Key takeaways

  • A written referral agreement ensures a formal and trusted relationship that benefits both parties.
  • The agreement outlines the conditions of the partnership, including the referral fee or commission to be paid.
  • Having a solid referral agreement protects both the business and the referral partner, and ensures a quality experience for the referred person. It sets clear expectations, holds parties accountable, and guards against unethical behavior.

Referrals are one of the best ways for any business to increase sales and boost its reputation. While you can generate referrals in several ways (such as through a customer referral program), many industries benefit from formally recruiting referrers (or channel partners) and paying them a fee for the business they bring in.

A written referral agreement can help you foster a trusted, engaged, and loyal community that drives results. An effective referral agreement template is vital for any company that wants to pay referral fees and recruit referral partners. 

Download our free referral agreement template

The best way to obtain a referral fee agreement that fits your needs is to write up the terms yourself. Of course, you don’t have to start completely from scratch. Download our free referral agreement template PDF: referral agreement template

What is a referral agreement? 

A referral agreement (referral partner agreement) is a written legal contract that establishes a formal referral partnership between a business seeking new customers and a third-party referrer. It indicates the referring party’s agreement to refer friends and colleagues to the business in exchange for a commission or referral fee. 

A referral agreement may also be called a “referral partnership agreement,” “referral marketing agreement,” or “referral fee agreement.” It clearly states all the terms and conditions of the referral partnership, including how much money (commission) will be paid in exchange for each referral. People must read and sign this entire agreement before they become your referral partners.

When is a referral agreement used?

A referral agreement is often used in corporate environments, where representatives of one business refer potential clients to another business. But it can also be between a business seeking referrals and an individual not associated with any company.

Referral agreements protect both you and your business, while ensuring that the person who is referred gets the best possible experience through your company. 

What is the purpose of a referral agreement?

A referral agreement sets partnership expectations and protects everyone involved in the channel partner relationship. So, when you work with a referral partner, it’s crucial to have a written agreement in place.

A referral fee agreement lays out essential terms for the referral partnership, so all parties involved know what to expect from it. This document also holds both parties accountable for fulfilling their partnership duties. It lays out exactly what they must do to earn a referral fee, and lets them know how much they’ll be paid once they fulfill those terms.

In addition, a referral agreement is also your best protection against unethical behavior by any partners, or potential clients, who may try to take advantage of your business. You don’t want to be caught off guard by a bad actor who doesn’t fulfill their part of the deal – or worse, who damages your reputation by making false claims about your company.

purposes of a referral fee agreement

Below, we’ll cover all the essential parts of a referral fee agreement that we’ve included in our template, to help you create a contract that’s best suited to the needs of your business and your partnerships. But first, here’s how to know if you need a referral fee agreement in the first place. 

When to use a referral agreement?

When deciding whether you need a referral agreement, you’ll need to determine what kind of referral network you’re interested in forming.

If you’re simply looking to create an informal referral program on your website (where customers send you friends’ info as often as they like via a dedicated page or portal), you don’t need a referral agreement.

A brief explanation of how your program works, and quick access to your program’s other terms, are all you need to provide customers in this case. After all, even though you’ll give customers a reward whenever one of their referred friends makes a purchase, you probably aren’t planning to consistently pay them in cash, or give them insider training and information. 

epic tenant referral program

But say you’re hoping to convert your current customers into formalized partners, using a more structured referral arrangement. For example, say you want to give them access to your company’s data and referral marketing strategies to encourage the highest-value referrals, and want to promise them cash for every successful referral they make.

In this case, you’ll want to have a professional referral agreement in place. After all, a formal referral partnership is a type of channel partnership, and every channel partnership must be bound by a contract.

What industries use professional referral fee agreements?

These contracts are most commonly used with real estate agents and insurance agents. B2B and SaaS companies also frequently use these agreements, as many want to share information in a business-level  referral partnership.

How do you structure a referral agreement? 

Now that you know whether you need one, let’s look at how you can structure your referral agreements so you can make the most of your referral relationships. A referral agreement sample should include the following sections: 

1. Definitions 

It’s always recommended to start by defining the key terms of this agreement. This may seem obvious, but it is key to keeping things simple and clear.

When creating a referral agreement, defining terms used throughout the document, like “referral partner” and “referral fee” will help keep both parties on the same page and avoid confusion about the contract’s subject matter.

