What is the typical referral fee in consulting?

And can you use a referral fee to generate more referral business?

A consulting referral fee (also known as a “finder’s fee”, but I don’t use that term) is a fee you pay someone who refers a consulting client to you.

For example, imagine that you share a case study on LinkedIn about a successful project you delivered for your client.

A colleague of yours sees your post and thinks of someone in their network who would benefit from your expertise.

Now imagine that you and this colleague have a referral arrangement in place.

They make this introduction and refer this person to you. That person becomes a client.

Based on your referral arrangement with your colleague, you give them a small percentage (5-10%) of the project’s overall fee, thus rewarding them for sending you the referral — and incentivizing them to send you more referrals.

In the world of consulting, this type of deal is quite common.

It’s a way of getting your network to help do your marketing, and refer clients to you because they make money simply by referring people to you.

However, as you’ll see below, this isn’t always the case.

In this article, I’ll break down…

• should you pay referral fees;
• the typical finder’s fees for consultants;
• referral fee pros, cons, and best practices;
• and a realistic referral fee example;

Now, before we dive in I want to make one thing very clear. This is not financial or legal advice. I don’t know your specific situation and can’t speak to every possible variation.

Different places may have different laws and regulations on this so it’s always good to get feedback on your specific situation.

With that out of the way, let’s dive in…

Would you rather spend $3000 in marketing to land a client, or would you rather pay someone a $500 referral fee to refer you a client?

Should You Pay A Referral Fee?

There’s no right or wrong answer for whether or not consultants should pay a referral fee.

The choice is up to you, your style, and your unique consulting business.

Some consultants don’t pay referral fees, nor do they expect referral fees when they send their own referrals. They prefer to keep the relationship neutral, without any financial incentive for referring business. They don’t want to be biased or influenced by money.

On the other hand, other consultants view referral fees as a standard business practice. They look at referral fees as a cost of doing business. It’s marketing. And just like any other form of marketing (attending an event, advertisement, your website, etc), you invest in it.

Think of it this way: the goal of your marketing is to acquire clients. And you’ll have to invest money, time, or both, to acquire clients.

Would you rather spend $3000 in marketing to land a client, or would you rather pay someone a $500 referral fee to refer you a client?

Sure, you’re still paying someone for the referral when sometimes referrals come for free. But you’re often paying them less than it would require you to invest to win that same client.

From an ROI perspective, paying a referral fee is often a great investment in your marketing.

Your “referral fee” also doesn’t have to come in the form of money. I’ll speak to other options further down in this article.

But first, let’s talk about the typical finder’s fee for consultants.

Typical Finder’s Fee For Consultants (How Much You Should Pay)

What is the typical finder’s fee for consultants?

Again, there is no one-size-fits-all answer. Here are a few variables for you to consider when determining your referral fee.

1. What is the size of the deal?

The first variable to consider is the size of the consulting engagement.

You typically wouldn’t pay a 10% referral fee if the deal size is $10M. But, if the deal size is $100K, then 10% is reasonable.

Typically, the larger the deal, the smaller the percentage of the referral fee.

Consider the size of the deal.

Then, if you are deciding to pay money, you can start thinking about a percentage you’d be comfortable paying (typically between 3%-20%).

2. What is the level of involvement?

The second variable to consider is the level of involvement of the person referring the business.

If someone sends just a quick email to make an introduction to a potential client, that’s a very low level of involvement. They’re making the introduction, but they aren’t doing much to close the business.

If another person sets up a meeting with a potential client, and they join that meeting to help facilitate the sale, that’s a very high level of involvement. They’re an essential piece in helping close the business.

The more the referral partner helps you “sell”, the higher percentage they’ll typically get.

A consulting referral fee of 5-15% is common.

On a large deal with a low level of involvement, you’re looking at a finders fee of 1-5%.

On a smaller deal with a high level of involvement, the finder’s fee can go from 5% all the way up to 35%.

Consulting Referral Fee Pros, Cons, & Best Practices

In this section, I’ll share the pros, cons, and best practices to help you make an informed decision.

Pros Of Consulting Referral Fees:

1. Helps you get more clients. By incentivizing your network to refer clients to you, implementing referral fees will help you expand your reach and opportunities.
2. Builds relationships. Consulting is a relationship business. Referral fees are a way to strengthen key relationships. When you reward people who send you clients, they’ll continue to do so.
3. Higher-quality leads. The difference between a warm lead and a cold lead is the amount of trust they have in you. Referrals are warm leads because the referrer passes along trust. They are, in essence, endorsing you. So you’ll typically get higher-quality leads from referrals.
4. ROI-positive marketing. Consultants are notorious for not spending money on their marketing. However, consulting referral fees are a straightforward investment: you only pay someone when you close the deal on the referral. This makes it easy to calculate their profitability.

