Referrals - should you pay for them?

[Walmsleyv]

Hi,

I have an old colleague who now has his own Sales Consultancy firm. He says that he has lots of contacts who would require my (marketing) services. He wants to meet up next week to discuss it and put in place a 'Commercial Agreement'.

So, my question is - if he wants some kind of payment for giving me referrals, how much should that be, and how should it work? I provide marketing services, usually on an ongoing, monthly basis to clients. So don't really want to be giving him 10% of the income from that customer each month. Should I give him a lump sum for each referral and be done with it? And if so, how much/

And should I even enter into any kind of 'Commercial Agreement'? I don't 100% trust this guy anyway - I'm sure the referrals will be good enough, but I just have a feeling that he'll try to do very well for himself out of this situation.

I'm quite new to paying for referrals, so any advice would be great!

[directmarketingadvice]

Hi,

I have an old colleague who now has his own Sales Consultancy firm. He says that he has lots of contacts who would require my (marketing) services. He wants to meet up next week to discuss it and put in place a 'Commercial Agreement'.

So, my question is - if he wants some kind of payment for giving me referrals, how much should that be

It should be an amount you're willing to pay and an amount he's willing to accept.


I provide marketing services, usually on an ongoing, monthly basis to clients. So don't really want to be giving him 10% of the income from that customer each month. Should I give him a lump sum for each referral and be done with it? And if so, how much/

See above.

And should I even enter into any kind of 'Commercial Agreement'? I don't 100% trust this guy anyway - I'm sure the referrals will be good enough, but I just have a feeling that he'll try to do very well for himself out of this situation.

And what are you in business for?

Steve

[robsoo]

He may be looking for a reciprical agreement, i.e. he recommends you and you recommend him. If you are paying for referals, I would arrange a trial period first, so you can assured the quality of lead is good enough to warrant payment. Then, perhaps work out how much an average new client is worth to you and pay a fee based on this. Hope this helps.

[Scootek]

I have always done it be mutually beneficial so that incentive/motivation remains.

You could;



Refer him leads, if you think you would be able to find prospects for him.
Pay him based on a percentage of each sale value.
Pay set price per referral regardless of the value of the sale.

[UKD]

We have tried referrals in the past, and it can work out to be a very expensive way to generate business; although this depends on your ROI - and the price and profit margin of your offerings.

I remember a company trying to sell us 'second-hand' referrals; I.E: after they had already canvassed to them and those that were not interested would be passed to us.

When we looked into it, the company was paying around £2.80 a referral on the first level, and wanted to sell them on to us (after using them), to which we politely declined, but it can definitely work, and such associations cannot always be purchased, and can lead, indirectly, to unique revenue streams.

[redblu graphics]

I would thrash out a deal that was agreeable to both parties and then trial it for a set period. Review at the end of that period and refine the terms if successful or walk away.

Good Luck

[toastking]

I would recommend offering something along the lines of 10% first month, then 5% second month, 2% the next then end with 1% the next. This is without any founding based on how this would actually work, as you might find that giving him 10% for the first month would be plenty for him to keep recommending you.

[re8976]

buying referrals is no use unless you can compete for their business.

you could end up with the same effect as advertising in the wrong place..

If this is something you can achieve, suggest a tiered level of payment based on conversion to sale

2% 1-5
5% 5-10
etc

[MQ57]

Be careful that this 'commercial agreement' does not obligate you to anything.

I would be tempted (as he's the one making the moves) to say your not convinced its a way forward but would be happy to give it, say, a month or so and then make an agreement if it appears to be worthy and in the meantime if you receive any customers through him then pay an amount of £x or x% on their initial fees (maybe registration or setup costs - whatever it is you charge)

I would never agree ongoing fees ever... lets say your customers pay you £50 per month every month , then his fee may be £25 (50% of month one's fee) Thats worth £25 to him for every customer he gets you - or whatever is relative to that argument.

Good luck though - I hope it is lucrative for you.
:)