People do business with people.
Building your business through referral arrangements is a natural extension of human behaviour. We like to ask others for recommendations – whether we’re looking to have our house painted or need a new mortgage. We want to find a solution that has worked for someone else.
As the referrer you want to recommend someone who has done a great job because you don’t want to lead a friend astray. It’s a matter of trust.
If you rely on referrals to build your business then it is doubly important to cherish that trust because once it is broken it is very difficult to win back.
The best way to ensure that your clients are happy is to vigorously research your referral partner and put clear guidelines in place to regulate each parties behaviour. This reduces the potential for nasty surprises down the track.
When researching a partner ask to speak with their customers and do some research. Are there reviews online? Testimonials? Who is in their network? Does their reputation match up to what they have told you?
Once you’ve found a partner with the right credentials, take the time to discuss about how your arrangement will work.
You should cover issues such as:
- performance standards
- confidentiality
- fees and schedules of payment – how much? When? How? For what?
- boundaries and restraints
- legal compliance
- indemnity
- how to end the arrangement
The best way to distil these discussions is to write them down. It is much easier to refer to a document than rely on memory for the agreements you have made to each other.
It doesn’t matter whether you are the referrer (the person suggesting someone) or the referee (the person who is referred to another) you need to make sure you understand your obligations to the other party.
Consider these scenarios.
1. A law firm refers a client to an accountant for financial advice. The accountant develops a relationship with the client and during discussions on various matters, the accountant recommends that the client set up a Unit Trust in relation to a property development. Instead of referring the client back to the lawyer for proper advice in in relation to the structure, the accountant sets up a trust online depriving the lawfirm of valuable income and the client of proper advice.
If the law firm had documented the arrangement with clear guidelines on appropriate boundaries and restraint of trade, then they could refer to that agreement and remedy the issue.
2. A mortgage broker and property developer enter a verbal agreement to help find properties for potential investors. Six months have gone by and the broker has referred 8 different clients to the developer. The broker has not been paid for any of the referrals, even though he knows that a number have gone on to purchase property. The broker is becoming increasingly frustrated about chasing the developer for payment and is now considering legal proceedings.
In this case a referral agreement that clearly outlined a fee structure would have provided the broker with the necessary mechanism to remedy the situation and recoup the fees owed to him, without the need to take legal action.
