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Referral Agreements: What They Should Look Like and How to Make Them Work

February 22, 2017 // R. Shawn McBride // No Comments »

We’re living in a culture of independence. A lot of people are working separately from one another in their businesses. We’ve created a “free agent nation” as author Dan Pink tells us.

With all these free agents, how do we work on bigger projects? How do we help one another? How do we leverage one another’s skills? For a lot of people the answer is referral relationships. They find other people to refer business back and forth.

Sometimes referral relationships are unpaid. Often in the attorneys world, one attorney will refer work to another just because they’re professionals and colleagues and they want to get the client’s needs taken care of. They’re servicing their client by putting the client with a quality professional and the receiving attorney appreciates the referral. There’s not necessarily a monetary payment between the law firms.

In other contexts, often in consulting, book promotion, perhaps speaking or other relationships, there may be referral fees paid. What do those referral fees look like? How do they work?

A lot depends on the specific context. There are often norms associated with the referral fees. Some will be a one-time referral fee. Some will be an evergreen fee which will keep paying and repaying over time if the relationship continues. There’s no right or wrong answer.

The key is to have an understanding up front — to have a referral agreement between the referring person and the person being referred to. Make sure everyone understands how this is going to work, how this is going to be tracked and how payments are going to be made over time. It’s really an economic arrangement.

I’ve seen some very high referral payments (as a percentage of the revenue) in some situations and I’ve also seen low one-time referral payments that were fairly nominal. It’s really a pure play negotiation when setting referral fee levels. As in all negotiations it’s key that both parties understand one another, that they understand what they’re agreeing to and how it’s going to work. What we don’t want is one party thinking that there’s one arrangement and the other party thinking that there’s a different arrangement.

In a future blog, we’ll look at referral payments, amounts and norms by industry and style of company and type of referral so that you’ll have some guidelines and benchmarks for looking at what you might want to do in the future.

What’s been your experience with referral payments? Have you made them in the past? Have people referred business to you and have you paid for? Join us in the comments below and let us know. We look forward to hearing from you.

This was a blog by request. If you have a request for a specific blog you would like to see in the future, send us an email to info@mcbrideforbusiness.com and include “Blog” in the subject line.

Variety of referrals.

Have an understanding upfront on referral agreement.

Make sure you download our free checklist to assess your business:  www.mcbrideforbusiness.com/BlogGift

 

This posting is intended to be a tool to familiarize readers with some of the issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances. Each case is unique.  Past results do not guarantee future outcomes. This article should not be treated as legal advice to any person or entity. 

About the Author

Shawn McBride is the Chief Innovation Officer at McBride For Business, LLC. His signature keynote, The 3 Laws of Empowerment (www.rshawnmcbridelive.com), gives audiences an entertaining look at how they can prepare, plan and protect themselves. You can reach R. Shawn McBride at info@mcbrideforbusiness.com or (214) 418-0258.

 

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Posted In: Business, Growth, Legal, Strategy



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