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I am considering to offer a referral fee to a certain category of business consultants to help drum up business. The fee would be part of a "relationship package" along with an opportunity to write up articles for my site and "work closely" with me as a software vendors.

As my software enables and automates the business strategies they advise their clients on, I expect to see some interest.

But my software is not the only option for them and, as consultants, they must advise their clients on what is best for them. I am concerned that the offer will be seen as compromise their integrity and, as a result, I won't be getting the interest of the best consultants.

What should I do? Leave it in, exclude it, or abandon the whole thing altogether?

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2 Answers

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My company has grown almost exclusively by developing, cultivating and supporting an network of trusted consultants who provide us referrals. It has worked out wonderful for us, and it works out great for them.

The key has been options.

Since they are operating as a "sales" channel for us, we allocate the portion of our pricing dedicated to sales to them. The amount is always calculated the same for each product/service line. For some product/service lines this is a flat fee per customer. Others isit is based on the total projected value of the customer. Others it is based on the value-added billing.

But we choose to provide them the option of how they would like to receive this. It is individaully based on what their own business model and preferences are. It is based on how they would like to communicate their business proposition to their clients.

The Options

The options we have used in the past include:

  • Discount on the product/service to clients/customers referred through them. "They pass on a best customer pricing"
  • A monthly check to them for business consulting services.
  • A contribution in their name to a nonprofit of their choice (most common is a kid's school)

We have a written agreement with all individuals with whom we have this relationship.

It is an issue of value and values

As we work purely in the B2B space, we understand and appreciate that the trusted advisor network is the most important path of business development. We are jealous that our own Intellectual Property and relationships (social capital) is an important part of our own value proposition. We find it important to acknowledge and recognize that it is an important part of the value proposition of the people we work with as well.

Operating Costs

It should be noted that there are costs associated with developing and maintaining this "go to market" strategy that can not be overlooked. And like most channels with wither and die without consistent and regular investment of time and resources.

Additional Note

In some industries -- like financial services -- and on some platforms -- like online affiliate networks -- this is a regulated process. Be sure that you follow all required laws for your industry. The bottom line is always provide, support and ensure transparency.

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Thanks Joseph, this is mighty helpful – Sergei Veinberg Feb 14 '12 at 0:58
up vote 1 down vote

Talk to some of the consultants you're thinking of working with and ask them how they feel about referral fees. At the end of the day it is there reputation that's on the line, not yours. All you have to do is deliver what you promise -- or over deliver.

It really depends on how sensitive the market is that you're dealing with but many markets do this. If it helps structure it in such a way where to consultant appears as an independent distributor or affiliate. It already sounds like you are trying to get clever about what you call it which is a help to the consultants but I think as long as you don't call it a "kickback" you should be fine.

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Thanks jnorthrop, you are right, i tend to get ahead of myself. My problem is that I don't know personally any of them - there is no one in this group that I could talk to. – Sergei Veinberg Feb 13 '12 at 1:39
The discussions I noticed on the Internet are both ways - some consultants claim they will never do it, others are ok with it. Given that I will be introducing myself with this offer, ie "hey guys, would you like this", I want to avoid obvious pitfalls. When I noticed the negative comments about referral fees I thought, "oops, didn't think of that" – Sergei Veinberg Feb 13 '12 at 1:45

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