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Referral/commission agreement

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Justin Raine
Referral/commission agreement
on Mar 21, 2011 at 8:38:44 pm

I've just completed a relatively large project for someone who has since suggested that we come to some referral agreement. My team and I consist of three guys in their early twenties who have been doing independent promotional videos and the like for around a year and a half. My client is an older man who has extensive ties to various NGOs around the world and claims that there would be more work available that we could handle. He has suggested that we charge our top rate plus a certain percent that would go to him.

I searched and was able to find only a single post were the general consensus was against referral/commission agreements. If we were to go forward it would be with a clearly defined contract and I've known the guy for several years, so there *shouldn't* be any messy issues with it all.

My question was about commission percentages and repeat customers. Anyone have any experience? In my mind for repeat customers, there would be some duration were a percentage of all jobs would be paid out to our "agent" and then eventually expire for that client. Is that reasonable?

Thanks!


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Richard Herd
Re: Referral/commission agreement
on Mar 21, 2011 at 9:53:04 pm

Generally speaking all contracts should have some kind of termination and or expiration language. The particular language is negotiable, of course. I would worry about things like the appearance of collusion and/or kickbacks. Let me get this straight: He's going to give your number to potential clients and then you're going to markup your services and send him some dollar amount back.


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Justin Raine
Re: Referral/commission agreement
on Mar 21, 2011 at 10:00:15 pm

Yeah, that's about right. We're still in the process of refining our billing process since our client base is constantly changing and our skill level still developing. As with all costs, we would factor his commission into our price.

What do you mean by "appearance of collusion and/or kickbacks"? Isn't what I am describing a typical agreement between someone and an agent? The fact that he would be earning a commission, while maybe not being touted, would not be a secret.

Thanks for the reply.


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Richard Herd
Re: Referral/commission agreement
on Mar 22, 2011 at 7:00:45 pm

You'll have to forgive me. My father's a General Internal Auditor, and I've apparently inherited his paranoia.

Is this guy involved with the other companies, for example, is he a purchasing manager? Does your contract stipulate he must disclose all information regarding his role at those entities? Are you culpable if he fails to disclose his role at those places?


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Cory Petkovsek
Re: Referral/commission agreement
on Mar 22, 2011 at 4:18:17 am
Last Edited By Cory Petkovsek on Nov 5, 2014 at 11:36:13 am

For repeat work, you might consider his involvement. He certainly deserves a referral fee for making the connection, or a commission for managing part of the project or client relationship. If he were to continue manage part of the project or client relationship that would be worth a continuing commission. Is it fair to have a residual referral fee long after the connection has been made? Probably not. True you wouldn't have the continuing work without the connection, but it is your work that keeps them coming back. Some people in other industries give a referral fee that is a few percentage of the value of the customer for a year, thus making it customer dependent and job independent.

Cory

--
Corporate Video


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Chris Tompkins
Re: Referral/commission agreement
on Mar 22, 2011 at 10:48:46 am

Sure, give him a referral fee. Does he do anything after he hands you the connection?
We give a 10% referral fee. I think it's pretty common.

Chris Tompkins
Video Atlanta LLC


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Justin Raine
Re: ferral/commission agreement
on Mar 22, 2011 at 10:54:49 am

No, his involvement would stop after the referral. How have you handled a referred customer who you continue to work for several times? Do you pay out 10% each time? Is there a limit of some sort?

Thanks,
Justin


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Chris Tompkins
Re: ferral/commission agreement
on Mar 22, 2011 at 1:24:09 pm

No. I wouldn't. If he referred the account/business/client to you and you pay a referral for the contact. Done. If you then build a working relationship with new client, then that is your doing.

I did have a situation once about 15 years ago where a colleague getting out of the biz referred me to a client who was going to do several vids.
I wrote up a small contract where I gave him 10% of the first 5 projects or all the proj. in the following 12 months, I can't remember. Sometimes I hated cutting that check, but it all worked out well.

Chris Tompkins
Video Atlanta LLC


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Mark Suszko
Re: ferral/commission agreement
on Mar 22, 2011 at 3:53:29 pm

Commissions are not the same as royalties.


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Scott Carnegie
Re: ferral/commission agreement
on Mar 22, 2011 at 3:52:08 pm

Make a contract stating that he will get a 10% referral fee for the first project. After that, nothing; if the client comes back to you then that is because of you, not the referal.

http://www.MediaCircus.TV
Media Production Services
Winnipeg, Manitoba, Canada


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Reuben Fink
Re: Referral/commission agreement
on Jul 12, 2012 at 6:56:20 pm

Would this be 10% of Net or Gross?

OSX 10.6.4
Equipment: 2.8 ghz 8 core Intal Mac Pro, 20 gig of ram
Aps: CS5 Production Bundle, FCP Suite 2, Avid Media Composer


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John Baumchen
Re: Referral/commission agreement
on Mar 22, 2011 at 5:03:36 pm

Here's my $0.02

I'd suggest that if he merely passes you information that leads to a job, give him 10% of that job.

If he actively sells your company and services to a client that turns out to be a job, then I'd be inclined to give him 25% of that job and 5% of any subsequent job you get from that client.

I feel that if he's bringing business your way, why not?


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Nick Griffin
Re: Referral/commission agreement
on Mar 22, 2011 at 8:48:20 pm

The consensus that I'm getting from all of you is that this should be either a time-limited deal, a declining percentage over time or even a one time deal. I would like to suggest that the whole thing would be a lot more straightforward if the guy providing the referral were working on the projects as a "producer" or at the least as some form of account executive whose job was handling most of the client contact and approval. At least that way it wouldn't feel so much like a kickback or a transaction that the client might see as something under the table. Working on the project would also justify a higher percentage, hence more motivation for him to feed more work into the process.


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John Baumchen
Re: Referral/commission agreement
on Mar 23, 2011 at 1:17:32 pm

Look at it as a commission, as if he were a salesman for your company, which in essence, he is. Many sales people don't get involved in the heavy lifting of actually doing the work, they just find the clients and sell the services.


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Pat Chrysalis
Re: Referral/commission agreement
on Mar 23, 2011 at 9:21:06 pm

I am a freelance instructional designer and just discovered Creative Cow. This is a great resouce! Thanks to all of you who participate and share your knowledge and experience.

I just posted on another thread an ethical dilemma regarding a non-compete clause with a recruiter ( http://forums.creativecow.net/readpost/17/873388 ). Having read this thread, I now think that I will not sign the non-compete clause, but I will offer the recruiter 10% for any additional contracts stemming from is efforts. I think that's fair to the recruiter and to the clients. And, as you say, it may motivate the recruiter to find more contracts for me than if I just told him flat-out "No" to the non-compete clause.

Thank you all!


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