Project Management

Five ways to reward consulting referrals

Independent consultant Chip Camden proposes five possible ways to reward word-of-mouth referrals for consulting work.

I received an email from a fellow consultant, Jeff Thorn, which read in part:

Do you compensate people who bring you business by way of a referral? I feel like it would be a nice thing to do. But seeing how almost all of my business comes by way of referral, I am not always sure what is appropriate. Sometimes an email introduction turns into a $20,000 project. What is an appropriate way to compensate the person who made the introduction?

Jeff raises an interesting question. One of the best sources of new business is a word-of-mouth referral, so it could make sense to reward those. I can think of at least five approaches you could take:

  1. A fixed amount, small enough that you can afford it, but big enough to encourage the referrer. I suppose you could also make it conditional on turning into at least a minimum amount of business. For example, you might give your referrer a $100 finder's fee once you're assured of at least $1,000 in revenue.
  2. A percentage of the business it leads to for a specific period of time. That would encourage people to find *good* leads. Maybe something like 2% of revenue for the first six months. Of course, you should build that into your fee so you're not taking a loss, so be sure to balance the size of the reward against not overcharging your client.
  3. If the referrer is a client of yours, give them a discount on their future business for a specific period of time. For instance, 5% off their bill for the next six months. That would not only encourage them to provide a referral, it would also make them want to give you more business themselves at the reduced rate.
  4. A non-monetary gift or note of appreciation. Money isn't everything, and sometimes a personalized gift can mean more to someone because they know you took the time to think about how to thank them, rather than following a predetermined compensation policy. In that case you want to make sure that you do give it some thought, rather than dropping a one-size-fits-all gift or a pre-printed card in the mail.
  5. If the referrer is a fellow consultant, return the favor. A consultant who gave you a referral understands the value of referrals. Furthermore, they've demonstrated that they care more about finding the right solution than they do about snatching up all the available business for themselves -- thus, you can bet they'll do good by the client you're sending their way.

I don't think I've ever rewarded a referral with anything more than a "thank you," but now that Jeff made me think about it perhaps I should. One of my colleagues, Eric Everson, gave me two referrals years ago that turned into more than half a million dollars of revenue since then. I should really buy that guy a beer. Or at least link to his business.

How do you reward referrals? Do you have a scheme that doesn't fit into one of the above categories? Let us know by posting your comments in the discussion.

About

Chip Camden has been programming since 1978, and he's still not done. An independent consultant since 1991, Chip specializes in software development tools, languages, and migration to new technology. Besides writing for TechRepublic's IT Consultant b...

6 comments
londonjon
londonjon

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numenon
numenon

Rewarding referrals is the visionary approach ! There are a few elite career boards that actually allow advertisers to do this from their dashboards. The UK job board http://qualifind.co.uk has a big section of IT jobs where some show the companies offering referrals for a successful engagement. The French job board http://www.qual.fr has the same approach (it looks like the same software platform) with 'prestige' IT jobs mainly in Paris.

viProCon
viProCon

I think if you get a client from a referral, and the client turns out to be a good one, it doesn't matter how it affects your marketing . Unless it would have been a big coincidence, you weren't going to get that client through your own means anyway. As long as the referral bonus doesn't negate your incoming revenue, it's fine. Mind you I am a very small consultant so perhaps this only applies to my own situation. The only issue to me is if the referral process itself is done in a cheap manner, like your referring party is acting like they are your representative and are, for lack of a better term, spamming potential clients on your behalf. I disagree with the idea of rewarding just the referral and not the sale. The person referring the potential client might be motivated to do better filtering before they send you a referral if they know the big reward is if it turns into real revenue. Perhaps it would work to give a token of appreciation for the referral, and a high-value bonus if the referral becomes a revenue generator. The 6th referral idea would be to have an escalating rate or value for the referral bonus for subsequent referrals from that same referrer. The mechanics of this are dependent on what kind of money you make and the level of cliehnt etc, I'm just speaking from the perceptvive of a small independant consulant. If the reward structure were fixed-fee, then I would say you need a multi-level structure of fixed fees for various services you provide. For example if the client just needs 3 computers installed in a small office, well, that's not a big engagement so the fee would be small. If the client needs consulting on how to deploy 100 servers into an existing infrasttrcture the fee would be pretty big - so some level of proportion is needed. If I get $50 for sending you $10,000 worth of business, that seems lame. But this gets complex potentially since each line of consulting business has it's own set of "small and big things". So, I personally would tend towards a directly proportional reward system - a percentage of net revenue (or net income, or whatever) for a period of time. This period should make the referrer feel well rewarded though so saying 1% of revenue for 3 months is probably kind of weak. I might say 3-5% for a year, or a certain fixed-fee minimum if the percentage's total was low. Remember, this business was not yours until this person referred them so it should be a generous reward. That's just my opinion. Now when it comes to friends or close associates sending business to you - that's a bit more touchy since if you have a well-known referral system and don't use it with that friend, well, money is very divisive in nature and can cause tension. Pay the reward and ALSO buy the beer, that way the focus is off the reward and onto more enjoyable stuff. BTW, mix a half glass of beer and a half glass of ginger ale together (called a Shanty) and you may just choose to never have a regular beer again :) But for those who feel this brings their manliness into question the easy solution is to just finish off the beer from the bottle or can right there, let out what roaring belch you can, and only THEN should you thoughtfully sip your new Shanty =P Seriously though, Shanty's are awesome and this comes from a guy who also likes straight Guisness from the jug too.

PMPsicle
PMPsicle

Rewarding referrals is a great idea. That's why recruiters do it. That's also why real estate agents do it and ... you get the idea. However, there are a few things to keep in mind .... 1. Be careful that you reward the referral not the sale. (Basic motivation rules ... if the direct link isn't there then the motivation won't work. If you make the reward based on an actual sale then you make the motivation depend on your ability to sell. Something that your referrer can't control. Not a good way to motivate.) 2. Many organizations have rules against accepting rewards (& gifts) from suppliers. (Violation of ethics) 3. Some people will feel that rewarding the referral is somehow cheapening the referral. (This affects both the referring party and the referred party.) 4. You need to know what people will value in a reward. In short, you need to know your clientele when selecting a reward. Glen Ford, PMP http://www.vproz.ca

Sterling chip Camden
Sterling chip Camden

But when shared, it also fills the role of community-building ritual. That's a liturgy I can get behind.

gechurch
gechurch

I was going to write something much the same. I work for a small consulting firm and we've dabbled with the idea of rewarding referrals. The main reason we haven't done it is fear of lowering the value of the referral. A referral from someone that gets absolutely nothing out of doing it means a lot. If you reward that person suddely your referrals are cheapened. You've actually lowered the value of your best marketing tool! I also agree completely that you should reward the referral, not the result. We've had another consulting company refer us twice. One landed us a big client, the other came to nothing. Both times we gave the referrer a small gift (bottle of wine) to show our appreciation.

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