Referral Fees

[OMB]

I need to draw up a referral fees agreement, however I need to determine what is fair in terms of the amount of effort involved in the referral as well as continuity.

Our general rule is 5% for "throwing the bone", 10% for formal introduction with some participation and 15% for actively driving and landing a client deal (this has worked quite well for us until now).

The big bugbear is the continuity and what is fair, for example someone is actively engaged in landing the deal but doesn't do any work after that, the referee receives their 15% on the initial deal, but what happens if we continually land subsequent work, is the referee entitled to an ongoing cut (because they secured the client)? At what point do we establish a cut off (perhaps a sliding scale over 6 months)?

Any thoughts/experience welcome.

 

[MagicDude4Eva]

but what happens if we continually land subsequent work, is the referee entitled to an ongoing cut (because they secured the client)? At what point do we establish a cut off (perhaps a sliding scale over 6 months)?

Depends on your industry. If it is a niche where people hardly often switch (such as insurance or banking), it would be fair to pay affiliate fees. Another option is to provide a tiered affiliate scheme after the initial referral which will pay on a sliding scale (i.e. pay less if the transactions taper off over time vs pay higher if the transactions are frequent).

Another challenge is to ensure that your affiliate fees are only paid when the referral can not back out of a deal (i.e. CPA, cancel contract etc), as this will always become messy.

 

[OMB]

Depends on your industry.

sorry, should have mentioned that, it's consulting

 

[OGroteKoning]

Active participation for another 3 months earns another R5k ... or something like that

 

[MagicDude4Eva]

sorry, should have mentioned that, it's consulting

Oh, in that case I would only pay continued affiliate fees if the consulting business has services with provides continuity income (i.e. you are a distributor of software/hardware with a monthly/annual license/support model) and/or if the referrer continues to bring in extra business. The last part would worry me though - why would an initial referrer still continue to grow business for you which he is actively not involved? The only time I have experienced this is where a IT-dev shop (provides bodyshop/staff for turnkey projects) filters through new project requirements to their partners (i.e. a CMS here, some servers there etc) - but those business partners would then have the relationship with the client and manage future requirements.

 

[OMB]

Active participation for another 3 months earns another R5k ... or something like that

not always possible, the referee may not have the required skill set

after much googling I'm starting to think along these lines

SCENARIO 1:
5% of revenue for 6 months beginning on first date of service to the client. These are referrals where you connect us up via a brief phone call, email or similar.

SCENARIO 2:
10% of revenue for 6 months (same as above) in situations where you work more directly to facilitate the deal e.g. actively engage with the client, develop and submit the proposal and close the deal.

After 6 months all referral fees are terminated.

 

[OGroteKoning]

Sounds reasonable. Or keep it at 5% for both scenarios where in (1) for 3 months and (2) 6 months - unless you can afford a higher percentage

 

[Greig Whitton]

SCENARIO 1:
5% of revenue for 6 months beginning on first date of service to the client. These are referrals where you connect us up via a brief phone call, email or similar.

SCENARIO 2:
10% of revenue for 6 months (same as above) in situations where you work more directly to facilitate the deal e.g. actively engage with the client, develop and submit the proposal and close the deal.

After 6 months all referral fees are terminated.

I think you are over-complicating this. Do paid referrals account for a dominant percentage of your growth? Are referral earnings a core income stream for your referral partners? If the answers to both questions are no, then I highly recommend an even simpler model (i.e. a flat fee or percentage of the work initially generated from a referred client regardless of a referral partner's involvement).

Obviously there will be variance (e.g. involvement of the referral partner; potential for subsequent work), but you're running a consultancy, not an affiliate network or multi-level network marketing agency. If calculating and paying referral fees isn't your core business, simpler is better.

 

[OMB]

I think you are over-complicating this. Do paid referrals account for a dominant percentage of your growth? Are referral earnings a core income stream for your referral partners? If the answers to both questions are no, then I highly recommend an even simpler model (i.e. a flat fee or percentage of the work initially generated from a referred client regardless of a referral partner's involvement).

Obviously there will be variance (e.g. involvement of the referral partner; potential for subsequent work), but you're running a consultancy, not an affiliate network or multi-level network marketing agency. If calculating and paying referral fees isn't your core business, simpler is better.

thanks for the input, I've been looking at my initial scenarios and my thinking has changed and is more aligned with what you've put forward, looking at something much simpler based on a percentage of work landed.

 

[Zukat]

Bringing up an old thread. Can someone advise if the rules around "affiliate/referral fees" have changed in the past 5 years?