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.