Business Referals

[DJ1935]

This one came out of the blue today. Just wondering what other people think.

A retail Saddle shop owner - who cannot do the vast majority of their own repairs or new work - has on the (very) odd occaision referred someone to me to get some new leather item made. All repairs have gone through the shop but who "owns" the referals? Should I pay the shop a percentage of the cost of the items I make from referred customers - as was suggested today?

Your thoughts please.

DJ

[JLSleather]

If they're just getting you some work, and the customer pays you directly, it's nothing more than a word of mouth thing and I wouldn't thinik they're entitled to anything.

If they're running the billing through the shop, and paying you for your service, then it seems legitimate they'd get something. I would think this would be considered in the priice you get (they're marking it up).

Two things come to mind, here, though, for me personally.

1.) If it's a rare thing and they want to discuss their "cut", I'd likely decide it's not worth it. In fact, I'm obnoxious and would probably remind them that I'm helping them, not the other way around. They're not only [apparently] looking to get paid, they're also getting out of telling a customer "we can't help you". Doubt they want to do that too much.

2.) Do I enjoy the work? I once told a guy I wouldn't make him what he wanted. He asked why and I said it's because I'm not a prostitute. He looked confused, so I explained that you can' t just give me money and then I do whatever you want.

For what it's worth...

[rcsaddles]

I have a good friend that owns the only Shoe repair/ saddle shop in town. I mean, he is the only store front, only source of income person doing this. He has refered people to me in the past for canvas repair and braiding work. He has also told me he is so busy he takes a long time to do little repair things.

I have asked him what he charges for certain things because if someone comes to me and wants me to undercut him, I will not do it. In fact, to take a saddle apart, clean, repair and oil, I will charge at least $20.00 more because this man sends me work from time to time and I do not want to compete with him. This is a "hobby job" for me and I do not want to lose this man as a friend.

Sure, I do have the word of mouth advertising around the area and people bring repair work to me. I have a few repeat customers that will not go to the saddle shop for stuff. I even go there to buy some items I do not keep on hand.

The long and short of it is; if you want them to send others to you, maybe you should go to them and ask if they "need" a commision for the referal. It may cost you a few bucks now, but could be an income booster and the start of a great business relationship in the future.

It is good to ask here and get many opinions but in the long run, do what your heart tells you.

just my humble opinion. I don't want to step on any toes.

[Blender]

If I am understanding correctly, you are doing a lot of subcontracting repair work for them. And, as such, the customer mostly doesn't know that you are the one doing the work. And, occasionally, the shop owner tells someone to go to you for something he can't do (and doesn't want to do.) Then, he suggests that he gets a referral fee for these customers. Is this accurate?

If the above is accurate, it kind of depends on the relationship you have with them (and want to have in the future.)

It is not unusual in business to pay/offer a referral fee (sales commission) to someone who sends you a customer that actually buys from you... if you are looking for new customers. If you have all the work and customers you can handle, there's no point, is there? If they don't buy from you, no fee is warranted, either.

It also depends on how the referral was handled. If it is in the line of "I can't do what you are asking. You need to go see DJ, he will take care of you and do it right." Then that is an endorsement that would probably cost a LOT of money to bring that customer in using advertising. On the other hand, something like, "I can't get to that right now. If you are really in a hurry, you could always check with DJ. He's in the business, too", doesn't do much more than an ad in the phonebook. He just saved the customer looking it up himself.

If the referral ended up in an order that is a one-time sale, then a one-time "finder's fee" might be in order (but you still have to make a profit on it.) If they placed an order for a series of items to be delivered every month (or quarter or whatever) then a recurring fee might be justified (but still a small percentage of the price... you still need to make a profit overall.)

If you do go with a referral fee, it is usually just a one-time thing and if the customer comes back to you (in a month or in two years) a referral fee isn't warranted because he already knew about you.

One thing to keep in mind is "How much does it cost to get a new customer?" And once you have one, how much is a customer worth to you? (How much do you make off the average customer?) If the referral fee is less than the answer to the first question, it is worth it to pay the fee. (Would you trade me a $1 bill for a $5 bill? All day long, I expect.)

Either way you decide to go, you should have a talk with the owner and set out an understanding for the future. That way, each of you will know what to expect when this situation comes up again.

John

[DJ1935]

Thank you for your replies. John, you hit the nail on the head in your first Paragraph. The Saddlery shop opened about two years ago and I have done their repair work and a small amount of making bits and pieces for that time. I have my own small leather work business which doesnt compete with the shop as I'm doing different stuff and have customers not likely to visit the shop. To be fair to the shop I havent advertised in our area at all. As the shop is struggling I have done all the repair work for a very minimal rate so they could add a bit on and be competitive in the market - it usually costs me to do it - and I usually pick up and deliver to the shop for nothing as well. I thought this would help them build up a cliental and thus help us both in the long run. I am beginning to think generosity has been mistaken for stupidity. In two years I can count on one hand the number of referals I've had directly from the shop, with very little monetary gain, in fact one guy cost me the price of a side of special leather and a set of punches which were cut down for a job only to have the guy disapear into the sunset, never to be seen again!

The out of the blue statement about me having to pay for referals came as a bit of a shock as I had never heard of it before and your comments have been most helpful and will be useful in making a descision of what to say when I next see the owner.

Thank you

DJ

[particle]

Thank you for your replies. John, you hit the nail on the head in your first Paragraph. The Saddlery shop opened about two years ago and I have done their repair work and a small amount of making bits and pieces for that time. I have my own small leather work business which doesnt compete with the shop as I'm doing different stuff and have customers not likely to visit the shop. To be fair to the shop I havent advertised in our area at all. As the shop is struggling I have done all the repair work for a very minimal rate so they could add a bit on and be competitive in the market - it usually costs me to do it - and I usually pick up and deliver to the shop for nothing as well. I thought this would help them build up a cliental and thus help us both in the long run. I am beginning to think generosity has been mistaken for stupidity. In two years I can count on one hand the number of referals I've had directly from the shop, with very little monetary gain, in fact one guy cost me the price of a side of special leather and a set of punches which were cut down for a job only to have the guy disapear into the sunset, never to be seen again!

The out of the blue statement about me having to pay for referals came as a bit of a shock as I had never heard of it before and your comments have been most helpful and will be useful in making a descision of what to say when I next see the owner.

Thank you

DJ

If you're already giving the guy a substantial discount, do not, under any circumstance, pay him a referral fee. By giving him a discount, you are essentially ALREADY paying him a referral. If your standard rate is $60/hr for your services, and you're only billing him $40/hr, that's the same thing as kicking back to him $20 per hour in referral fees. Tell the guy that you appreciate the referral, but you're already giving him a discount. If he wishes to profit from your services, he needs to tack on a percentage to your invoice and pass it along to the customer. You can politely tell him that out of respect for his business you have chosen not to advertise in that area.

Sink or swim, and it sounds like he's looking for a life raft.

I run a small drafting and computer 3D rendering service. If an architect comes to me and asks me to do a rendering for X project (which is usually how I get the work), I tell the architect I will charge $1,800 for the rendering. The architect usually takes my quote, files it away, then reports back to the client that the rendering will cost $2,000 (or more). I lost nothing - I still got paid what I thought was fair, and the architect got paid for doing nothing. Do I care? Not really, unless their increased fee causes me to lose the job, but I know what my time is worth at the end of the day.