I am thinking of working on a constant basis with another guy, we would each have our own specialised fields which are complementary, and give work to each other, as many of our projects would need to involve input from each other, irrespective of who got the client. Now we are thinking of rewarding the guy who gets the client with a commission, but are unsure of what percentage to use, and whether it should be capped up to a certain amount. Any opinions?
An even simpler option would be to join forces with that individual and split all of the income 50/50 down the line. Why? Because it seems like you’re both bringing skills to the table which will cross-over into pretty much every project (correct me if I’m wrong here). If that is the case then I don’t see any need for there to be a complex system in place, you both will have the incentive to keep pulling in clients from both sides if your 50% is based on how much work you can both pull in. I could understand doing a commission if you were hiring in several people, each of which just added to the manpower rather than supplementing your skillset, but if you’re both handing off work between each other and working on the same things equally, you may as well just join forces and bridge the divide. My two cents at least.
If you do go with a commision payout, I’d suggest paying only on the value of the first job. No need to pay on recurring work.
Also, makes sense to pay on net revenue. 10-20% of net rev is a fair payout in most lines of business.
If you are both actively bringing in clients that provide the other with work then any commissions should cancel out. You’d only need commissions if one of you is bringing in significantly more clients than the other.
What if one guy gets a client and I give him commission, but then the client keeps on giving me other recurring work not related to the first project, should I still give the guy a commission? It somehow seems difficult to keep tabs on what commission is due if I do it like that, although its probably fairer.
agree on that yes thanks Guido
Another option is to subcontract the other guy for jobs you bring in, and he subcontracts you for his sales. Give each other a discount off your regular rates, agree not to poach each others’ clients.
In a referral relationship you say:
For these services I will pass you (the other company) all work
For these services I will pass you and another company all work
In return the other company should agree on doing the same with you with a different set of services.
Mainly you need to look out for someone who has a similar business model and processes.
Straight commission sounds simple at first, but then you get all these problems:
- what about future work?
- for how long?
- what do I have to do to get the commission on future work, can I stuff up the referrer’s client relationship?
What’s the difference between paying a commission and having a referral relationship? I’m leaning towards a straight commission percentage on each project. What I am unsure how to handle is ownership of the client. For example if I get client and pass over the first job to my partner, when the client needs something else and goes directly to my partner am I entitled to a commission, or just the first time?
Much easier to not pay a commission and just establish a referral relationship:
- who does what kind of work
- how ownership of client is protected and how the client can get handed over
- time investment in educating the other side about your services.
Can’t help you with the percentage (I never worked with commissions, and anyway I wouldn’t know the going rates where you live/work), but why would you want to put a limit to the amount? Don’t you want him to get you big, juicy contracts? Remember, it’ll always be a percentage, so if he takes a lot, you take a lot more
Good point, Alex. Then, it’s just a matter of keeping egos in check.