Have Your Referral Fee And Agreement Template Ready To Hand Over

Being a small business owner means you feel the ups and downs of business a little harder than the higher-ups at larger businesses. When the business funds start running low, your personal account feels it too. When the workload starts getting slim, you’re out there trying to fetch new clients yourself.

You’ve probably run into the fact that you have to rely on referrals to gain new clients–you need to expand into another market and diversify your client base. Referrals are necessary because let’s face it, you can’t do it all on your own. 

Some small businesses rely on informal “honor systems” with referrals. This can work for some but can certainly cause issues down the line if things get complicated. The honor code might seem fine up front, but what happens when you realize down the line that a partner’s referral fee is more than you initially thought? If circumstances are not laid out and strategically planned, you could find yourself in some sticky situations. 

Don’t risk losing out on the profit you deserve. A great partnership could even catch on fire because the honor system didn’t go as planned. Never overlook the clients, compensation, and referrals you deserve. Get qualified referrals and fair compensation with referral agreements. 

What is a Referral Agreement?

As a business owner, you can’t spend all your valuable time and money worrying about finding every single client yourself. You need others to send awesome clients your way.

Great referrals come from effective referral marketing networks. These valuable referrals can come from anywhere–your neighbor, an employee at your company, your husband’s coworker, another business you work with often. Since a newly referred client can come out of nowhere, you want to be ready when the opportunity presents itself. Have a referral agreement prepared so you can act fast.

Referral agreements are a type of partnership agreement between companies or independent contractors. They encourage one business to refer clients to other businesses. This B2B agreement is to be put in place when new clients, leads, or projects are referred to Company A by Company B.

What’s in it for Company B? Company B refers new clients to Company A in exchange for compensation. Compensation doesn’t always have to be money and referral fees though. Referrals can be exchanged for service, perks, commission, finder’s fee percentages, whatever’s valuable. 

Although useful, referral agreements can be complicated. What’s the difference between an unqualified and qualified referral? How do commission-based referrals work? What’s a payout period look like? How do you set up a finder’s fee with a woman who used to babysit your kids? 

Develop a referral agreement template that you can tailor and have ready to go in any referral situation. This ensures that you have the necessary components included every time the opportunity arises.  

How to Create an Effective Referral Agreement Template 

Templates of any sort require some front-loading but they take the heavy lifting out of the process later on. Think of the last 20 times you answered that all too familiar question using a template you created to use every time the question arose. Easy peasy, right? Referral agreements work the same way.

Here’s a list of components that should be included in your referral agreement template to ensure that you never miss the important stuff. Then, when a referral opportunity comes your way, tailor the document to the needs of the situation and voilà, your agreement is ready to go.

Referral Agreement Templates
  1. Include the type of work that is being referred to you, ensuring that you keep only the most beneficial type of work open to referrals.
  2. Define the type of relationship you have with the party who is giving or receiving the referral.
  3. Identify when the commission payout period will expire. (Commission oftentimes won’t go on forever, it’ll only occur during a single time period or project.)
  4. Specify the parts of the referral’s revenue that will be subject to commission payments. (Let’s say you’re a moving company and the referral was for hauling and packing for a commercial building. If the building decides to hire you for additional services, those additions are not part of the referral commission.)
  5. Define whether the referral is a qualified or unqualified referral. (A qualified referral means the agent referring has previously worked with them, and an unqualified referral could be from a single business card interaction.)
  6. Clearly identify how much the referring agent will be paid and the method of payment you will use to pay them. (Will you give them a referral fee, a perk within your business, a percentage of revenue?)
  7. Include any confidentiality that needs to be mentioned depending on the type of work you do and the rules and regulations you must follow.
  8. Define whether or not the referral agreement is exclusive or not.
  9. Determine the general rights and responsibilities of each party involved in the agreement.

Real-World Referral Agreements

Let’s put it all into an example to help you understand the importance of referral agreements. Be sure to acknowledge the compensation you deserve for referrals and know how to fairly pay someone else for the referrals that are sent your way. It’s all part of the B2B game, know how to play it. 

The Wedding Industry

Let’s say you own a wedding planning business where you are hired my brides and grooms to be the lead planner and chaos organizer for one of the biggest days of their lives. Amongst all the little tasks (but monumental in the eyes of the bride), your duties as a wedding planner include: 

  • Creating a master plan of how the rehearsal dinner, ceremony, and reception will go
  • Recommending a list of services and vendors for the couple to use
  • Planning and providing consultations for all those services and vendors
  • Ensuring all vendor contracts are in order
  • Scheduling and checking in on the duties and times all vendors are responsible for
  • Making sure the day is flawless for your clients

The wedding industry is full of close-knit vendors working together. When someone goes to a baker to order their cake, they ask who the best florist they know is. When a bride shops for wedding dresses, she asks each dress shop who their favorite wedding makeup artist is in town. Referrals go back and forth in the industry all the time, and you probably see this even more as a wedding planner.

Referrals are great, whether you’re the one giving them or you’re the one receiving them. How do you keep track and how do you keep vendor referrals organized, fair, and compensated? With so much back and forth, referral agreements are the perfect way to keep everyone accountable and appropriately paid in your industry. 

Here are two examples of when a referral agreement template will come into play as a wedding planner.

referral fee
1. Referring A Cake Baker

Your clients come to you to plan their big day. They have most of their vendors already chosen, but they need help finding someone to create their wedding cake. You refer them to a baker on your preferred vendors list and assist them in scheduling a cake tasting. Your clients decide to book this baker and sign a contract. What type of referral fee will you charge the baker for sending this new client their way?

Having a referral agreement ready to go before referring any new clients to this vendor will ensure that you get the compensation that you have in mind.  

2. Gaining A New Client From A Local Florist

As a wedding planner, you find that clients are coming to you based on referrals of other local vendors. A local florist sent one your way and your favorite DJ sent three more. To show your appreciation for a vendor (and to be prepared when someone comes to you asking for a finder’s fee percentage) have a referral fee template ready. With a template, you can customize an agreement to that particular vendor quickly so that vendor can be compensated for their kind referral.

Have a discussion about the terms the two of you would like to agree upon when a new client is referred to you (or visa versa), and decide on how compensation will work. Will you pay vendors a percentage of the total project for their referrals? Or will you pay them a flat referral fee that they have asked for? You may even decide that after a certain number of referrals, that vendor will be the only one in their field of work that you use with your clients.

It’s up to you, decide what works best, have a mutual understanding upfront, and tailor your referral agreement template to fit those needs.