I got a couple of questions from a resume writing colleague today about referral fees, and I wanted to share my answers in today's blog post.
* Can you please advise what is the prescribed fee amount/percentage range that one should offer another career professional for a referral (career service) that would be fair? (Is there any minimum and maximum offered?)
Referral fees are negotiable. 15% is the most common referral fee, but I've seen anywhere from 10-25%.
One thing to consider when you're deciding what percentage to pay as a referral commission for being sent prospects from a colleague is: What is the QUALITY of the referral? If someone sends a client to you who is pre-qualified and pre-sold (meaning they're a good fit for you and they're ready to buy from you based on what the referring person said), that's worth it.
There's a mathematical way to figure this out, for the most part. You can add up what you're spending (in money and time) each month, and divide it by the number of clients you secure yourself. For example, you might spend 1 hour/week on marketing and $100 on your marketing (website, paid ads, etc.). Let's say you value your time at $75/hour. So that's $75 x 4 = $300/month (time) + $100/month (hard costs) = $400. Let's say you secure 6 new clients/month. So divide $400/6 = $66 (cost to acquire one client).
Let's say that referral partner sends you a client that pays $500/project. Your 20% referral fee would be $100. But remember, unlike your own marketing costs, you only incur this "marketing expense" if you secure the client. With your other marketing costs, you spend $400/month and might get 0 clients out of it. (Or, things might go really well, and you get 10 clients out of it!). But the advantage with referral commissions is you only pay them when you're making money (the other 80%).
* Are referral fees always required or mandatory? For instance, I offered a referral to a resume writer once for a client that I was not able to take due to other deadlines. However, I did not charge a referral fee upon the client retaining her service.
No, referral fees are not always required or mandatory. As the referring person, you can always request a referral fee, but it's not mandatory. HOWEVER, thinking of that resume writer, wouldn't you be MORE likely to send clients their way if they HAD sent you a 15% referral commission (even if you hadn't asked for it?) Or even some kind of thank you?
* Are referral fees based on certain factors, or more on the negotiation or agreement between two career professionals what is suitable?
Just like with subcontractor fees, I believe that the more "work" one party does, the higher the compensation should be. For example, subcontract writers who have direct client contact (including conducting intake interviews) should make more than subcontract writers without client contact (and who work from questionnaires). However, because there is no standard in the industry, this isn't always equivalent.
In an "ideal" world, I think it would be:
10% referral fee -- pass along the name of a colleague
15% referral fee -- "normal" amount of selling -- give name/contact info and some information about the resume writer to convince the client they're a good fit
20% referral fee -- going above and beyond -- information about why this resume writer would be a good fit plus introduction of client directly to resume writer
The reason why I generally think referral fees should be 20% and under is that now you're getting into the "subcontract" rates territory. When you'd pay 20% to another writer to create the actual content for the client (again, subcontract fees are generally 20-35%), I think that's the top level. But I have seen some writers who offer 25% referral fees.
In the affiliate marketing world, referral commissions can be up to 75%, but usually these are for set programs (webinars, courses, group programs), not custom services.
If you're looking for more information about eliciting referrals from colleagues, check out this special report:
If you're interested in learning more about subcontracting as a resume writer, check out:
