Magic Marketing Wheel: Making Money Through Referral Fees

This article is part of a series on different marketing approaches for small businesses. Click here to read the initial article, Marketing Wheels: How to Keep Moving to See Your Business Succeed.

The magic of this marketing wheel lies in earning money by referring leads that aren’t a good fit for your business. We’re all tempted to take on projects outside our niche or with bad timing, but this can be detrimental.

I had a similar arrangement with a colleague. He made it mutually beneficial and documented everything. While writing him a $1,000 check was initially difficult, the $10,000 sale made it worthwhile.

When to Refer Out a Lead

  • Project Niche Mismatch: The project doesn’t align with your niche expertise.
  • Project Size Discrepancy: The project is either too big or too small for your capacity.
  • Missing Equipment: The project requires specialized equipment you lack.
  • Scheduling Conflicts: Your schedule is overloaded, and the client is full.
  • Superior Referral Partner: Another professional can handle the project better.
  • Low Profitability: The project’s profit margin doesn’t justify your time.
  • Dislike for Project Type: You simply don’t enjoy doing this kind of project.
  • Client Disconnect: You didn’t connect well with the potential client.
  • Tight Deadlines: The deadline is too short for you to deliver quality work.

Referral Considerations

Some referral reasons are client-related, like budget or personality. While I wouldn’t want you to pass on problems (even to competitors), some colleagues might have more patience for such clients or be more financially motivated. Always disclose everything and let them decide.

For example, I once met with a potential client alongside a contract web designer. After the client left, the designer decided to decline due to personality concerns. I respected her decision and continued our working relationship. (Side note: I didn’t land that particular project, but that’s okay, because I wasn’t crazy about the guy either.)

Formalize Referral Agreements

Crucially, establish a formal agreement with anyone you refer leads to. This agreement should outline how leads will be referred, the referral fee (percentage or flat fee), and payment terms. Referral agreement templates are readily available online.

Front-Loading Referral Fees

I recommend paying the entire referral fee upfront, upon the receipt of the down payment. This ensures your partner isn’t left waiting for payment until project completion. Additionally, it minimizes the chance of forgetting to pay them.

The Power of Reciprocity

There’s an additional benefit: you might receive leads from them in return (with a referral fee paid to them, of course).


Photo by Joseph Two on Unsplash

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