Referral Fees, are they worth it?

What do you think of referral fees? The 40 second round seems to be full of people explaining their referral fee incentive. Do you use them? Does the idea of a bit of cash incentivise you to refer people to a particular person? 

Really interested to hear people's thoughts on the pros and cons of them!

I think it sounds desperate, it also makes it clear that there's atleast the referral fee as their margin.. so it's a great place to start negotiating! 

We have a system in place where we are not allowed to accept referral fees.  Has made for a couple of awkward telephone converstaions where we've referred clients to certain banks and they want to pay us the standard £35 or so.

And no it wouldnt incentivise me to refer one person over another.  I would always try and link the right people together as appropriate.  Better to have two happy contacts that will spread the word over a (very) short term financial gain. IMHO

Targetted referral fees can work really well. For example on our Parksure scheme which covers Park Homes, we offer M & S Vouchers as an incentive to our customers to recommend us to their neighbours on the park.

Introducers payments to someone who can introduce you to a block of business can work well too. For example we would consider paying an introducers fee to a letting agent who could introduce us to all of their landlords. 

I would not consider paying one-off referral fees though, and to be honest someone pushing their referral scheme at a 4N meeting can put me off. Meet, Like, Know and Bribe doesn't have the same ring to it 

I'll never refer work onto someone just because they offer a referral fee - if and when I refer them on I'll do it because I think they're the appropriate person, and because I'm confident they'll do a good job. They'd be the person I'd refer on that occasion regardless of any incentive.

However, there are times I've seen it done that work quite well. The occasions that it works best it's often done in a much more gentle way - perhaps not as a financial incentive (maybe something that can be given at little cost but which offers greater value to the recipient) and maybe just as a short term offer - eg. this month we're giving away xyz to anyone who introduces us to a friend/colleague who signs up for our abc course. It offers enough to encourage people to have a think whether there is anyone that they've just not considered as a good introduction before but doesn't seem too desperate or have a feeling that it's being done for the wrong reasons.

I'm not sure the 40 seconds round is the place to do it though. Maybe sometimes it's fine, but I'm not sure it gains much to say 'and we offer £X referral fee to anyone who introduces us to a new client' - at that point many people won't know enough about them to be prepared to make a referral regardless of any incentive

I very much agree with the comments here, I always wonder about how those who offer referral fees define 'networking' as I feel it is about building teh credibility so you can recommend the best solution to ensure both sides win.

There is, however, benefit in saying thank you to anyone who helps you, and if you are so much more motivated to recommend someone who heas recommended you. 

referral fees have been good for us - we pay 5% for any referrals for lifetime payments - and clients 99% of time simply transfer credit from their referral credit to call credit. Occasionaly we also send out cheques for a few hundred quid as well.

Tend not to shout about it at networking meetings as it is all inbuilt into the system for clients when they sign up. 

Absolute No No

If we pass a client on our reputation goes with the recommendation, so we are not interested in a fee, but in our client getting excellent service from the referral

Let a younger, slimmer me with his comically bad wallpaper answer your question...

Utterly sensible opinion.  Relics of a bygone era.  Good point well made.

I did an experiment with this switching between offering cash and Apple products. Neither worked

I think the smaller the client base the less it works. Referral schemes work well for the likes of Amazon because they can sign millions of people up with zero maintenace. Our services are more bespoke with a much, much smaller client base, so it hardly works at all and is high maintence

Same really with affiliate links. Breaks down the element of trust. 

I think they work fantastically for services where existing clients are offered a bonus for referring the service to somebody - see JAM, FreeAgent and the like, but fall down completely when offered as a non-genuine referral motivated by money.

I'm interested to know how people react when asked to *pay* a referral fee, or are asked to add a referral fee onto their quote by a third party. In the freelance web development world, we often pass work around between each other depending on capacity levels, skillset required and so on. Some people will always manage the client & the project regardless, and from this they earn their cut and more importantly maintain their relationship with the client. Others will just refer you across directly with an introduction email and let you take it from there. 

Sometimes I am passed a lead, and the 'passer' will ask me to pay them a cut of anything I make. Up until now it's never really bothered me, I'll usually just whack the 5% on and be done with it, knowing that when I do a good job I will have that client on my books and will generally get repeat business from them (which should be your aim when freelancing, but that's another story) but should I be doing something different? 

I am not a fan of referral fees or affiliate links. I am particularly disappointed when I see non-accountants suddenly throw up an affiliate link to bookkeeping software. In that area I think you need to have knowledge of more than one product and the client before making the recommendation.

To be honest, there have only been a handful of instances where I've been asked for a referral fee by someone passing business my way - on those occasions I've been happy to do it that way. I tend to take a view on the specific circumstances rather than as a blanket policy. On the times it's been done I've been happy enough - the client would otherwise have paid the same amount but would have been invoiced by the referrer who'd have added the fee as a mark up. The way it's been done has just made repeat business a little more straightforward with no mark up/referral fee to be added.