Question on Referral Fees…

Should you pay referral fees? That question was recently posted at LinkedIn on the Business Consulting Buzz group:

Referral Fees for Independent Consultants?

Interested in your opinions: As an independent Consultant, would you be willing to pay and/or receive referral fees?

Here is my reply:

As consulting engineers, we are concerned that referral fees might be perceived as conflicts of interest. As such, we do not accept (nor pay) any fees from the vendors serving our technical community.

When asked for vendor recommendations, we give clients at least two. If asked for our preference, we will share that with an explanation. Our vendors understand that no fee is expected, but we hope that the courtesy of a recommendation will be reciprocated.

We do, however, pay a referral fee to marketing partners for consulting business. These currently include a manufacturer’s rep (we are on their line card), and a training firm (we are in their catalog.) We also have agreement letters in place.

The percentages vary from 10 to 30% of the fee, depending on the effort. 10% is for a qualified lead that we pursue/close; 20% for a purchase order; and 30% for collecting the payment and sending us a check for our share. We pay referrals only when we get paid, and only on the fee (not expenses, as we do not mark up client expenses.)

Also, we don’t partner with consulting colleagues. We tried sub-contracting for a while, but it was more hassle than it was worth. When appropriate, we simply pass along leads with no strings attached. We make sure our clients understand that no money changes hands on referrals, and that we are out of the loop. In other words, we passed along a name — please make your own business decisions.

Hope this helps. Feel free to contact me. Been at this consulting gig 30+ years, happy to share, and still learning…

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