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Referral Fee Agreement: Should You Have One In Your Consulting Business?

Referral Fee Agreement: Should You Have One In Your Consulting Business?

Liston Witherill
Liston Witherill
3 min read

The way I see it, referrals are still the best source of leads you can have. Referral fee agreements might get you more of them.

After all, referrals come with trust. They come with credibility. And they come with a third party vouching for you.

So the natural question is always: how can you get more of them?

One obvious way to get more referrals is to just pay for them. Having a referral fee agreement gives your referrer the certainty that they’ll get something in return for giving you a referral.

But are people looking for monetary compensation? Is that what’s holding them back from giving referrals in the first place?

When You Should Have a Referral Fee Agreement

Having a referral fee agreement could be a good thing for your business. Particularly if you run a productized consulting business, it could help you form formal relationships with referral partners who could choose between a handful or even a dozen options when making a referral.

This speaks to another issue: referral fee agreements are more important to businesses that are less differentiated. If you’re the only person in the world who can solve a particular problem for a particular client, business will come your way. Referrals will happen naturally because it’s so much easier to think of you when the moment is right.

If you’re not truly specialized and differentiated, you might consider having a referral fee agreement and a formal referral program.

The downside of doing this, of course, is your incentives aren’t totally aligned. Let’s take a look:

  • Referrer: they’re in it for the money, so they make a referral and hope you can close the deal
  • Potential client: they just want help with their problem; they’re not in it to compensate the referrer, and in fact would probably feel better if the referrer wasn’t compensated
  • You: you want to help the potential client, even if that means not offering to do business with them

The incentives are a little wacky here. Which leads me to the next point.

You Can Pay For, But Don’t Get Paid For Referrals

Let’s take a second to go over what happens when a referral is made:

  1. Two people have some sort of relationship and trust built
  2. One (the potential client) expresses a need, problem, or seeks an introduction
  3. The second person (the referrer) knows someone, using their social capital to make the introduction; this leverages their reputation and trust and the potential client knows it
  4. A third person (the consultant, that’s you) receives an introduction

Now let’s talk about you, the consultant. Your reputation is really valuable. Ultimately you’re selling yourself even if your clients are buying a better future. You’re not selling a product, you’re selling you.

One thing that might jeopardize the authenticity and integrity of what you sell is giving yourself the wrong incentives.

That’s why I’d advise you not to take payment for giving referrals.

If you want to pay for referrals yourself, go for it. But it’ll always be a stronger position to naturally receive more referrals through your 1) positioning, 2) relationships, and 3) reciprocity for the referrals that you give.

Rather than simply paying for referrals, it makes more sense to have a full-fledged referral program with a real process in place.

But if you’d like to put together a referral agreement, you should include:

  • Who you want referred to you
  • How to make the referral and get credit for it
  • What triggers payment
  • How payment is made
  • How often payment is made

That’s it, really. You don’t need to make it too fancy. A page on your website or a simple document will do the trick.

Getting Your Referral Fee Agreement Launched

If you decide to put one together, you’ll also need a plan to get your referral fee agreement into the right hands. It’s a whole new thing you’ll have to worry about.

So go make it, launch it, and show it to some people.

Or just do what I recommend and create your own referral program so you don’t have to pay for referrals in the first place.