellers who made a sale get a repeat sale since they earn for each sale (not just the first time like referral) then the total sales per 100 would be 15 .
the Word of mouth Conversion would be 15% for new customers acquired per 100 visitors.
Choose the program that makes the most sense for you, but to fully maximize your community (customers and non customers) consider obtaining resellers.
So while everyone wants to be like Apple and just let the products and company speak for itself (and millions of ads also), there are multiple ways to empower those in your community to acquire you new customers.
One way is leverage Community Commerce that focuses on resellers, but uses some of the same success factors used in referral and agent programs to maximize the opportunities for more people to spread commerce through word of mouth and to earn side income for their efforts.