2. Relationship between parties 

One of the most important aspects of a referral agreement is defining the relationship between the parties involved: why are you entering into this agreement with a particular person? Clearly state that, whenever the partner successfully refers a peer to your business, your business will pay the partner a referral fee. 

It’s important to recognize, though, that even though your business may continue to pay your referral partner for any referrals they bring in, they’re still an independent contractor and not your employee. 

3. Responsibilities 

What does your partner hope to get out of the agreement, and what must they accomplish for you? An effective contract clarifies what each party expects to get out of the deal.

The responsibilities section should describe the brand’s and partner’s roles in the partnership. You should state what each of you is responsible for. On your end, for example, state whether you’ll be providing training to the referral partners on your brand, or if you’ll be offering branded assets or other marketing materials to aid in promotion. 

Then, define the specific responsibilities that lie with the referral partner, which includes referring your business to their peers as often as possible. If applicable, outline how much time and effort partners should dedicate to spread awareness of your products and brand. 

Your agreement should also state what you’ll be offering your partner in return for their commitment: the rewards or compensation. And if there’s any additional value that your brand will offer your partner in return for their work – say, education opportunities or referrals to their own business – clarify that as well.

4. Referral fee terms 

In this next section, detail all the terms of your referral fee or referral commission. This includes what type of referral fees will be paid (usually, the fee will be in cash, but you could pay partners in store credits), and how much you’ll pay out for each referral. 

Other questions this section should answer include: 

What qualifies as a successful referral? In other words, what must happen for a partner to earn a referral fee? 

  • Usually, this is when a potential customer makes a purchase.
  • However, some B2B businesses will pay smaller referral fees for qualified leads, given the longer sales process involved.

When will the partner be paid? 

  • Immediately, after every referral? 
  • Monthly, in a lump sum?

How will the fee be calculated?

  • Is it a flat fee? 
  • A set percentage of each sale? 
  • Or, have you established a set of tiered flat fees based on a product’s value?

What are the other key payment terms and conditions?

  • Will the partner only receive the fee if an order was not returned or canceled in a given timeframe?
  • Must the partner drive a certain amount of total sales before they’ll receive their first payment?

Finally, are there any additional rewards or bonuses available based on a referrer’s performance? 

  • For instance, will someone’s commission percentage increase after hitting a certain milestone?
  • Or, will the top monthly referrers earn tangible rewards as bonuses? 

Pro tip: How to calculate a referral fee that’s motivating but consistently affordable for your company? Consider the following:

  • How much you spend to make a sale
  • The length of your sales process
  • Your pricing structure
  • When and how often your business receives money for sales
  • The schedule and bonuses you want to implement

For all the details on calculating the best referral fee for your business, visit our complete guide to paying referral fees to individuals.

5. Promotional expectations 

You and your partners must be on the same page regarding how your brand should be promoted, so partners don’t end up misrepresenting you or unintentionally giving their peers inaccurate information about you.

As you consider how partners should represent you, outline the following in your agreement:

  • What messaging should your partner use when referring others to your brand? 
  • What audiences should your partner share your brand with? 
  • What key information should partners share regarding what stands out about your product or service, and the needs it meets?
  • Are there any promotional methods you don’t want your partners to use?
  • What language should they not use regarding your products? 
  • Are partners only expected to refer people they already know and have a relationship with? (This is the expectation in most referral fee agreements.)

6. Referral process and tracking 

One of the biggest potential sources of frustration is when partners get confused about how to refer or when they don’t get credit for referring. The best way to avoid confusion is to make the process as easy as possible: specify what needs to happen to submit referrals, and make sure they know how your referral software tracks those referrals and sends out rewards.

When writing your referral agreement, specify how you want referral partners to refer their friends, including:

  • How they should submit referrals (say, via a referral form or portal)
  • How they should invite peers (say, via email or direct social media message)
  • What pieces of their referrals’ contact information they must submit

 Then, detail how they can use the software to track the status of referrals they make.

7. Non-exclusivity clause 

A referral agreement should include a non-exclusivity clause that states that the partner remains independent from you and is free to create partnerships with other businesses. This protects both sides from being locked into something that is no longer beneficial if the partnership doesn’t work out. 

