Do you refer work out to other agencies when you don’t have the right staff to handle the project, the budget isn’t great, or honestly… the client won’t be the right fit? If so, you can (and should) capitalize on that referral as a passive income source. That starts with putting a Referral Agreement in place.
Referral Agreements, also called Affiliate Agreements, allow you to get paid a fee for the work you refer out to other agencies. These simple agreements are typically only a few pages long, but what you include in those pages is important.
Key Elements of an Agency Referral Agreement
Sure, getting paid for something as simple as forwarding contact information sounds great. But as with most aspects of your agency’s financial health, you need to make sure all parties are on the same page (literally). If you are considering putting a Referral Agreement in place, you need to consider the following:
Do you want a mutual relationship?
This way you can refer work to the other agency, and they can refer work to you.
How much will you get paid for the referral?
Typically, the referral fee is based on a percentage of the gross or net collections earned from the referred client. These percentages range, but we’ve seen about 10% as a common industry standard in the past year or two.
How long do you want the referral period to last?
A referral agreement should include a sunset clause that limits how long the referral fees last. The fees won’t go on forever but receiving payments for at least a year is standard.
What exactly is the referral fee?
This is where clarity is important and both agencies need to be on the same page. Is the fee based on gross collections, a specific definition of revenue, or something else?
What constitutes a referred client?
Having clear parameters around when the referred client signs up is important. Is it really a referral if they start working with the other agency in five years? Typical parameters might include:
- The prospective customer must contact the receiving agency and reference the referral or the referring agency must make an intro.
- The prospective customer can’t be a prospective or current customer of the receiving agency.
Also, if the referred client already has a personal connection with that agency, they probably won’t want to pay you for the referral.
Do you want the relationship to be exclusive?
We recommend not locking your agency into just one referral relationship unless it is a very reliable source of income.
There are other issues to address in a Referral Agreement, but those are the big ones. Reach out to the Matchstick team if you want to put a Referral Agreement in place and have some extra easy money coming in the door each month.