How to pay a referral fee for new clients: An epic 10 example guide
Want more referrals? Make your referral fee known.
I don’t care what industry you’re in. If you're a small business, competition is FIERCE.
Polished websites are easy, great reviews are easy, targeted advertising is easy (though very expensive), and it’s becoming harder and harder to stand out.
But because these things are “easy” the tides are starting to turn, and your potential clients are becoming hungrier for what they can trust.
If you weren’t aware, before we had the internet, the most powerful way for any small business to get more customers was good ol’ fashioned word of mouth referrals.
The good news for you?
Referrals are worth more now than ever, and you have the ability to get loads of them. So being prepared with a pre-determined referral fee is super important.
The challenge?
Making the act of referring business ridiculously memorable, simple and motivating in the midst of all those busy lives out there.
In this guide we cover all 3 of these aspects in 10 different examples that can be applied to nearly any service business model that exists.
First, here are the action steps that every successful referral program should follow, regardless of your business model:
STEP 1:
Inviting Your Referral Sources...
This step is overlooked nearly always.
Most small businesses wait until they get a referral and then awkwardly have a conversation with their referral source about how appreciative they are and what they can do for them and yada yada..
Be proactive.
Send out a digital invitation and welcome your family, friends, acquaintances and previous clients as people you want representing your business because of the respect you have for them.
There is nothing wrong with a little flattery here.
Most importantly, make it clear that it is your company policy to give rewards for referrals.
Take the awkwardness right out of it. You want referrals and you want to pay for them. Come out and say it. It’s refreshing and it’s good business.
STEP 2:
Creating Your Offers…
There are three parts to this and it’s important to get this right. This is the step that will change depending on your business model, and is explained below, alphabetically by profession.
- What an average new customer is worth to you (net profit) = A
- Your referral fee to take care of your referral sources = B
- Your referral fee to reward your new clients = C
A - B - C = PROFIT
STEP 3:
Sending Your Offers…
You can send an offer to anybody and tell them to refer you business, but it’s far more relevant and effective if you give them to people who are already excited to receive them.
These are your referral sources (or Ambassadors as we call them).
This is why Step 1 is so important. It allows you to have a framework for handing out your offers to people who will be expecting them.
When you are giving your offers, it is crucial that you be very upfront about what your Ambassador will receive AND what any referrals will receive....for a very specific result.
Don’t just say “you’ll get X amount for any referrals you send my way” but rather “I’m excited to offer my Ambassadors $200 cash for any new client that signs a contract for my XYZ services.”
STEP 4:
Tracking and paying your Ambassadors and referrals…
This is obviously a crucial step but we won’t be focusing on it for the purposes of this article.
Shameless plug: we do offer an easy solution for this along with setting up the rest of your referral program on our platform at Referral Program Pros
So here we go…
Here is our guide for how small businesses should setup their referral programs including their referral fee with examples from 10 different professions.
As you will find, the structures of referral programs across different industries are not one-size fits all.
The way you educate your referral sources will vary from one industry to the next (the message a real estate agent delivers will be different than that of a life coach).
More importantly, what you offer for the results you want will vary drastically across different industries based on cost of goods and profit margins.
We chose our below professions/industries carefully so that every small business model can be applied to one or more of the examples in this guide.
Again, the only step that changes in the process from above is Step 2 - Creating Your Offers...
Accountant Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: People don’t change Accountants very often, so it really doesn’t matter if you give away cash or credit. In these instances you should ALWAYS give away cash because the perceived value will be much higher in the eyes of your referral source. Just make sure to make this amount motivating enough for your referral sources - we suggest around $300 once billing reaches X amount. The amount each client pays you varies quite a bit but many of them will be your clients long-term. Don’t get stuck paying a percentage of everything you’re making for all friend referrals.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Set Amount
Why: By offering credit you’ll be able to entice them with a higher dollar amount. You can show your new customers that you’re serious about earning their business and that you’re investing in the relationship. Because you’re offering credit, by going with a set amount you can afford to make it a big number (we suggest around $300 once billing reaches X amount). Again, people don’t change Accountants often, so take advantage of this and provide value for your new client all at once.
Architect or Designer Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Many of your referral sources may not need your services any longer - they are likely past or dormant clients, so credit might not be super motivating. A set amount is more lucrative for you as well because your jobs will be in the thousands but a $500 cash reward (which is what we recommend) should be quite motivating for your referral sources.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: It’s tough to know how big a project is going to end up being in your line of work, but you want to be able to offer enough to bring every potential job over the finish line. The way to mitigate this is to offer a straight percentage off the total bill if they work with you. We recommend 10% to reward new clients to work with you.
