If you’re a small business, you’re always on the hunt for new customers. Referrals can be a lifeline, especially when you’re trying to break into new markets or reach out to new segments. ContractClub is here for you.
It’s important to have a referral agreement template ready to go for when this opportunity arises, but it’s equally important that you make sure your agreement is rock solid, to prevent headaches down the line.
Referral agreements can be complicated and take many forms, but a good agreement will always have certain essential clauses. When you’re writing up your agreement, make sure you define and answer these key questions:
1. What is the relationship between you and the party giving you referrals?
You should define relationship as an agreement between independent contractors. You’re the principal and your referrer is the agent.
2. Will you be receiving be qualified or unqualified referrals?
This is a big one. A qualified referral is a business lead that has already been vetted and communicated with by your agent. An unqualified referral on the other hand can be as little as a name or phone number. If you just want a list of potential prospects, then all you need are unqualified referrals. But if you’re looking for qualified leads, then make sure you specify this.
3. How will your agent will be paid?
You can choose either a percentage commission on the referrals they bring in, or a specified dollar amount.
4. When is the commission on a referral earned?
Typically an agent is designated an earn out period, which is a specified period of time that begins with the date of a referral. If a sale ends up being made before the end of the earn out period, then the commission is earned. You must decide how long you want the earn-out period to be.
5. When does the pay out period for the referral expire?
If a referral from an agent ends up becoming a loyal customer, you need to make sure you’re not stuck paying a commission on their repeated business to the agent forever. Specify a limit to the amount of time you will be paying the commission, otherwise known as the pay out period.
6. From what revenues will the commissions be payable from?
It’s important to specify exactly which revenues will be subject to commission payments. Typically this falls under Net Revenues, which include money earned minus credits and returns, as well as things like taxes, duties, and tariffs. Essentially, you need to make sure you’re paying a commission out of your revenues after all other fees have been considered.
That’s it for now! This list isn’t exhaustive, but it will be a great start. Keep your referral agreement simple and easy to understand, and you’ll be well on your way to increasing your customers.
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Disclaimer: These clauses have not been tailored to your specific circumstances and it may be advisable to consult with an attorney before use.