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How much should I pay?
He also wants 2nd tier commission like if he refers a client (we'll call that person #2) and then one of 'their' clients (#3) buys services from me.
That means I would have to pay #1 and potentially #2 for the same sale to #3. What an accounting headache.
How much should I pay to #1 for such a sale?
Thanks in advance.
Because I work alone and I am so busy I have had to reject about 10 jobs worth in total about £15K during the last three weeks. It kills me to drop these without making anything :(
If that person is bringing you new clients then I would first figure out how much each new client is worth over a certain period of time. Then if you decide to pay one-time referral fee you have some idea of how much each new client is worth.
Every business model is different and everyone has different costs--including rent, electricity, internet access, phone, etc.. So, it's difficult to put a certain amount of how much you should pay.
I would add as a point of reference in the consulting/agency world the standard referral fee or agency discount is 10 - 15%, but that is a really rough guide. There are many more factors that can come into play.
Most of my business is referral business with the understanding that I give as good as I get, which means they give me referrals and I do the same for them.
I belong to a business referral group called BNI, which has chapters all over the world in every city. You can learn more at www.bni.com
Now for people who will give me business and I can't give them referrals, then I use a tiered system of payment. In other words I grade the business they send me.
If they refer someone who is basically a closed sale, meaning I show up with a contract and collect a deposit and this happens all the time then I know this person is doing true referral business and is doing the pre-selling. I will give such a person 15%
If the person gives me leads, but only some of them pan out and I have to do all the sales work then I might only pay 10% If they give me the name and number of someone who basically takes my call because I dropped their name, but I have to do all the sales work then I will probably only pay 5% (or less).
I make it clear that I pay referral fees not for warm names and numbers where I do all the sales work, but for smoking hot leads that are already sold on me and my work before I walk in the door.
After all I figure I can generate plently of warm leads by dropping some postcards in the mail or putting an ad in the Chamber of Commerce newsletter. But a person who can deliver me an excited client, who can't wait to do business with ME and is ready to sign the contract and pay me the deposit that is something special and something I expect true referral partners to do.
Fortune Hunter
