Commission, Offers, And Cross Referrals
It’s estimated that 95% of our decision making happens subconsciously.
In collaboration discussions it's vital we connect with that part of our prospective partners decision making if we want to easily form high value partnerships that deliver results for all parties concerned. It's something I often refer to as 'The Real Why'.
But that doesn’t mean we can ignore the 5%. It's the logical bit that reassures our head this is a sensible decision.
And whilst not as exciting, this is why the commercial foundations of a strategic partnership should not be overlooked. And by that I mean potentially paying a commission to your partners for customers you've gained through their introductions.
They’re not essential in all partnerships, but in my experience they help solidify a relationship, formalise it, and keep everyone focussed. Depending on the size or nature of your business it also helps protect the partnership from the issues of one built on a purely personal relationship.
If your main contact at a partner leaves, or maybe it’s actually you looking to exit your business, then you want to make sure the relationships in place are as rock solid as they can be - either to ensure your consistent flow of leads you've been building your business around doesn’t suddenly dry up, or to maximise the value of your business on sale.
There are various ways to set this financial side up, so here’s some factors to consider before deciding the model you want to employ.
And it's worth noting that one size doesn't fit all. Potentially you may have different structures for different partner types.
So here we go...
· Is there differentiation between my strategic and referral partners?
The commission you pay a committed partner would usually be something greater than you’d provide a casual referrer.
Think 10% of sale value compared to a £100 Amazon voucher.
· Do I offer a fixed fee or a % of the sale?
When looking at casual referrals a fixed fee almost always works better, and especially in the B2C (business to consumer) space. People can just get their head around it easier.
Strategic partnerships are typically with commercial organisations where a % of revenue can make more sense
· Do I base on sale value or profit? (Sale is much more commonly used)
You might want to make the distinction on profit if your business is reliant on commission as it’s main driver - eg: you’re a broker.
· Where do I set that % or fee in order to protect my margins?
Pretty self explanatory - but what you don't want to happen is that you actually begrudge leads that come in via partners because the margins are too low!
Equally though, make sure it's high enough to represent value to the other party. Open conversations here are always best.
· Is this a one off or initial order payment or ongoing for lifetime of customer, or somewhere in between (eg: first 12 months)?
I’m a big fan of the ongoing payment, particularly if your business works on a retained model, but even if not. It really shows how much you value the upfront work the partner is doing. Even if that customer is with you for 10+ years and buys multiple products.
That said it’s not for everyone and I appreciate the argument that if you’re able to upsell the customer to different products or services then you’ve done the hard work. I’d still suggest that you wouldn’t have had that opportunity if it wasn’t for the partner, so one option could be that you look at a reduced level of reward for new sales or after a set period of time.
In some instance it can even be a mix. We often worked with partners where we received an initial payment based on a % of a set up fee charged to the customer, and then an ongoing % of the recurring fees.
The most important thing is that the partner is happy. If they begrudge making the referral if/when they hear about how big a client they’ve become for you, then they’re potentially less likely to refer more.
· Do I want to offer a tiered structure based on level of performance (volume or value – either per case or cumulative)?
This is typically used more in the world of affiliates, where it’s a pure numbers game, but you can look to increase the reward your top tier partners who are referring you more regularly or with higher value clients.
· Are there minimum volumes before payout to ensure partners are committed and play their part?
Again something that’s often used with affiliates to stop people benefiting from a higher reward for making a one off referral when they have no intention of becoming an ongoing partner. I’m not a fan of this in the partner space, I think if you do your due diligence right then this either won’t happen, or if it does it will be so rare that the ill effects of the negative connotations it raises with genuine partners far outweigh any benefit.
· Do you need to delay payment until a certain amount of time has passed to ensure margins are protected?
Worth bearing in mind if your customers have any kind of right to return or money back guarantee. It’s much easier to delay payment to a partner then ask for money back. As long as you’re upfront about the reasons why they’ll be understanding. And if they’re not, then maybe you question their values as a partner.