Contractor Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Many of your referral sources may be previous clients who don’t have a need for your services any longer, so offering cash will be far more motivating than credit. You definitely want to offer a set amount since your cost of goods can vary dramatically and a percentage would leave you with very little profit on a high-dollar/low margin job. We recommend at least $200 for any job $5,000+.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: Contractors really need to protect themselves when it comes to their offers or “specials”. Not only should you offer credit, but you should also have a minimum amount of spend before the reward kicks in. If you offer $500 of credit and the job ends up being $2,000 with slim margins you could be losing money on the deal pretty quick! We recommend 10% in credit for any job so you can better control your margin.
Cosmetologist or Beautician Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Credit
Set Amount or Percentage: Set Amount
Why: Your referral sources are mainly going to be current clients, so they should see credit on future services just like cash. This is also a great way to retain your current clients and encourage them to spread the love. Make sure to give a set amount to your referral sources for each new client they refer since those clients could be with you for a long time. We recommend $50 in credit for every new paying client.
C: Referral fee for your new customer...
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: Offering credit protects you from having to shell out too much cash if the initial visit ends up in a small sale, and doing a percentage encourages these first-time clients to spend more. After their first visit they should be loving this deal and have some more friend referrals to send your way! We recommend 50% off the first visit.
Dentist Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: You definitely want to offer cash because many of your patients have insurance so credit just won’t make sense to them. If you offer a one-time set amount of $200, that will be great motivation for your current patients to refer new ones.
C: Referral fee for your new customer:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: It’s becoming harder to differentiate yourself as a Dentist. Offering a cash incentive is a GREAT way to separate from the herd and fill your schedule. Again, most patients will have some insurance so credit won’t make sense. The set amount is gold here since your patients will think “Well I have to go to the dentist anyways, but this one is going to PAY me for it!”. We recommend a $200 Visa gift card for any new patient.
Financial Advisor Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: If you’re as numbers oriented as you should be, then you should know the lifetime value of an average client by now. The number is high enough to be generous with a one-time cash payment to your referral sources. We recommend $500 for any new client.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: You want to give your new clients the assurance that you take the referral and the new relationship seriously. You need to communicate that there will be YEARS of value in store for the client if they choose to do business with you. Give them a respectable lifetime % off for their wise decision to sign on the initial dotted line.
Life Coach Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: As a Life Coach you are all about self-improvement and relationships. People should feel GREAT about referring new clients your way, but they’ll remember to do it if they know each referral has a cash reward associated with it. It’s important that you make this your policy and be very upfront about it to eliminate any awkwardness for your referral sources. We recommend rewarding $300 for any new client.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: You will likely have a relationship with your clients for years and years. They might leverage your services on and off for some time. Make them feel valued by giving them a healthy “friend” discount. Encourage them to keep coming back by offering 20% off for your services.
Personal Trainer Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Your referral sources will be a mixed bag of current clients, past clients and people you know socially. Paying a one time cash reward to any of these people is the right move because most of your clients will be with you for at least 6-12 months. You can even structure your reward such that it’s based on someone buying a 12 month package. Unless you have a very high price point, we recommend $100 to reward your referral sources.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Set Amount
Why: You’re probably giving some kind of discount to begin with, but making a special offer for referrals only to try you out will work very well. Give your first session free, but make sure the referral knows how much that would normally cost so the value doesn’t get lost in translation. We recommend something like “My rate for a 60 minute session is $150 but I would be happy to give you a free session to get to know one another.”
Real Estate Agent Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Let’s be serious - referrals are worth their weight in gold to you. Especially the ones that actually do a deal! A solid referral program for a realtor can pick up steam quickly as people start realizing what you can offer them. If you do it well enough you may not need to spend ANY other money on marketing. You should be more than happy to give a good reward, because this is a client you would not have had otherwise. We recommend getting aggressive and offering $500 per qualified referral. This can be paid to people who you know are promoting your services but should not be contingent on a transaction happening as that is against NAR rules. If you are not comfortable compensating individuals, you can always offer to donate to charity for every qualified referral, which is a very effective way to motivate your sphere.
C: Referral fee for your new customer:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Obviously credit doesn’t make any sense with your business model, so cash it is. The great thing about a set amount, cash offer is that you can afford to make it quite high and give your clients big value, and even bigger perceived value. We recommend offering $1,000 cash back to any referred client that does a deal with you as their agent.
Videographer or Photographer Referral Fees
A: What an average new customer is worth to you (net profit):
B: Referral fee for your referral source:
Cash or Credit: Cash
Set Amount or Percentage: Set Amount
Why: Your projects can vary a great deal depending on your niche or specialty. But you can also get repeat business from a lot of your clients (again, depending on your focus). We recommend offering at least $100 for any new client, which should protect you against the smaller jobs and give you huge value on the bigger ones.
C: Referral fee for your new customer:
Cash or Credit: Credit
Set Amount or Percentage: Percentage
Why: You want to tie your percentage offering for the referral to the total spend and use that to encourage them to spend more. We recommend offering 10-15% off the total. When your client gets their bill they will see how much they saved by going with you and will walk away feeling great about it. THAT, by the way, is when you ask them to join your referral program!
Want to launch your own referral program?
