This is ReferralHero. The Queen of referral software that helps you checkmate your competition.
For years, I’ve worked my butt off building the perfect network to keep my business growing.
We all know that word of mouth is the most powerful marketing tool, and people are four times more likely to try a product or business if someone they trust recommends it.
But it can be a real challenge to keep this kind of marketing consistent.
That’s where a finder’s fee comes into play, helping you incentivize a boost to your organic marketing.
I’m going to take you through what a finders fee is and how you can use it to take your company to the next level.
What Is A Finders Fee?
Essentially, a finder’s fee is a commission or reward paid to someone who helps you make a sale or close a business deal.
The referrer plays an important role by connecting you with their contacts and introducing your product or service to potential customers.
Finder’s fees are becoming increasingly popular among businesses in all industries, as they effectively encourage referrals from third parties.
Plus, it's relatively low-cost marketing for companies that need more reach!
The Issue With Traditional Referrals: Incentive
Traditional referrals are spectacular, and you should make sure your company has a strategy in place to ask for them.
But, when there is no incentive in place for a referral to blossom into something lucrative, it can get a little hit or miss concerning who gets sent your way.
That’s why a finder's fee is so powerful.
It allows the “finder” to receive something when their referral goes well, meaning they are that much more likely to bring you up to people who will get truly invested in your business.
Who Pays a Finder’s Fee?
A finder’s fee is typically paid by the company that was referred to.
So if you are a small business looking for new customers, then you would be paying out a finders fee.
But this doesn’t mean that you don’t get anything out of it.
A successful referral could result in an influx of new customers, which will more than pay for the finders fee (and then some).
There will also be a much higher chance that these customers fit your target market because the people pointing them in your direction REALLY want it to go well.
After all, when the referral gets off the ground, both parties start making some money.
Finders Fee vs Referral Fee
A finder's fee is paid to someone who finds potential customers or buyers for your business.
This could include anything from finding new leads through social media, word-of-mouth referrals, cold calls, etc., and can come from anyone at all.
On the other hand, a referral fee generally comes from another professional in your field when they share the wealth of their client base.
Instead of a specific fee directly related to the profit that is earned from the referral, someone receiving a referral fee agrees to take a portion of the seller’s commission.
How Does a Finders Fee Work?
So, if you’ve decided to start offering a finders fee to up your quality referrals? Here are some things to keep in mind.
A finder’s fee is basically a commission-based structure for referrals.
The person who makes the referral gets paid a percentage of the whole deal when it closes, which incentivizes them to refer more and better quality leads.
It’s generally easier to implement than other incentives and doesn’t require you to give away too much equity or revenue from your business.
A finder's fee might be a one-time deal, but usually, it extends for a longer period of time, with the ‘finder’ benefiting from long-term success with the new customer.
This can start to get complicated when trying to track exactly how much a finder’s fee should be over time, which is why a third-party software like ReferralHero can be so helpful. This tool can track and automate the entire finder’s fee financing process.
Deciding the length and percentage of the fee is up to you, but can depend on several factors, including the size of the deal, the experience of the ‘finder’, and how valuable you suspect the connection will ultimately be.
What Is a Typical Finder’s Fee?
A finder's fee need not be excessive – the most common structure is between 5-15% of the deal value (agreed upon by both parties ahead of time).
This means that if the referral turns into something big, the ‘finder’ will have a lot more to celebrate.
How Do I Ask For a Finder’s Fee?
Maybe you’ve realized that you’ve been referring customers to businesses and making big connections in your circles already.
It can be hard to ask for what you’re worth, especially if it’s something you’ve been doing for free.
The most important part of requesting a finder’s fee is communication.
Be as upfront as possible with the group you’re hoping to promote, it won’t help anyone to beat around the bush.
Be reasonable with your rate, and remember that the more lucrative your referral ends up being, the more you’ll take home.
Setting a Finder’s Fee Agreement
As you jump into a finder’s fee agreement, the final partnership must be fair for both parties.
A good ‘finder’ will put in hard work to ensure the person they refer will stick around for a long time. They need to be compensated for that effort.
At the same time, you don’t want to feel like you’re throwing money away.
Take some time to figure out the scale and potential payoff of your desired referrals.
Coming to an agreement together beforehand makes sure that no one gets sticker shock, or feels like their work wasn’t valued.
Once you’ve agreed, it’s important to ensure that both parties follow through.
To make that process easier, most companies use some type of tracking software, such as ReferralHero. This is a great tool for confirming sales and qualified leads, as well as tracking who exactly was responsible for sending a particular lead or customer to your company’s website.
How Long Should You Pay A Finder’s Fee?
Depending on the industry and the amount that someone helps you, it’s common for finders fees to pay out anywhere from one time to multiple years.
The decision is ultimately based on how long you think you’re getting value out of the referral.
Eventually, the client will stick around because of YOUR work, not because someone recommended you.
How To Decide on a Proper Finder’s Fee
When landing on a finder’s fee, you need to take into consideration the specifics of your situation.
For example, if you know the person doing the referring, or they haven’t had much experience in bringing high-value customers in, then it might be better to stick with a lower finder’s fee – maybe 5% of a sale.
However, if they are a seasoned pro and continually bring in great customers or the deal they help secure was more their doing than yours, you may want to bring that amount up to 15% or even 35%.
Typical Finders Fees in Different Industries
Deciding on a finders fee to offer depends greatly on the industry that you’re in. Here’s a quick breakdown of a few of the more common industries that use a finder and how much they are being paid.
Typical Finders Fees Across Industries
- HR and Recruitment, 20-30% of a new hire’s launch
- Real Estate, 5-35% of the real estate agent’s commission
- Investments, 4-5% of the investment brought in
- Consulting, 5-20% of sales from referred business
- Freelance, 2-10% of sales from referred business
A finder's fee can help bring in quality customers while supporting those who help you on your way.
Encouraging high-value referrals is a great way to give your company a boost, and with the right tools, it doesn’t need to be complicated.
I owe a lot of my success to my network. Encouraging that engagement allows me to take word-of-mouth marketing into my own hands, and now you know how to utilize this powerful technique as well!
The sooner you launch ReferralHero and invest in one of the most successful forms of marketing available, the sooner your numbers will soar.
Ready to 10x your software platform, mobile app, or web3 company with our automated growth engine?
In just 14 days, we help you build the same waitlist, contest, or referral program used to launch and scale Airbnb, Uber, PayPal, and 1000s of other businesses. Start your ReferralHero free trial today.