· Are there legislative or ethical reasons why your partners may not want, or be able, to receive commission?
This can be especially true when partnering with those in the financial sector. In this instance it’s all about how you position the potential reward.
‘We normally offer partners X for leads that are passed to us, is that something you’d be interested in?’
If they’re happy to they’ll say. If not maybe the commission you would have offered could go to a good cause, or potentially be passed onto the customer.
Which brings me onto my final point….
· Will your partner expect some kind of offer for the customer?
This will largely depend on both what you do, what your partner does, and how they’re looking to promote you.
We’ll cover what this could look like in more detail next, but it’s worth bearing in mind now if the offer is going to be of monetary value. Is there a set % of sale value that your partner can choose how they split between them and their audience?
CROSS REFERRALS
A quick note here on cross referrals, I’m not a fan.
Wait, let me clarify. If you can pass leads to your chosen lead gen partner as well then you absolutely should. But in most instances I’m not a fan of relationships that are set up on this basis.
You see, very rarely is there a situation where your ideal partner for passing leads is also targeting you as an ideal partner for them.
And even if they are circumstances can often mean that one party ends up providing more leads than the other.
Now, in rare instances, this can be fine. Where the ‘real why’ is so strong, and maybe the expectations have been set up front, but all too often in this scenario resentment builds, and then the partnership is doomed to failure. I’ve even seen friendships affected.
As a general rule I’d suggest focussing on each side of the partnership individually. The value you bring to the partnership is the Real Why I mentioned, and then any supporting reward. If you’re able to provide leads that's a bonus and should be treated separately.
If you're reading this and thinking that you've been part of a successful cross referral relationship then AMAZING. Well done. They do work in some instances, especially when there's a really strong relationship and values match. But I’d also urge you to think a little deeper and ponder whether the other party would think the same?
CUSTOMER OFFERS
Some partners may not want to receive commissions at all (although this is more common with referrals rather than strategic partners), may not be able to receive them for legislative reasons, or for another reason may want to pass some or all of the reward to the end customer – or may look for an offer in addition.
If you're partnering with any kind of association, membership organisation or other community then they’ll likely look for an offer. The main reason for these people partnering is often to provide greater value to their members, and therefore increase retention, acquisition and referrals, and so an offer builds into this.
If you think you may need to put a customer offer together here’s some things to consider;
· Will it just be a share (or all) of whatever reward your partner would normally receive
· If so is that a fixed fee or ongoing %?
Same rules apply here as when raised above when thinking about commissions.
· Are you happy for any offer to be promoted openly, or only within certain parameters?
Do you want the general public / business community being aware of this offer?
It's worth mentioning that in my experience percentage savings on low cost products or subscriptions often don’t provide the same impact as they used to, so alternatively:
· Is there a set-up fee or another one-off cost you could waive that has a more substantial impact but that you can cover?
· Can you offer some kind of free upgrade or enhanced level of service offering?
This enhanced service could even be something that sets a customer on a path to a future upsell.
· Is there a bespoke offering you can build in, like a review or other piece of personal service that has a high perceived value but won’t cost you too much time?
Perceived value is key here. Most of us have something that we do in a certain way that we just take for granted. Others will find that simple thing absolute gold dust.
· Similarly, is there some content, either written, recorded or other format that you can offer?
and.....
· With all of the above is there something you can do to make it super relevant to the partner whose audience you’re making the offer to?
If the audience is in a specific sector, or is at a certain point in their business or life, what can you do to make the offer super relevant to both them, and the partner.
So, quite a bit to consider, but for most businesses the decision making process here is pretty straight forward.
Whatever you do, remember that it will only be for a very few partners where this is the main reason the want to partner with you, but it absolutely could be the thing that helps get them over the line and maintains the relationship.
--
If you'd like to chat about anything in this article, or anything else to do with referrals, collaboration, and strategic partnerships then just drop me a message, or feel free to book a slot below: