Referral Partner Programs & Introduction Fees - What you need to know
Working as a lawyer in the online business space, it’s not uncommon for me to see small business owners looking to create relationships with complementary businesses to refer clients to them and help them source clients.
It is something we see quite frequently with business owners who might have their own program or course they are selling. They will often have a number of people that refer business to them as an alternative lead source for their business.
If you are considering a referral partner, our Referral Agreement Template is located at the link below:
Even here at The Remote Expert, it is something we do for some of our online templates. We have a number of affiliates who receive a commission for any referrals they send to us that results in template sales.
In this article, we explore all you need to know when it comes to referral partner programs and introduction fees.
Business referral partnerships
Do you have business referrers? Perhaps they refer people to use your services or buy a product or digital product from you? Or they might refer people into your course or program?
You may offer one-time introduction fees to those who refer you, or you may want to pay for an ongoing arrangement if there are ongoing benefits for you.
If you do and if you pay referral or affiliate fees, it is a good idea to document it with a formalised Referral Agreement, also called an affiliate agreement.
As the person who will be getting the client and the associated income with that client, the responsibility usually falls to you to prepare and bear the cost of putting in place this agreement. If your referral relationship is relatively straightforward, we have a referral agreement template available. Alternatively, our customised legal services are a good idea if you want more detail or a more personalised approach to having your contracts created for your business.
We make any referral or introduction agreements easy to read. This is important so that everyone is aware of what their obligations are. However, we recommend that you, as the holder of the agreement, advise any referrer or affiliate that you may be looking to enter into a contract with that they read the document carefully. You should also encourage them to seek their own legal advice, especially if they are unsure of something in the agreement.
One thing your referrer should be aware of is that they should not be taking a fee if they have not disclosed this to the person they have referred. While some industries have strong disclosure requirements if receiving payment or commission, in the small business space it is usually a bit more relaxed. But no client ever wants to feel misled, so disclosing the arrangement is always the suggested approach.
In the event you pay introduction fees, that is, a one-time payment to a referral partner, you may offer either an affiliate commission or an agreed-upon flat-fee fee.
Why bother with formal agreements?
When starting out in small business referral arrangements are often made on nothing more than an informal handshake. But as a business grows, we’ve seen these types of arrangements fall apart. Mainly due to a misalignment of expectations from both parties.
The best way to avoid a situation like this arising is to put in place a referral agreement. This describes a business arrangement where a person or business (referrer) introduces a client to another business. You might have also heard this referred to as an Affiliate Agreement, or perhaps a commission agreement.
Even as your referrer, they need to be really focused and encouraged to refer the right people to your product or service. To do this, you need to make it worth their effort.
An agreement is also helpful as it allows you to make it really clear who are suitable people to refer to your business, so you don’t spend a lot of time fielding fruitless calls and wasting time. This is something that works both ways. It also helps to set expectations for the relationship so that if anything should transpire in the future that might jeopardise the arrangement, you have a procedure in place for how to proceed.
What referral and affiliate agreements should cover
A referral agreement should outline how each party must manage the referrals. For example, the contract should specify when the business with clients referred must report to the referrer, about any referrals that converted into a sale.
It should also be clear when or if the referrer must send a tax invoice to get paid their fee or commission.
Transparency of referral conversions
Reporting of sales can be done in a number of different ways depending on how the introduction occurred. It may have been through an email introduction, a special affiliate link, a shared brochure that you have both created together, or something else. All the relevant options should be outlined in the agreement.
Some smaller businesses with only a few referrers might manually keep track of any referral payments that need to be made. However, many business owners tend to opt to use affiliate management software to help them automate the process and generate reports. This is particularly helpful when you have a significant number of referrers or a high volume of transactions such as online courses or other online products where all the transactions take place online.
Your referral agreements must also spell out how often your business will report to the referrer about sales. Will you issue monthly, quarterly or annual payments to referrers?
You really have to look after your referrers by sticking to your word, making sure they're getting their report in time and making sure they're getting their payments on time. Being clear about what will happen, along with being organised, will make any referral or affiliate relationship go more smoothly.
Exclusive arrangements
When establishing relationships with referees, you need to determine whether the referrer has an exclusive arrangement with your business or if they refer to a number of competing businesses.
If you go down the path of wanting them to send you business exclusively, then you need to be aware that in this scenario you will likely have to pay more for the benefit. This is something that should be discussed with both parties before an agreement is put forward to sign, so there are no surprises from either party.
Length of the agreement
It should be established how long any referral or affiliate agreement will last. Your agreement needs to include details about whether the arrangement will be ongoing or is renewed each year.
A termination clause should also be included so that either party can end the agreement by giving notice. Generally, we recommend a 30-day notice period. This can be helpful if there is a misalignment in your brands or messaging and you no longer wish to continue the affiliation.
Common clauses
Finally, your agreement should include all of the common legal considerations you would have in any legal document. As lawyers, we call them ‘boilerplate clauses', and they cover elements such as which state in Australia governs the agreement, as well as how any notices or communications are to be sent under the contract.
If you are serious about building up your business with the help of referrers or affiliates, having a comprehensive agreement will demonstrate that you mean business. A well-drafted agreement can go a long way in providing confidence to referrers about how beneficial your business relationship has the potential to be. But most importantly, it will ensure that you, and they, are clear about how your arrangement is to unfold.
Related: The Online Business Guide | 2022 Is Your Year of Growth & Success
If you are looking to put in place a straightforward referral agreement, take a look at the Referral Agreement Template in our shop.
If you have more than one product or service, different fees, levels, and tiers and need them to be set out and scoped, then a customised agreement may be more appropriate.