Would you refer clients for commission or for free?
I have met two types of people, some would be glad to receive a commission if they refer a friend to business and others don't believe in that. I, personally, don't mind to pay a commission if it motivates the person to think about my business and promote it. And naturally, I act the same way they act with me, asking for a commission if I refer to them. Nevertheless, I always offer the choice to the person first. For my studio it works great, many colleagues can enjoy large payment in cash (10% from the closed deal) if they refer someone to me. What about you? What do you think about this affiliation method?
There is no right or wrong answer to this. Everyone is different and we have worked both ways. We have referral from non-competing but related businesses such as Professional Photographers, Animation Studios, Database specialists, etc. as well as existing customers.
Irrespective of our arrangements over commission or reciprocal referrals, 90% of our new business comes from referrals of one way or another. That is amazing return and cannot think of any marketing spend (monetary or time investment) that would bring us the same.
Why do people refer customers or friends to us?
It boils down to “Trust”. They can trust that:
1. We will not take advantage of referrals and charge silly money even though experience suggests customers who have been referred by other customers rarely ask for discount.
2. Again, the reason customers who have been referred by their friends or clients to us “Trust” their referrer, hence they will Trust that we will not rip-them-off so to speak.
3. Referring customers and partners trust that we will look after their clients or friends so they won't have to “apologise” for our service later.
4. Partners trust us that we will not try to “Steal” their business even if we do have the skills that might be competitive to them. They trust us not to offer alternative competing service either from us or from other partners.
Bottom line referrals work only when there is a deep-rooted trust and belief in you acting with integrity in every situation. We will not compromise our integrity for a few bucks more, and our clients and partners know it. Their trust is worth any money you can throw at us.
If you can build this level of trust with your network, then you will be able to build a healthy business based on referrals irrespective of whether you pay commission or not. If people do not trust you, no amount of commission will entice them to refer people.
Bearing this in mind, don't expect referrals to happen overnight. Trust takes a long time to build and takes a second to destroy. We have been in business since 2006 and have worked with some clients and partners ever since then, so you need to be patient if you want to build referrals but throwing money at it does not necessarily speed up the process.
I hope this helps.
I guess both work and both don't work. It depends on what expectations are. At the end of the day, "free referrals" come from trusted connections that trust you and what you deliver. However, this is no active channel. Referrals may come or they may not. Personally, if I came across information from someone I know and this information would help someone I know and trust, then I would make the introduction. I would do this for free.
If my trusted connection paid me a commission for it, I would accept it naturally.
If trusted connections asked me in advance to refer business to them against a commission, my behavior would depend on their expectations. Do they see it as compensation for any effort I may make? Do they see it as encouragement for me to make more referrals?
Trust is the only value that matters here. Money or no money, someone only refers business when there is trust in both the supply and the demand.
The answer is both, but, under what circumstances for each?
"For Free" referrals are to people that I know but I won't vouch for. So, my referral would be something like "I know Joe does that kind of work so go check him out. I can't testify to the quality of his work though..."
"For commission" is for other companies or consultants with whom I have a good relationship and with whom I would vouch for the work. There are only a small handful of these. For these, I'd say "Let me connect you with Joe. He does excellent work and I've referred a few people to him and they've all been happy."
Referral fees that we pass back and forth are in the neighborhood of 20% of the first engagement. (We each figure our cost of sales is about that.)
I was one of the first Salesforce.com consulting partners and they paid me a 10% commission of all first year revenues (including consulting) for just passing them a lead through the partner portal. But, they did all the selling work
Well it depends on type & position of the person - those who are well experienced of course they prefer commission other wise they may not ask for commssion .
Also, do you think referrals can be a strong marketing channel and if so, any suggestion how to strengthen it? I mean for the minor/small business that can be very powerful to have a wide network that reffer to you. How would you build this network?
...I'm all for it and try to do this all the time unless specific circumstances dictate not to do so...
Hi Avi, It depends on the circumstances and the relationship. I am a recruiter dedicated to B2B technology sales professionals. If I do not have a suitable role for a candidate when I am speaking with them. I think nothing of suggesting a few companies that are hiring people with their skills. I do not ask for money or expect money for this. In my opinion it is the right thing to do. There is also the fact that these people will refer people to me so I am happy to do it.
As Ali states, there is no cut and dry answer to your query. Personally, if it is a minor thing, I would never even consider a commission. On the other hand, if I have an agreement with other parties that I would intentionally seek clients so that I might refer them, by all means an agreed-to referral fee is customary.
What goes around comes around> I believe when I help others the days will come when they help me or others will help. I have got most of my business from word of mouth/referrals. When I tried working with some and offer commission on closed deals, people I have approached did not commit. My experience with the latter type was not good