Referral Commissions

Sunday, 30 March 2008 at 1:53 pm Pacific USA Time.

I was just thinking about something. Play this out with me. :)

We offer partners a referral commission. If they send someone to us, we give them 5% of the contract amount for the person they sent. Our average sale is $3000, so some people are happy with that percentage, especially since we want you to do NO selling. Don’t sell us! Just refer people to us and let us do the sales. We’re good at it, plus we only want to sign the right people for the right services.

Some people think that 5% is too small, and they want more of a cut. Firstly, I’m not sure how much they deserve when they’re not really doing any sales or work. They’re just telling someone to call us, or us to call them. Secondly, if Company X can afford to give someone say 15% as a commission, then that’s money they can lose and STILL be profitable.

As in let’s say you pay someone $1500, and let’s say they pay $225 to their affiliate as a commission or referral fee. That means that this company could be charging you $1275, and still make money. When the sale doesn’t come from a referral, Company X just makes even more.

I was just thinking about giving people a great price for the services you provide. I feel a little weird that some people can offer 10%, 15%, maybe even 25% kickback to someone else. This year, we raised our prices because we have been packing more service and attention into what we do. It costs us money internally, so we need to bring that in as revenue.

How would you feel if I raised our prices just to have more of a buffer to give out as commissions? Anybody can do this math. If you know that I only give 5% to everybody, then you know that I am pricing things pretty much as low as I can. If you find out another company gives 25% in commissions, imagine if you got that 25% off instead of that company pocketing it or giving it to the friend who referred you.

It reminds me of a conversation I had in my eBay Live booth a few years ago. A woman stopped in my booth, and was nearly angry that I didn’t have lots of freebies for her. She asked me where was the free stuff? I replied, "You think that free stuff is free? The more I have made up to give you to for free here, the more I have to charge you when you hire my company." She walked off in a huff.

I guess I’m still part socialist. I like to see the client get the best price rather than build in huge buffers for us just in case someone gets a commission. I’d rather that commissions be small thank yous rather than things that drive people, or something that makes or breaks relationships. I’d like people to refer us because we’re the best, and then enjoy the thank you. :)

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Categories: Just An Observation

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