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How to manage your referral relationships – Drafting an effective Referral Agreement

Besides being a great way to build an interconnected network of suppliers, referral arrangements help build trust and authority in your business. But proceed with caution. Your reputation rests on the performance and behaviour of the people you refer to. Don’t leave their behaviour to chance – refer the right way with a Referral Service Agreement.

referral agreement

Drafting an effective Referral Service Agreements allows you to manage the quality and integrity of your referral relationship.

Why use a Referral Service Agreement?

Growing your business through referrals makes sense. It not only creates a valuable interconnected network, it can also result in significant financial remuneration for your business. But if you’re relying on verbal agreements and all too selective human memories to govern your referral relationships, you’re asking for trouble.

It only takes one poor performance from a referral partner to damage your business’s reputation – and your clients’ trust in you along with it. By putting things in writing, you drastically reduce the potential for misunderstandings or arguments that may arise further down the track.

Referral Service Agreements allow you to manage your referral relationships, defining how much leads are worth, who pays for them, and under what circumstances.

What to include in your Referral Service Agreement

To be effective, your Referral Service Agreement should be as comprehensive as possible. Here are some of the matters you should consider when drafting yours.

Are you the referrer or the referee?

The terms of your Referral Services Agreement will differ depending on whether you’re the referrer or the referee. Ensure your Agreement is clear on who is to take on each role.

Referral fees

Referrals work on a quid pro quo basis. That is, if you provide a referral resulting in a financial benefit for your referral partner, you’re financially rewarded in turn. But how do you plan to calculate your referral fee? Will you charge a set fee per client referred or a percentage of the fees charged to the client? Consider which option works best for you, and outline it as clearly as possible.

Accounting and remuneration

Whether you’re providing the referrals or receiving them, your Agreement should outline fee calculation and payment. Specify the referral fee calculation method, time limits for payment and include clear payment instructions – eg. direct bank transfer, credit card payment etc.

Performance standards

Your professional reputation rests on the performance of the people you refer your Referral Agreement Downloadclients to. It’s a lot of trust to place in another business owner and should be regulated.  Therefore, your Agreement should outline the performance standards of your referral partners – or your performance, if you’re to be the active referrer. How will those standards be set, what are they, and how do you expect your partners (or yourself) to maintain them?

Boundaries and restraints

By entering a referral services arrangement, you’re building a network of interconnected service providers. As such, you’re not in direct competition with them – you’re working as a symbiotic unit. But what if there’s an overlap in the products or services you and your partners offer?

A good Referral Services Agreement clearly states that your referral service partners don’t perform any of the services you provide. To make it clear to both parties which services are part of the Agreement, you should outline which products and services each party will offer under the arrangement.

The Agreement should not limit or restrict either party from offering services unrelated to the referral relationship.

Legal compliance

Along with maintaining high service standards, you want to be confident your referral partners are operating within the law. Which laws and legal standards apply will differ from industry to industry, but may include things like the National Credit Act and ASIC’s regulatory guides. These should be specified in your Agreement.

Insurance and indemnities

You should make it a condition of the Agreement that each party have a current policy of professional indemnity insurance relating to the provision of referral services.

You should also agree to indemnify your referral partner from claims, costs, expenses, losses and damages incurred as a result of your breach of the Agreement, breach of the law or claims made by a client under it. They should do the same for you in turn.

Confidentiality and privacy

It’s imperative that your clients feel safe when dealing with your referral partners. This means ensuring you and your clients are confident your referral partner will deal with confidential information and intellectual property in an appropriate manner. Your Agreement should contain clauses binding your partner to a specific level of confidentiality. If they’re professionals, this should never be a sticking point.


Despite our best intentions, things don’t always go to plan. Guard yourself against things going wrong in the future by including a termination clause in your Agreement. This establishes up-front how the agreement can be ended in the event that either you or your referral partner (or both parties) wish to sever the referral relationship.

Referral Service Agreements – It’s always safer in writing

Setting your referral arrangements down in writing sets the boundaries and standards for your referral relationships. Ensuring everyone knows where they stand from the get-go, a Referral Service Agreement is the best way to build your business, while protecting your reputation and client relationships. After all, you’ve worked hard to build it up, why let one poor performer bring it all down?