Should you pay for a referral?

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A reader asks how to reward clients and colleagues who provide referrals.

First, cultivating referral sources should be a key part of how you market your business. It is the easiest, most fun, highest yielding way to grow. It is also something that takes creativity and the skill to know how to ask (which has been covered in previous blogs, my book, etc).

I NEVER pay a fee for a referral. I want my network to come to me with referrals because they know I do great work and can help people in their network.

So I take them to dinner, send a bottle of wine, send something the spouse or kids will like — and I do this both for those who send referrals that close and those that send referrals that don’t close. They’ve done their job. The rest is up to me.

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  • lindholm

    It is also something that takes creativity and the skill to know how to ask (which has been covered in previous blogs, my book, etc).

    I would like read that blog. Do you have a link or what should I search for? Where can I read more about your book?

    I’m new at Sitepoint and I really enjoy reading your blog. Thanks.

  • http://www.solutionsphp.com/ solutionsphp

    Referrals are my primary source new business. I live in a pretty remote location, so I can’t take clients for dinner. Sending them a gift would be nice though. What I do currently is give them 15% off their next bill. The clients I have are not penny pinchers enough to seek out referrals just to get the discount though.

  • drakke

    Yes. If I found out that someone got a fee for referring me to someone without my knowledge then I’d likely have a negative view of the whole relationship and may never return again.

  • http://www.circle.co.nz nzgfxguru

    Great entry Andrew, you have pointed something out here that I have not been doing. I have only been rewarding referrals that followed through to signed off jobs, not the referrals that didn’t. I can see your reasoning and will employ your methods from now on.

    Thank you again :)

    Lindholm, check this link for Andrews blog archive:

  • aneitlich

    Lindholm,

    Best way to get book is by signing up at http://www.attractnewclients.com, which gives you book free and costs lots less than book on website.

    Check out blog archives and my articles on sitepoint which covers lots of info about referrals.

  • http://www.deanclatworthy.com Dean C

    I agree, gifts or a social arrangement is far more worthwhile than paying a fee for those who get you business. I think it sends a lot more friendly message than just giving money to them anyway :)

  • http://www.hurtdidit.com hurtdidit

    This discussion is interesting to me, because I DO pay clients for referrals. I used to just send a thank you card, but now send a thank you card whenever a client refers a prospect to me, and then a voucher if the prospect signs a contract with us.

    I can see why someone might think that’s somehow improprer (paying for referrals), but as Brendon Sinclair says, “rewarded behavior is repeated.”

    How better to reward someone than with cash?

  • codeninja

    RE: Hurtdidit:

    Thats not exactly paying for a referral.. thats rewarding a referral. Paying for a referral would be sending the guy $50 to pass your referral on.

    I find that it is best to reward referrals imidiately after your initial contact with the referred party. I do so simply with a hand written thank you card. And if the client signs on with us I will usualy provide the referring party with a gift = to

  • codeninja

    RE: Hurtdidit:

    Thats not exactly paying for a referral.. thats rewarding a referral. Paying for a referral would be sending the guy $50 to pass your referral on.

    I find that it is best to reward referrals imidiately after your initial contact with the referred party. I do so simply with a hand written thank you card. And if the client signs on with us I will usualy provide the referring party with a gift = to less than 5 percent of the total bill.

    Durring christmass last year I sent a client a $2500 plazma tv for his referral of a $25,000 site. My wife flipped when I bought it because she thought she had stumbled across a present for US. (she was sore to see it go too) That client has since referred over $100,000 to us. His last “reward” was a box of Cohiba Cigars and season tickets ot the Lakers.

    You dont have to buy plazma tvs for your clients… but dont send cash! If I give a rich client $100 for a referral, so what… hes rich… but If I send him a $100 bottle of wine, or send him and his wife to a $100 dinner or show… then I will be remembered the next time he hears “What I really need is a website”.

  • http://www.hurtdidit.com hurtdidit

    I guess I misunderstood the message; thanks for clearing that up.

    5% “commission” as you do seems generous to me; after all, wasn’t it your own salesmanship which enabled you to convince the prospect to contract for a much bigger project? Plus, it’s not as though those gifts are tax-deductible.

    It sounds like that’s certainly working for you though (if the fellow has since referred $100K to you, that’s a good sign!).

    My question to everyone who rewards their referring clients: how do you handle referrals sent on by a contact in a government agency? Most (if not all) State and Federal agencies have very strict, clear guidelines against sending gifts to government employees. Yet, I should think those contacts deserve more than a card when they pass a lead on to you, right?

    I’d be curious to hear your thoughts…

  • aneitlich

    Hurtdidit:

    Re rewarding government contractors (and private companies with similar guidelines): Have a conversation that goes like this:

    “I really appreciate your support and referrals. Usually I send a gift to colleagues who send business my way, and I know that in your organization, that type of thing could get you into trouble. Could you set me straight on the rules?”

    For instance, some agencies accept gifts but require they be shared by all. In that case, a gift basket can work.

    But having the conversation is important. It lets the person know you are thinking about them, grateful, etc.

    Also, there are plenty on non-money related ways to thank a referral source: keep them abreast of job openings; let them know about key industry events; send them articles; help them get published with a case study. Essentially look out for them and their aspirations.

  • http://www.hurtdidit.com hurtdidit

    Thanks Andrew–that’s pretty close to what we do (with the exception of job listings).

    It seems to me that the resounding theme is to make certain that your client knows how much you appreciate their referral efforts. As I usually write in the “Thank You” card: “A referral is the sincerest compliment for any business.”

  • http://www.dannyfoo.com/minifolio/ etsuko

    Hmm, would there be a way to escape paying a referral?

    Let’s say if someone actually provided you a referral and the first thing he asked you after was, “do I get anything in return or money in return?” then what does one do?

    I’ve had one referral do that so far and I’m just worried that in future there’ll be more cases like this.

  • aneitlich

    Etsuko,

    I’ve not had that happen to me, but if it did, I would reply as follows:

    “Well, I don’t pay for referrals because plenty of people refer business my way because they know I get great results for them and their colleagues. But I do usually go out of my way to thank my referral sources, since I’m grateful for their support.”

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  • Bill in Oregon

    Shall we simply disregard RESPA while we’re at it? It amazes me that people who are otherwise very well informed just don’t understand what risks they run when paying referrals on RESPA covered transactions:

    http://216.52.172.179/dispArticlePrint.cfm?ARTICLE_ID=10303

    This article should clear up the issue- but you can choose to disregard the law and hope you’re never called up to answer for doing this prohibited act.

    just my 2 cents…

  • http://www.hurtdidit.com hurtdidit

    Bill, if I’m not mistaken, RESPA pertains to real estate transactions, and has nothing (or very little) to do with professional IT services. Please correct me if I’m wrong.

  • Bill in Oregon

    Correcto.. I came to this blog from a real estate site which was discussing referrals.. I assumed it was a continuation of that discussion.. Duh.. My mistake..