With the boom in internet marketing and affiliate programs, it may seem like a good idea to take a concept that works online and use it locally. However, regarding the aspect of compensating people for referring business to you may not be the best idea for your business.

Online, it’s a different story, but right now, I’m focusing on small local businesses. There are several ways to earn referrals without having to come up with cash out of pocket.

If you provide a service, then offer your services (discounted, perhaps) to another business related to your own who’s client base could benefit from what you have to offer. Simply doing an exceptional job at what you’re offering is a good way to get word of mouth going from that business to their clients.

Another way is to have a mutual referral agreement between you and the other business. This could be in the form of a link/banner on each other’s website or a sign in each other’s stores. It could also be in the form of taking advantage of what your business colleague is offering in order to help sell your own product or service. For example, if you offer web design and you network with someone who offers SEO, you could let your clients know that you can create a great website for them and you can send them to the right person to get them to the top of search engines. In the other sense, the person offering SEO can propose to potential clients that they can get them to the top of search engines as soon as they get a site (at which point they would get referred to you). So, as you can see, there is business to be done without having to pay any money.

If you are still considering compensating those who send you business, think about the consequences that you and your business may face. Not legal, but just the effects that would occur if someone were to find out that you’re paying for people to say that what you are offering is recommended. You definitely don’t want bad reviews of your business in Google (maps/local) or on any other site that reviews businesses (i.e. BBB). Also, when business starts picking up (in general, not necessarily from referrals), now you have to start keeping track of who to pay and how much and that’s just extra money out of pocket for you and more time out of your days.

There are several ways to get business without having to pay someone to send it to you. Think about your budget and see what else you could be doing with the money used for paying referees. You could use it to improve your product or service and that, in itself, will help get good word spread about your business.