Cons Of Consulting Referral Fees:

1. Can Cut Into Profits: You’ll have to calculate your referral fee so that it does not cut too much into your profit margin. Always focus on profits over revenue.
2. Must Vet Your Leads: A financial incentive for referrals can lead to people sending you referrals based on their reward rather than the fit or quality of the lead. Be aware of this, and make sure to ensure people are sending you ideal clients.
3. Beware Of Opportunists: Ideally, you want passionate loyal advocates who are sending you referrals — not people motivated purely by the potential payout. You should be fostering relationships with your partners so that they are your advocates and send you great-fit clients.

Best Practices For Integrating Consulting Referral Fees

1. Reach Out Directly: If you want to start using consulting referral fees, pitch your most loyal advocates. Ask them how they would feel if you offered them X% for every new piece of business they refer to you. A simple email or phone call can get the ball rolling. You can build a network of people marketing your business for you.
2. Show Your Appreciation: Whenever someone makes an introduction or refers someone to you, let them know how much you appreciate it and how helpful it is. A genuine message of thanks goes a long way and encourages them to continue sending people to you.
3. Ask What They Want: Not everyone is motivated by money. For people who are making introductions and referring people to you, figure out what they’d like the most and offer that. That could be nice piece of art, a gift basket, or tickets to sports game or cooking class: it depends on the individual. Of course, it could be financial: a percentage of the deal or a flat fee. The key point here is that you can be creative in how you reward people for sending you business.

Consulting Referral Fee Example

Let’s look at a typical example of how a consulting referral fee works in practice.

We’ve helped many of our clients create profitable arrangements that work just like the following example.

Stephanie is an independent marketing consultant specializing in conversion rate optimization for large eCommerce brands.

She has a colleague, Mark, who’s an ex-coworker and friend. Mark often meets eCommerce business owners who are interested in making more sales.

Mark knows that Stephanie is the right person for these specific types of clients, so he refers them to her.

Stephanie and Mark have a clear agreement about referral fees. Every time Mark refers a client to Stephanie, and that client signs a contract with her, he gets a referral fee. They’ve agreed on a 10% referral fee.

Mark refers a large fashion brand owner to Stephanie, who is looking to boost their online store’s conversion rate.

Stephanie meets with the store owner, they click, and a contract is signed for a $50,000 project.

As per their agreement, Stephanie pays Mark $5000 (10% of $50,000) as a referral fee.

This deal benefits both parties.

Stephanie gets a client she would not have found otherwise. And Mark gets a reward for connecting a client with the expertise they need.

Referral fees, like in this example, create a win-win situation.

They promote trust and collaboration and foster a network where everyone is supporting one another through mutually-beneficial partnerships.

These deals are particularly valuable for independent consultants like Stephanie, where referrals are key to winning new business.

Through a consulting referral fee, she’s able to create strong incentives for her entire network to find her clients — and do some of her marketing for her.

WARNING: Don’t Become Too Reliant On Consulting Referrals

Consulting referral fees are one of many ways to acquire new consulting clients.

They’re a great way to incentivize your network to help you market your business and spread the word about your services.

However, you don’t want to become completely reliant upon referrals — paid OR free — to get more clients.

Instead, you want a healthy mix of marketing methods that work so that you aren’t overinvested in a single channel.

That’s what we teach in Clarity Coaching: how to build out an entire marketing strategy where you create multiple ways to acquire new consulting clients.

In our Clarity Coaching program, we’ve helped over 1000 consultants to build a more strategic, profitable, and scalable, consulting business. And we’ve helped many of them become powerful leaders of their consulting business — going from independent consultant to a strategic and effective consulting firm owner.

Learn More About Clarity Coaching

We’ll work hands-on with you to develop a strategic plan and then dive deep and work through your ideal client clarity, strategic messaging, consulting offers, fees and pricing, business model optimization, and help you to set up your marketing engine and lead generation system to consistently attract ideal clients.

You’ll learn how to make more money with every project you take on — and how to land more clients than ever before. Learn more about Clarity Coaching and get in touch to talk about your situation and goals.