How to Determine Compensation for Referrals

QUESTION: I am meeting with a business coach tomorrow that is interested in sending referrals in exchange for a percentage of the placements that I make from his customers. I have never done this before. What is the typical percentage to pay someone that can give me leads? – Kristen

ANSWER: The percentage really is based upon the quality of the lead. I would ask him what he is specifically providing with each lead.  

Is he going to simply call some in Human Resources because he saw a posting on their site or is he going to deliver someone on a silver platter? By delivering on a silver platter I mean here is a client of mine, he is the President of XYZ Company and they have this vacancy that needs to be filled. That is a great lead.  

If he is going to call HR because he saw a posting on their website, well, you can hire someone in Asia for $5 an hour to do that. I want to distinguish the quality of the leads before determining the percentage.  

Let us assume it is a quality lead with a decision maker, not an HR person, you might give him 25% of the first two placements with the company and maybe 15% of the third placement. This way he will be fairly compensated if there is something there. However, I would not do more than 25%, but I would probably do one or two at 25% and if it is a quality relationship and a third one at 15% and for that, in effect, you have bought the client.  

I would not pay a percentage on each placement into perpetuity unless the quality of the lead was so stellar, meaning that business coach constantly worked with you and that President and was integral in keeping the relationship alive, then you can think about making it more, but based on what you have said, if it is a high quality 25%.  

If the lead is the type in which the coach has kind of heard about something and there is not going to be a formal introduction, it is a lower quality lead. For those leads I would suggest maybe 10% to 15%. But I am making the assumption as a business coach he is going to have a good relationship with a person he is approving and he is going to introduce you, and that is well worth 25%. Great question.

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