I'm an independent software consultant who is looking for referrals.
I've come to the conclusion that perhaps I should pay for them and earlier today posted this question about a teired commision idea I had. It's proven to be overwhelmingly unpopular, so now I'm back to thinking a straight commision is more appropriate.
But I still have the question of what percentage commission should I offer for a referral?
Like I said earlier, I do want to be fair (even if it didn't appear that way) but I also want to pay as little as possible (like any reasonable person). Basically, fair to me means, you'd take either side of the arrangement.
So is 10% fair for a referral? Or do you think it should be higher or lower?
10% will be a fair referral. And it is a good place to start.
Think of the steps that go into the overall sales process. From lead identification, qualification, all the way through negotiation and close -- the marketing and sales process has a cost. Whether you front end with marketing dollars in advertising, or your time in blogging -- or whether you incur the cost to wine and dine prospective clients -- there is a cost.
With a good CRM that supports source control and the assignment of "billable hours" in the front end business development process you will be able to quickly identify what your costs are. From that metric you will be able to focus on the clients and referral partners that bring in revenue -- and even more importantly margin.
Our consulting business has discerned that we can afford 20% for the sales and marketing of new consulting clients. On a pure referral-based sale, we pay the referral 10% -- and we have 10% to support the sales process. That may or may not include the referral partner in the process. Sometimes it is needed to close -- other times all they did was give use a warm qualified lead.
We do spend time training/educating our referral partners on what we do, what we don't, what is a qualified client, what is not.
So, I think that 10% for a pure referral is fair. If these are involved in the sales close process you might need to pay additional-- but that will be driven by market.
Note: If you would like a template of an agreement on this, feel free to contact me directly.