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What is a fair Commission or Referral fee?

     
6:17 pm on Sep 20, 2002 (gmt 0)

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Hi everyone!

Our agency has been working hard to break into the huge medical market here in our area for both web design and SEO. Our last client was from a referral from a guy who has about 15-20 years experience in the medical community here. He used to work at the local hospital doing IT work and now has a computer business w/ 80% of his clients in the medical field.

We want to pay him a referral fee for sending us qualified leads. He'll actually talk to the doctors (who listen to him) and then give us the name/number so we can follow up.

What is that worth - 5% or 10%? We've paid commissions in the past to freelancers, etc...but they always do some kind of work - getting copy, providing artwork, etc. I just don't know what the "going rate" is.

Thanks for your help!

7:53 pm on Sept 20, 2002 (gmt 0)

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10% sounds good to me, if the contracts are large enough to make it worth his time. Unless they are super-large sites, %5 might be too little.
8:14 pm on Sept 20, 2002 (gmt 0)

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I would guess 10% would be reasonable. It doesn't seem like he is doing a lot in the way of selling for you. Does he do much more than just pass along names? If he were to be closing the sales and then turning them to you for the actual contract 20% would probably be a good starting point.
9:22 pm on Sept 20, 2002 (gmt 0)

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Hmm...The 10% is really kind-of a surprize. I mean, he'll essentially be asking about what they are doing online and if they are happy with it. Then mention that he's seen our work and has referred us to some of his other clients who are going gang busters online now. If the doctor seems interested, he'll pass along his name to us and we do all the actual work.

On a $10K project is $1,000 not too much to pay for that kind of referral (considering that's exactly what we get w/ regular "word of mouth" referrals anyway for FREE)?

If that's the going rate - that's cool. (I may go into the "referral" business!) :) Has anyone actually paid 10% for a referral?

Thanks for the feedback!

ish

10:18 pm on Sept 20, 2002 (gmt 0)

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I personally think 15% is nearer the mark
3:22 am on Sept 21, 2002 (gmt 0)

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Agreed, it does depend on the amount of involvment.

If you are trying to break into the medical market, this sounds like the most efficient way. Commissions can be higher, and first jobs can be used as loss-leaders, in order to get doctors talking about your company and referring for free.

Once the snowball is rolling, you won't need the commissions anymore.

7:23 am on Sept 21, 2002 (gmt 0)

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10% seems like a bedrock minimum to me. You don't need to do the work for anybody who brings you a client. It shouldn't make the slightest difference what you pay, what should matter is how much you get paid.
7:29 am on Sept 21, 2002 (gmt 0)

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I think it depends on many things.

I have done affiliate programs that pay anywhere from 5% to 75%.

If you won't get the client without him - pay him a generous amount.

I would gladly pay people 50% commission on my profit if that is a new customer I would never get on my own.

Depends a lot on your profit margin and many things.

7:46 am on Sept 21, 2002 (gmt 0)

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You also have to consider whether it'll be on only the original fee or residuals on site maintenance and updates. It sounds like it'll be on the original contract only, so the income that comes from that client after the initial site is done is commission free. In the long run 10% of a 10K job will be a fraction of that considering long term revenue from the client. Plus, consider the possibilities of referrals through long term clients afterward.

His referral is actually worth much more if he can get his foot in the door where you can't. It's much more effective than sending out random mailings or other cold-call types of marketing. He's giving you credibility by the referral. Pay him nicely.

6:02 pm on Sept 21, 2002 (gmt 0)

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I think 10% should be the minimum here, RaraAvis. If you can afford to pay more, 12-15% would be ok too. The guy has 15-20 years experience as you say and should not be compared to the freelancers who do some additional work for you.

If this guy can provide you some good clients, (which it seems he can with his experience in the medical line) you should be generous in paying the referral fees.

Just make sure though, as Marcia said, that you pay only for the original fees and not the residual fees.

Keep this guy happy and you would see huge advantages for you in the medical market - which you have been working hard to break into.

If you still find it difficult to pay $1000 from $10 K, you can even consider raising your $10K pricing to $11K and pay that guy $1000, you get your complete $10K this way.

Don't think it in terms of what you'll be paying him but in terms of what you'll be getting and it'll be easier for you to decide.

 

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