Question

Topic: Other

What Is An Appropriate Referral Fee?

Posted by Anonymous on 125 Points
I own a small business, and I have limited bandwidth. I referred some work that I couldn't handle to a colleague. It was a $10k job. I received nothing from the colleague. A week later, the same client wanted more work, which my colleague was only too happy to do. Now the gross value of the two jobs is $20k.

1. What is fair an appropriate compensation (if any) for referring this work to my colleague? and,

2. How should we structure the arrangement moving forward, in case this happens again?
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RESPONSES

  • Posted by k.sapen on Accepted
    I think 10 - 15% per referral would be fair to ask.
  • Posted by thecynicalmarketer on Accepted
    5 to 10% is pretty standard depending on how much work you did to woe the business and make sure it was won. If you just gave out a phone number, then it could be on the low side. If you played a significant role in closing the sale, then it should be closer to 10%, especially if you are keeping the client happy and driving additional business.

    Your colleague may not be aware of this and may instead feel his obligation will be repaid when he returns the favor by driving an equal amount of business to you. It is usually best to discuss these types of arrangements before the issue becomes a potential conflict.

    Best of Luck, JohnnyB.
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  • Posted on Accepted
    It really depends on your relationship with the other party (to whom you referred the client) and how much effort you put into this. If you nurtured the client for months that's going to be different than if you simply answered the phone and gave his/her contact information.

    As for the specific amount, if there was no prior arrangement, then perhaps the consultant who got the job didn't budget for a referral when he/she quoted the fee. If he/she is like most, something between 10% and 20% would probably be appropriate. After all, most of us spend at least 10-20% of our time trawling for new business, right?

    You're smart to have this become explicit in the future. And, BTW, the second job was a kind of "reward" for doing a good job on the first one. You don't get the same percentage referral fee for follow-on jobs as you do for the initial one. Another reason to be sure to get the fee for the first one.

    I always like to pay hefty referral fees when appropriate, because (a) it shows that I really do appreciate the favor, and (b) I want to encourage more referrals in the future, and I want the referring party to think of me first when the next situation arises.
  • Posted by michael on Member
    Fair is whatever you negotiate. Since you didn't decide upfront you're in a tough spot.

    The advantage you have is that you probably know his profit margin. Don't expect to take it all, though.

    My suggestion is that you subcontract, not allow him to work directly with your client. You need to control even the business that is too large for you to handle.

    Michael

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