We all want to keep a steady stream of clients coming into our businesses, but how can we ensure there’s a constant flow?  A finder’s fee can help establish a network of people that refer your business.

Print advertising seems to have gone the way of cave drawings, and digital messages can be fleeting. People don’t have long attention spans, and conversion rates for things like pay-per-click (PPC) ads are at all-time lows. Company advertising is expensive, and it doesn’t capitalize on existing brand advocates. That’s why many small businesses offer finder’s fees.

But what’s a finder’s fee, and how can you use them to generate more sales? This blog will show you how.

What is a finder’s fee?

A finder’s fee is a type of commission paid to the coordinator in a transaction.

Say you’re looking for an apartment– you’re willing to pay a realtor fee so they can set up appointments for you or find a place that hasn’t been listed on the market yet. In some markets, it’s almost impossible to get a decent apartment without finder fees. With a type of fee, you pay someone for their experience and contacts.

As a business, you can offer payment to brand advocates who are able to bring in new business. It’s sort of like a referral agreement, but these people are exceptionally good salespeople, drumming up a new business that you wouldn’t have otherwise. At some point, these brand advocates should be rewarded, and you should consider offering them finder’s fee money.

What is a finder's fee?

What is a finder’s fee?

Who should use finder’s fees?

All sorts of businesses can use finder’s fees to gain access to client networks that are tough to tap into. If someone has a whole network of people that would be perfect customers, it makes sense to enlist them as a salesperson, and pay them a percentage of the finder fees. Other terms for these customers are ambassadors, advocates, and influencers

Determining finder’s fee percentages?

When figuring out a finders fee percentage, there are multiple things to consider:

Servicing the deal and cost of goods sold

Am I already compensating my own salespeople on a commission basis?  If so, is the referring party a replacement for them or do they just send the lead to the salesperson? Is there a service/consultative component of the sale?  Is this a white label type of deal where I am the service provider?  Are their material costs for the service?  What does it cost you to perform this service?  What is your profit margin on making a sale?

If there is a substantial cost of doing business for the sale, the percentage should be lower.  Also be weary of giving a commission comp to both the finder and your sales team.

Length of the sale process

Some sales processes take a long time to close.  How long does it count as a sale for the referring party?  Within 1 month, 6 months, any purchase?  How long should you consider this lead/sale as coming from the referring party?

It has to be fair so you aren’t handcuffed to this deal forever.  Understanding and being clear on when the relationship transitions from the finder to the business is important.

When do you get paid?

How are funds received for the sale?  Up front?  Installments?  Is this a recurring service?  What about refunds or money back guarantees.

When cash is received helps plan out the payment schedule.  Just be sure you are making money in all cases.

 

All of these factors help you determine how much to compensate when to compensate, and for how long.  You want to be fair to all parties so it makes sense.  After all, we all want our fair share.  Important to look at both sides of the table!  Once a proper structure is put in place, everyone can win!

Why use a finder’s fee?

A finder’s fee agreement encourages intermediaries (think of bird-dogging sales) to go above and beyond to spread the message about a business and reward them for a job well done. Bird dog sales are when past or current customers seek new customers on the behalf of the business, also known as a referral or referral agreement. Some bird dog sales techniques include giving flat fees to the bird dog who brought in new business. Providing this finder fee to the bird dog then increases the chances of further engagement and referrals. 

These programs foster a sense of community and involvement with employees and keep clients excited about your business. A Finder’s fee also saves you time by tasking others with tracking down new prospects.

Perhaps the greatest benefit of enacting finder’s fees is that you have nothing to lose. Customarily, you only pay the middleman if she generates new clients. That’s a far cry from the risky investment of an expensively paid company advertisement that could go unnoticed for the duration of the campaign.

When your ‘finders’ hunt down new business, you’ll have saved precious time. It’s a great allocation of resources to have an expert do the heavy lifting and leave you to do your regular tasks. Finally, finder’s fees motivate intermediaries more than the prospect of just doing a favor. Who wouldn’t want a reward for helping someone out?

How to ensure finder’s fees work

A finder’s fee won’t work if people aren’t excited about the products and services you offer. A traditional finder’s fee incentivizes someone to share information with their network. But why would they share this information if they didn’t believe in it? As mentioned by Carol Roth a contributor to Entrepreneur, “not every lead is worthy of a finder’s fee“. So if there isn’t a good standing relationship with the lead, it may not be worth asking for a fee.

Remember, not only should you provide quality products and services, but you also need to give adequate compensation to those who are willing to find customers on your behalf. Also, remember to not share confidential information (this could bite you).

Have other finders fee agreement tips besides the ones commented on above? Feel free to share them with us!

Posted by Emma Siemasko

Emma Siemasko is a writer for Referral Rock and the Founder of Stories by Emma, a content marketing consultancy. She specializes in writing about startups, marketing, and customer engagement.