Tag Archives: Referral fee

How should we construct a referral incentive for “friends of the company” who help us find business?

A few ideas for a good lead referral program:

  • Document the referral. Maybe you create an online form for lead submission, or a process whereby the sales person receiving the lead is expected to document the fact that it was a referral.
  • You should probably have some kind of requirement about the depth of the referral. It would not “count” to have someone just provide a contact list or a bunch of possible prospects. A lead on which you want to pay a referral fee is usually based on a relationship and some personal history to give the referral credibility with the prospect. In addition, some limited amount of opportunity discovery work should be expected so that the lead is handed off with some information about the value of your offering to the prospect, the nature and size of the opportunity, key influencers for the decision to buy, etc.
  • The payout amount should be enough to be worth the effort for the referrer, and also clearly affordable to the company. It could be (1) a flat amount per referral, or (2) a tiered payout scale with larger deals being paid at a higher rate, or (3) a small commission (a percent of the deal value). Something around 5% – 15% of what a regular sales person might earn on the deal is sometimes a reasonable starting place – though this would depend very much on the nature of your own internal comp plans. If the fee needs to be much more than 15%, of “normal” variable pay associated with a sale, you may have to consider reducing the payout to the sales person to help fund the referral fee to make it affordable – and this is certainly not going to help you sales people want to work those referral leads first.
  • Only pay for closed deals – no payment just for the referral. You need top quality leads that don’t risk wasting the time of your sales people. If you pay for referrals, you’re likely to get a lot of them. If you pay for referrals that result in closed deals, that’s what you’ll get.

Referrals are vital to many businesses. Setting up a referral incentive can be a great way to reward those who help create real value for the company.

Do you have any tips on developing a business lead incentive program for a non-sales employee?

Companies typically use a referral fee as the vehicle to pay a non-sales employee who identifies an opportunity, refers it to a sales person, and it closes and becomes new business for the company. Lead referral incentives can be great to motivate the rest of the company to feed good leads to sales, similar to bonuses offered to employees who identify an external candidate for an open position. Here are a few guidelines to maximize the effectiveness of your program:

  1. Offer a meaningful reward, but not one that will encourage non-sales people to focus so much on this earnings opportunity that they neglect their key accountabilities. For example, if the eligible employee has total compensation without the lead bonus of $50k/year, then an award of $100 – $200 for a lead that turns into business would be about right (assuming their opportunity to hand off these leads would come up only a few times per year, and the deal value is such that the referral fee is affordable).
  2. Start the program for a limited time – six months or a quarter for example. This gives people a sense of urgency to find some leads, and also gives you a chance to adjust if it isn’t having the results you want. You can always declare success and extend it.
  3. Only pay the award for results that hit your income statement. If you pay for leads, you may get a lot of leads. If you pay for closed deals resulting from leads, your lead quality will be better.
  4. Watch for any pattern that would indicate that suddenly all leads have come from an eligible referral source. Some companies have had the experience that, when such an incentive is offered, it appears that there is an attitude that someone may as well get the referral bonus so let’s be sure to code someone to get it every time.
  5. A few months into your program, check with your sales people about the quality of the leads they are getting. Be sure you are clear with your referrers about what constitutes a good quality (well-qualified) lead. It will make everyone’s efforts more productive and the whole program more satisfying.