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What is the right percentage to give to a partner (company) as a referral fee for new business?

I have recently started a sales enablement consulting services company here in Austin. I hope to use this initial phase for market validation; to see what SBM clients want from a sales enablement provider and then I'll start to automate some of the steps and processes via a software platform. There are adjacent services providers (ex. marketing, PR, etc.) that will make great partners. So I am wondering what percentage of services (or software) fees I should give when they bring me into an account and (same) how much should I expect when I bring a partner into one of my accounts?

Thanks in advance for your comments.

Best,

John

6 Replies

Derek Steve Bereit
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Derek Steve Bereit Entrepreneur • Advisor
Startup founder || python neophyte, NY attorney, veteran || general counsel Nimbo || co-founder Symptomly | Techstars
Think of your referral partners as an extension of your sales force -- fees should be in the range of the commission you would pay a sales person (based on margins, sales complexity, and other factors that determine your commission structure).
Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
@ Derek, yes, but your own sales people are expected to prospect, qualify and generate leads, move leads through the sales funnel and close deals. It sounds to me like John is talking about just leads which he will then have to qualify, drive and close... and some he will not close. And there's no telling if these leads will be exclusive - does his 'partner' also give the lead to one of John's competitors?. That's a big difference. Commissions vary widely by industry/market too.

This is always a touchy subject and i've not discovered a pat answer. This is really "business development" and this issue of compensation/quid pro quo is why it irks me when people conflate the terms "sales" and "business development". They are very different animals and they should be managed differently.

Anyway, Partnering (business development) is always tough - unless your partner companies are actually re-selling your product/service (sales) you can't expect then to place the same sense of urgency and care on prospecting, qualifying, driving and closing deals as your own staff does. I'm also not likely to trust that some other company and their staff can sell my product/services as well as i can so i'm not likely to just turn over deals to them to qualify, drive and close which means they haven't earned the same level of commission my team would if we were qualifying, driving and closing. If your sales model is 'channel only' whereby you will not be selling anything directly to your own customers and all sales will go through partners then that's a different story.

My preference is to partner with companies who need my product/service to win their own deals and visa versa. This way we get brought in early in the process and their 'reward' is beating their competitors and winning their own deals not getting some cash reward from my company. If i am managing a sales team i don't want them distracted by chasing deals on some other company's behalf that won't reward my company the same as our own deals will - and i certainly don't want some other company paying my team directly. This also helps to avoid conflicts among sales teams - your sales person brings my person into an opportunity and then they have different opinions on who does what and why and when... it's a mess.

again, I would focus on more symbiotic relationships where my product can help them close their deals and their product can help me close mine and try to avoid paying 'commissions' to these partners at all. If you still want to pay a finder's fee or commission it should be based on some fraction of the commission you would pay your own sales team - you are paying for a lead not a deal. Especially if you are talking about "PR" and "marketing" partners who are way up stream in the sales process - there is a much more tenuous relationship between their activities and your closed deal.

@ John, what is "sales enablement consulting"?
Mauricio Hernández
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Entrepreneur and Angel Investor

I mention this because it is a similar situation to what you describe. Just to give you an idea: A few years my company partnered up with Google to sell Apps Enterprise and our fee was in the 10% range for each license sold plus direct billing to the customer for implementation and roll out.

Hope it helps!


Rob Gropper
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Rob Gropper Entrepreneur
Director at PetHero, SPC - Member at Eastside Incubator - Principal at Tuxedo Technologies Group
@ Mauricio, it sounds like your 10% was for actually selling and closing the deal and billing (and collection). That's very different than paying for a lead from a marketing or PR firm (very early in the process). If we assume the process from uncovering the lead to qualifying the lead to moving the customer through the sales cycle (proposals, demos?, meetings, presentations?, entertainment, etc.) to closing the deal and billing the customer and collecting the money then the raw lead alone is worth just a fraction of that 10% (in your example) - i realize your example may not include all these steps. Let's say the raw lead is worth 25% of the the whole process. If John were to pay his own sales people 10% commission then for a partner he's at 2%. If a typical deal for John is $100k we are talking about $2k for a lead that JOHN turns into a sale. reasonable. If a typical deal is $10k we are at $200 - buy em a nice dinner.
Neil Warlicht
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Neil Warlicht Entrepreneur
Connector and Entrepreneur
I think this widely varies across verticals/industries. I'm running a recruitment business and in our field these referral agreements are rampant. My personal take has always been: I don't partake in any of them. They tend to get messy and I certainly don't want someone else as an extension of my business now doing BD/Sales on my behalf with the hope of landing a referral fee.

The adjacent service providers that you mentioned should also be able to benefit from leads that you can generate from them as well and I think that a gentlemen's agreement works nicely. I am always happy to refer people that I trust new business and hope that those people will reciprocate whenever they have an opportunity. I know that sometimes this is not the case, but overall I think that what goes around comes around.
Ayang Obur
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Ayang Obur Entrepreneur
Managing Director at WeAreWizard
There is no right amount for this. But the key here is to ask yourself these questions

What is the cancellation rate?
What is the lifetime value of your customer?
Can I give a higher commission for a product that generates repeat business?
What low value product can I create that has a guaranteed up sell with a higher value?

What i tend to do with affiliates is to give 90% commission on an entry level product to get a qualified lead but focus my energy and time on converting those lead to the higher paid product. Worse case scenario It growths my prospect database if they don't buy so its a win win.
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