By Lawrence Levine
Everyone knows about networking with business associates and asking current clients for referrals. These are hit-or-miss propositions, at best. Certain clients, such as government organizations, may have limited influence and/or defined ethical embargoes on making referrals. Other clients may have competitive concerns that make them unwilling to refer you to their partners, peers, and other contacts.
Fortunately, there is another channel that may prove much more effective in securing good referrals: Try offering free consulting services to not-for-profit organizations in exchange for endorsed referrals. In this article, I’ll tell you how to find the right nonprofit client, how to barter for referrals, and how pro bono work can affect your taxes.
Finding the right pro bono client
An endorsed referral is an agreement that the client will contact a business colleague, endorse the consultant’s services, and provide contact information to the consultant. Essentially, the consultant receives endorsed references in the commercial arena in exchange for the IT services provided.
Conducting pro bono work in exchange for referrals is usually best suited for a newly formed or early stage consultancy, or for a firm that has “slack time”—fewer jobs than normal on its current docket. With appropriate and timely follow-up, consultants can expect about 60 percent referral success. (A similar referral methodology is used in the financial services business, particularly by CitiGroup, and they are often able to achieve this percentage or better.)
Depending on your target market, it can be easy or difficult to find a not-for-profit organization that needs your particular service offering. Look for an organization that likely contracts with commercial organizations that may need your services. For example, a business-to-business contracting consultant might do better offering services to an organization such as the American Red Cross—which contracts with commercial transporters, laboratories, and blood-storage facilities—rather than to an organization that primarily provides social services.
Getting the referrals you want
Be sure to discuss your “barter” terms early on. Once you’ve established that there is a good match between what you can offer and what the not-for-profit client needs done, you should say something like, “I can donate these services, but I would appreciate your endorsing me to X number of your commercial contacts in return.” This early-on communication is essential, but don’t expect to have a referral in hand until you have provided some valuable service to the organization. Once you have completed the work, you might take advantage of the organization’s expressed satisfaction by saying something like, “I hope you’ll remember the high quality of my firm’s services when you call those referrals.”
How many endorsed referrals should you request? The answer will depend on several factors. First, the size of the organization will influence how many commercial vendors they purchase from. A national organization’s headquarters should be able to provide at least ten endorsed referrals for a certain quantity of donated services. Another determinant is the magnitude of the donated services. Developing a simple application or upgrading a few desktops might justify a request for only five endorsed referrals. On the other hand, resolving legacy-to-modern system language interface problems might justify considerably more referrals.
A written agreement, ordinarily an absolute requirement before work begins, isn’t really appropriate when you’re offering to donate services. A verbal offer is valid and enforceable, especially if witnessed. (Read Meredith Little’s article on verbal agreements for more information.) However, that enforcement would most likely be the last opportunity you’ll have to request a referral. Repeating your request for referrals, especially at successful points during your pro bono project, works nearly as well as a written agreement. (You can hardly expect to get a good reference if the consumer isn’t happy, anyway.)
Consider tax implications and for-profit clients
You can derive limited tax benefits by performing pro bono consulting. Although the donation of services is a somewhat murky area of personal tax law, the value of the services is generally not deductible to the consultant. Fair market value of items and cash donated are deductible (with some limits) from personal income but personally provided services are not. Nevertheless, you can deduct mileage driven to provide donated services, although at a lower rate than normal business travel. IRS Publication 526 describes the details of charitable deductions, but the lower ($.14/mile rate) can be replaced with the “actual cost method,” essentially allowing the same deduction as for ordinary business miles. The full cost of expenses such as tolls and parking are also deductible as charitable contributions.
You might also consider asking for endorsed referrals from a for-profit organization. A for-profit organization would probably be happy to exchange a promise of endorsed referrals for free services, but you need to decide whether the referrals are worth more than the potential fee you would charge the referring organization. While no charitable aspects apply to this situation, mileage and related expenses would be deductible as a normal business development expense.
Lawrence Levine is a special projects manager with a defense logistics agency in Philadelphia. He has worked as a project manager in the United States and Africa in the public, government, and not-for-profit sectors.
Have you performed pro bono work in exchange for referrals? Did you win new business as a result of the referrals? Post a comment below or send us a note.