Evaluating Referral Systems at Your Club
By Casey Conrad
Regardless of what business you’re in, obtaining new customers through referral is by far the best source of new prospects. For one, a referral is pre-sold to a certain point on the company, the product or perhaps even the salesperson. Two, the cost of acquisition from a referral is typically less than any other form of marketing. Three, and perhaps one of the most important, yet overlooked reasons why referral business is so important is that the energy generated as a result of others publicly endorsing your product helps to create a top of mind awareness that most companies can’t afford to buy. For these, and a whole host of other smaller reasons, your club must find and maintain numerous ways to generate member-referral business. In this article, we’ll take a look at the three categories of referrals available to club operators that will help them establish systems for creating “Referral Mania.”
Basically, there are three different categories of club referrals. “Gravy Train Referrals,” which are the ones that happen without any pro-active role on a salesperson’s part; “Point of Sale Referrals,” which are obtained during the new member paperwork process and “On-Going Referrals,” which refers to any other referral obtained as the result of some sort of in-club referral incentive program. Understanding the importance each of these referrals types has in the overall success of a club is the foundation for creating an environment of “Referral Mania.”
When a prospect enters the club and says, “My friend, John Doe, is a member here and I’d like to find out about joining,” a classic “Gravy Train Referral” has just walked through the club doors! I refer to these types of referrals as “Gravy Train,” because in the world of sales these prospects are the “freebies” that make selling club memberships a breeze for even a marginal salesperson. Of course, club operators love to get these types of referrals because they are often “easy” sales but the importance of Gravy Train Referrals goes beyond the actual membership. Specifically, when a club has a high number of Gravy Train Referral sales, one of two things is happening. One, they have an incredible reputation in the community and the word of mouth is so good that people are just walking through the doors every day. Two, and more typically, the club is not pushing the other two types of referrals programs enough, which are more pro-active. Let’s discuss them both.
The first type of pro-active referrals are generated at the Point of Sale (POS), hence their abbreviated name, “POS Referrals.” Any type of program that either elicits or encourages new members to give referrals during the enrollment process is considered a POS Referral. Although there are hundreds of variations, two basic POS Referral programs exist. One, where the salesperson has the new member give the names and contact information of people they would like to refer and the salesperson contacts those individuals and invites them into the club. Typically the new member is given special guest passes or an incentive to provide the names right at the point of sale. Because a salesperson is in control of creating contact with these referral prospects, this type of system is preferable for maximizing new memberships.
A less aggressive way of generating POS referrals is when the new member is given a limited number of guest passes to give to friends and family members. The downside to this system, is the referral becomes somewhat reactive, with the salesperson relying on the new member and the friend to take the initiative for coming in.
Regardless of which type of POS Referral program a club creates, three key components are necessary to ensure success. The first is “value” as to how the member and the referral perceive the program. For instance, if a club is giving away guest passes for POS Referrals, does the pass have a value to it that cannot be obtained with other passes that the club distributes? A specific example of creating value would be a club that normally makes one-day passes available to members but only distributes 10-day passes at the point of sale—no exceptions. Another way that clubs can generate value in the members’ mind as well as the referrals’ mind is by printing a value on the pass. Therefore, if the club truly charges $35 for someone wanting to buy a one-week pass, having this dollar amount displayed on the pass will help to convey value.
The second key component necessary with any POS Referral program is “urgency.” Urgency refers to a state of mind where an individual feels compelled to take action immediately. Of course, it only makes sense that if a club wants to get as many referrals from a new member during the point of sale paperwork process, some level of urgency is necessary. Although there are a number of ways to create urgency with prizes and incentives, perhaps the easiest and least costly way to create urgency is simply to convey to the new member that this program is for “new members” only and then presenting them with the appropriate paperwork for the referral program. Even if some prospects aren’t motivated by such a strategy, the majority of them will comply.
The third key component necessary with any POS Referral program is “scarcity,” meaning there is only a limited number of what is being offered. Obviously, urgency and scarcity go hand in hand because having a limited number of anything always creates urgency in the human mind. For Point of Sale Referrals, creating scarcity is quite simple; limit the number of the passes that any new member obtains. One example of how a club used scarcity to further qualify referrals is by giving the new member one 30-day guest pass, four, 2-week guest passes and five, 1-week guest passes. Although it isn’t 100% accurate, most new members will give the longest guest pass to the friend who is most serious about working out with them and then the 2-week passes to the next most serious friends. Therefore, the law of scarcity used in this example has a dual effect; it magnifies the urgency and gets the new member to almost pre-qualify their referrals. By combining value, urgency and scarcity, your club will greatly enhance the success of its POS Referral Program.
The final type of referral available to a club, which is also pro-active, is called an “On-Going Referral.” An “On-Going Referral” refers to any type of program a club offers that will encourage all members to refer new members. The primary difference here is that this program isn’t exclusive to members during the enrollment process. A traditional type of On-Going Referral program would be offering members a gym bag, attractive club sweat shirt or other gift if they refer a friends who joins. Another common incentive is one-month’s free dues. A more complex on-going referral program could happen over multiple months and have a single grand prize winner. For example, a club might purchase a big screen television worth $1,000 and, at the end of three months, the person who referred the most members who joined wins the TV. Dozens of variations on how to run these types of referral contests can be created. Of course, the benefit of any On-Going Referral program is that, when done properly, a club has hundreds of members simultaneously working on generating referral traffic. As a result, the club literally creates an army of recruiters out of new members.
“Gravy Train Referrals,” “Point of Sale Referrals” and “On-Going Referrals”; they’re all an important indicator of the level of success your club will ultimately have. As we approach the Club Business Entrepreneur Conference in Las Vegas, the key question for your club is, “Do you have systems in place that ensures your salespeople are maximizing both “Point of Sale” and “On-Going Referrals” from your members?” If the answer is, “No,” or if you are looking for new and creative ways to generate referrals from members, be sure and attend the Referral Mania session on Friday, September 9th, from 2-3:30.