For me, the short answer is no. As part of full disclosure I've both taken (unasked for) and paid referral fees, and I don't like them. The extra money is nice, especially if things are financially tight, but the fact is, referral fees can destroy true networking. There are people who disagree of course, but I believe that to remain objective, to send my clients to the best possible resource for them, I need to do so based on what's best for them, not on who is paying me for leads. It's up to you of course but think about it. Would you rather someone point you to the best person to do the job, or to the person who paid the highest referral fee?
Here are the top arguments for and against referral fees. Only you know your situation best, so decide for yourself.
For purposes of this post, the definition of a referral fee is: A fee, either a percentage of, or a flat rate fee for sending a paying client to a provider of creative (Marketing, writing, graphics, copywriting, ghostwriting etc) services.
BEST REASONS TO ASK FOR A REFERRAL FEE
- Marketing is hard, and expensive work. You work hard to attract clients, and you succeed at it! You're so good in fact you can't handle everyone, so you refer the ones you don't really want to someone else who specializes in what you don't, or can't handle. After all, you want them to have the best provider you know. And, the best provider you know just so happens to suck at marketing and is desperate for clients. Win-win, right?
- Your marketing ability is great, and you find you're actually better at marketing than writing. So, you turn your skill to referring clients to other creatives and charge the creative client a fee to do so. (This is referred to as being a job maestro — one who directs or schedules a job, similar to a traffic controller/coordinator at an ad agency)
- Chances are your client doesn't have the industry connections you do in order to find a qualified source for their project. You're doing them, and the provider, a favor. You're just getting paid for your time. That's fair, right?
BEST REASONS TO REFUSE OR REFUSE TO ASK FOR A REFERRAL FEE
- When you refer a client or prospective client to someone, your reputation still follows you, even if you don't do the work. Referring someone to another creative means you want to ensure that person acts professionally and delivers good work. If they don’t, it reflects on me and damages my reputation.
- Referral fees are often referred to as a kickback fee. They are an inflated cost on any project or job, which is why customers don't like to hear they're being paid. They're the one being dinged for the added costs to cover the fee. If I charge $10,000 for a job, and the referral fee is 10%, that's money I tack onto my job fee to pay that fee - so I pass the cost on to the client.
- Clients who find out you're paying a referral fee don't usually like to hear they're being commercialized. They like to think you are sending them to the best person to do the job, not the person who pays you to send them work. This may be the number one reason not to charge or accept referral fees.
- Demanding a referral fee means your judgement may be compromised because you tend to send clients to whomever pays the best fee, not who does the best job. Some people who are willing to pay a referral fee for work are good at what they do and are a natural/best choice whether there's a fee involved or not, but if your client finds out, they don't know that.
- Asking colleagues to pay to send them the occasional referral makes a provider look like a jerk. Traditionally, referrals are a professional courtesy meant to build good will, encourage networking and to build relationships with colleagues.
- Some clients equate being referred as being "farmed out" to lesser writers because the ghost writer is too busy. If a client comes to you to write their book, it's because they want you to write their book. They don't want a lesser paid, not-as-experienced person to write it for higher fees because you're farming it out to them.
RULES OR ETIQUETTE FOR REFERRAL FEES
Be upfront about the fee. Tell your client upfront that you're referring them to someone who pays you a referral fee. You can explain this helps cover your marketing and introduction costs, but you should also disclose the fee you're charging. This goes over better if the fee is a flat rate fee rather than a percentage. Many clients understand marketing costs and may (or may not) see a $50 to $100 fee as part of the cost of doing business. They can see that's a justifiable fee for the time you spend making the introduction and ensuring the provider you're referring to is able to take on the work. Ten percent on a $25,000 job won't make them happy, however.
Put it in writing. If you're going to ask for or receive a referral fee, put it in writing. A one-page letter of agreement works best. State the reasons, the rate, and the terms. If someone is referred, but does not sign and no work is done, should you pay a fee or not? When you tell your client about the referral fee, you'll then have something to show them as well, making it official that you're paying marketing and/or consulting fees.
Consider sending a gift instead of cash. It's appropriate to thank someone who sends you referrals, but even if they don't ask or expect a fee, send them a thank you — candy, food, gift card, or maybe an item or tool they'd like. I've had people buy me power tools and others send fruit or chocolate. Make sure the gift value is appropriate for the job value. Do not pass this on to your customers. It's part of the cost of your doing business.
QUESTIONS TO ASK BEFORE SETTING A FEE
Fixed fee or flat rate? Ask yourself whether you should charge a percentage of the total fee, or a flat rate. The jobs I get range in the $10,000 to $45,000 range and there's no way clients are going to agree to pay an extra $1,000 to $5,000 for an introduction.
First job referral, or percentage of all work? Will you charge a fee for all work or just the initial job? Most of my clients are repeat clients. They like my work so they come back for other jobs. Why should a good provider pay a referral fee for that? They shouldn't.
When should you pay or expect payment? Although a client may sign a contract and pay a deposit, not every provider can afford to pay a big referral fee at the beginning of a job. Make sure to stipulate when a fee is paid — usually at the end of the job, not at the start or middle. Providers often use a deposit or initial payment to cover their operating expenses. Asking for a fee upfront can negatively impact their ability to do a good job, which then reflects poorly on you.
What's fair? If someone is investing a lot of money into marketing that you're benefitting from, it seems fair to pay something for those marketing benefits if you're getting referrals on a regular basis and get to pick and/or choose from the referrals. If you're going to pay for that kind of referral the person's marketing efforts should include your name so a potential client can see (and justify) the fee as a marketing cost — although at that point it's not really a referral fee, but a marketing fee.
It's a tough call for anyone to make. I don't pay for or request referral fees. The one or two times I've done so have only been unsatisfying on all sides.
Becky Blanton is a ghostwriter who refers clients to the person or company she thinks could best handle the job. She's also available for ghostwriting blog posts, books, white papers and reports for you or your company.