However, it’s not uncommon for a business to want to limit its partners’ ability to work with direct competitors. You may add an exemption that prohibits referrers from working with competing businesses for the length of the partnership, or even for some time after the partnership with you is dissolved. 

8. Non-disclosure and confidentiality 

When you’re sharing confidential information with another professional party, you both should agree to keep this information safe for the good of your business. This section covers non-disclosure and confidentiality, which means that as a provision of this agreement, both parties will not disclose any trade secrets or other confidential information to anyone outside of your organization. 

9. Cancellation of the contract by the partner 

Referral fee agreements usually have an indefinite length – meaning they last until the business or the partner decides to cancel the agreement, which leaves more flexibility for the partner. In your referral agreement, you should include all of the details about canceling the contract. You don’t want something unexpected to come up and leave your partner confused about how to end their obligation. But you also can’t just let partners end the relationship immediately, on any grounds. 

What are legitimate reasons to cancel an existing referral contract? How far in advance must a partner give notice that they want to end their contract? In most cases, at least 30 days’ notice is required. Also, your partner needs to know exactly what will happen if they decide to end their contract. 

10. Termination 

The termination section (sometimes called the severability section) is required in any joint venture, and it’s especially important for a partnership agreement. It sets the stage for how you will handle any ethical or legal issues that arise, like a breach of contract. Think about the worst-case scenario going into your referral partnership, and decide on the consequential actions you’d take if any of these things happened. 

What unethical or problematic partner behavior is grounds for immediate termination of the partnership contract? This may include actions such as blatantly spreading false claims about your business, creating sales with fake businesses to illegitimately earn a commission, not respecting intellectual property rights, or getting in outside legal trouble that could reflect badly on your reputation.

11. Other legal terms 

There are many other legal terms that you could include in your referral agreement, including: 

  • A section outlining how conflicts of law and disputes will be resolved (usually, this is through arbitration)
  • The legal procedure if there’s a breach of this agreement (more serious conflicts may need to be resolved through a court of competent jurisdiction) 
  • Tax and fee reporting terms: For example, explain that if a partner earns over $600 in referral fees, that must be reported to the IRS under law
  • Indemnification clause (indemnity clause): This indicates that, if a partner has any external legal concerns, you will fund their attorney’s fees. It also protects your brand against the limitation of liability resulting from the partner’s activities, as well as the damages that occur
  • Warranties: This establishes that both parties are legally able to enter into the agreement and fulfill the obligations to each other. It also establishes that doing so doesn’t violate existing legal agreements with others, and doesn’t violate others’ rights.
  • Disclaimers

Finally, communicate any state and national governing laws that may apply to your referral partner’s activities. The applicable laws differ by region and industry. Keep in mind that real estate, finance, automotive, and insurance businesses are often bound by several laws regarding referral fees.

12. Signatures

At the bottom of the agreement, include space for you (or another representative of your business) and the referral partner to sign the agreement, along with the effective date of this agreement. This will make the referral agreement binding and active in full force, and show that your partner has consented to all the terms and conditions of this agreement. Once partners have signed the contract, they’re immediately eligible to start earning commissions on successful referrals.

Referral agreement tips 

As we promised, here are some tips to help you create better referral agreements: 

✅ Hold a Zoom meeting with your new partners to discuss the contract one-on-one and answer any questions they have. This is important because it allows you to get to know your partners better. It makes sure that everyone is on the same page about what’s expected of them in the referral partner agreement. 

✅ Be transparent about why all the sections are important to both you and the partner. Both parties should have a clear understanding of the entire agreement: how all of the sections work, what they mean for each party involved, and why those things matter. 

✅ Emphasize what’s in it for the partner in the relationship. You want your partners to know how much value they can get out of this partnership and what kind of benefits there might be for them. 

✅ Be as specific as possible about terms, especially referral commission agreements. If commission rates or terms may change over time, clearly outline that. And give written notice whenever significant terms change.

Remember: a referral partner agreement is just one part of the equation when it comes to securing referrals. You can get as many people as possible to sign a referral fee agreement with you, but if your product or service isn’t up to par, they won’t refer anyone. So make sure your product or service is top-notch before you ask for a referral fee agreement from anyone. 

You’ll also need to follow other best practices for recruiting, training, tracking, and monitoring referral partners. Referral software can help!