Creating an enticing referral system?

Hello BHW!

I've been a lurker on the forums for quite some time now, and I'm about to venture back into the online business world. Currently, I've been working on a very sleek and cheap-to -operate data protection/backup service. Although I have tough competition (not locally), I believe I have a unique market with what I'm trying to do. I am trying to maximize the amount of initial customers, and thought a lucrative referral system may be useful. I've seen quite a few referral systems that pay peanuts with people from all over working a ton for them.

The referral system I was thinking of making would pay MONTHLY for each active referral, so as long as the customer is paying the person who referred will get an amount. That amount would be $10.00/month/active referral, with no limit on the amount of people referred. Anyone can use the service I would offer, but small businesses that store sensitive data would be the ideal customer/referred person. If a paying customer refers people, they will have the amount taken off their monthly bills. If they have enough people referred to offset the fee we charge, we pay them!

I've been wondering if this is enticing enough for people and if people would be interested in this. Also, I was wondering if this would be an effective way to actually get sales, as I'm unfortunately fairly shy and lack the persona to make the sale happen. I believe the service I'm going to run will be helpful to those businesses, so I don't think it would be hard for people with those connections to make the sale.

Any advice would be helpful. Also, the business should be completely finished in about a year.

Referral systems are great and can be quite effective when utilized properly. One thing I will caution you on before launching a referral/affiliate program is to be sure the amount you're paying out to affiliates (The referrer's) won't interfere with operational expenses. Because of the industry/niche you're in, if/when you grow in clientel, it's obvious that you're going to need very secure servers that will be able to handle the data, you don't want to put yourself in a prediciment where the amount you're paying out to referrals/affiliates diminishes a good portion of your budget/profit (This will depend on what you're charging clients).

Perhaps you should consider offering a "pay per signup" program where you pay affiliates/referrers a one time commission per signup but increase the amount they earn.

Thank you for the reply and insight EatSleepSEO, it's much appreciated! I have worked out the total operating cost, including the increase of space needed on the servers for new customers. I still believe I will be able to sustain the monthly payout to affiliates and still have a profitable business (as I will only be paying out to the affiliate after the customer they referred has paid). The business costs initially are very high, but once all the hardware and software is completed, the maintenance and operation costs will be fairly low, low enough to have this kind of affiliate payout (at least two server sites (for redundancy), electricity, security, hardware, very fast internet connection for the web server, etc.)

I completely understand the foresight into if it might diminish the budget to operate the business, and in that case I could err on the side of caution and start the payout at a lower amount and increase it later. I really am curious though if a monthly payout would be something people might be interested in. As for the security/professionalism of the site, I have a degree in Computer Science and will be beta testing to the max (client-side encryption and compression with SSL transfer to a second encryption layered server), so hopefully that side of things is good to go.

The main reason I'm trying to avoid a one-time commission or a low amount is that I don't think it's enticing enough to have people actively try to promote. Let's say I could sustain that kind of payout from the get-go, is this enticing enough to generate interest if people are trying to make some extra cash (that keeps coming in)?