There’s no doubt that using referrals to grow your business can significantly boost your brand and income. 
By creating and maintaining strong referral networks, you’ll gain an invaluable source of advertising that just keeps on giving!
Due caution needs to be taken, though, and you should never assume that your referral partner knows the ‘steps to the dance’ and has the same quality performance standards as you do. If your referral partner is doing the Waltz when you want them to Tango, it’s time to implement a referral agreement and get back into a synchronised step.
What’s a Referral Agreement?
Referral marketing involves a business utilising people (including current customers or clients), other businesses or brokers to promote a brand and its products or services to new customers. This generally happens through word-of-mouth or online referral programs and can be implemented as part of a paid agreement, a mutually beneficial agreement (such as advertisement exchanges) or organically.
It can also involve a business referring their own clients to a quality brand that complements their own brand or service in some way, such as a plumber referring a customer to a bathroom supplies store.
A referral agreement is a legally binding document that allows you to set down the rules of a paid or mutually beneficial referral arrangement, so that both the Referrer and Referee are clear about their respective obligations.
Why is a Referral Agreement So Important?
You may be thinking “as long as the referrer isn’t saying anything negative, what could go wrong?”
Unfortunately, there’s plenty of things that can go wrong with a casual referral arrangement that’s not backed up by a quality framework of standards. These issues can involve disputes about:
Commission payment terms – do both parties have a clear understanding of monies to be paid, what the money is being paid for and the duration of the commission periods (payout periods) and similar.
Indemnity and Insurance – Are appropriate safeguards in place so that costs, expenses, losses and damages are not incurred as a result of actions from either referral partner.
Termination agreements – Have you thought about how to end the arrangement if things don’t go well?
Legal compliance – Are your partners operating lawfully and to industry standards?
Privacy and confidentiality – What systems are in place so that confidential or personal information remains private and intellectual property is not used inappropriately
Beyond these though, there are other aspects that could make or break your businesses reputation. Things like performance standards and conflicts of interest are vitally important, because you’re basically entrusting your brand name to other people who may not have the same interests in promoting your business to a high standard.
Think of it like this – if you were a retailer, would you employ front-end sales staff that were rude, pushy, annoying, vulgar or spoke only of irrelevant topics that don’t relate to your product or service? No you wouldn’t, so why would you allow referrers to do the same? If you’re not setting performance standards, you have no control over how your customers are being treated and this can reflect badly upon your reputation.
For example, you could end up with your brand name being damaged by:
- A referrer that also advertises adult, racist, overtly-political, religious or other inappropriate content, which could leave potential customers associating your brand with those inappropriate things.
- A referrer who is earning money for referrals (via pay-per-contact or similar) but is actually sending customers who aren’t really interested in your product, or even using fake traffic to boost their referral numbers!
- A referrer who is being paid for promoting your brand, but is promoting it on an irrelevant or unrelated platform (which again, will result in invalid customer contacts, or none at all).
- A referrer who is in direct competition to you and uses your connections to steal customers.
- And possibly worst of all, a referrer who attempts to solicit your customers by being pushy and even abusive (think persistent and unrelenting telemarketers), forever tarnishing your reputation.
- Alternatively, a business who refers customers to another business and the referred business doesn’t have quality products or services, doesn’t treat the customers well or steals customers.
These are just a few examples of what can go wrong if you aren’t setting standards for who can advertise your brand and how to advertise it.
How to Avoid these Issues
The best way to avoid that horror list of problems is to research your potential partner and think about how you want the referral arrangement to operate. Like most things in life – things go better if you have a clear plan.
By planning for potential headaches beforehand, you’ll reduce the likelihood of conflict down the track, preventing the loss of reputation, customers and the loss of money spent on referrals. Don’t just rely on memory or a verbal agreement though, as this is bound to create issues later on.
Taking the time to put your referral arrangement in writing has a couple of clear benefits – it sends your partner a signal that you value your clients and want to take care of them, and it shows you are taking the partnership seriously.
Putting your arrangement in writing doesn’t have to be complicated or expensive. The easiest way of ensuring your referral partnership is safe and mutually beneficial is by using a Referral Agreement Template, then customising it to your needs. This way, not only are the terms of your agreement set out in black and white, but it’s legally binding, to protect all involved and stop you from stepping on each other’s toes!
Just taking this simple step will provide peace of mind for both parties and allow you to make the most of this powerful selling tool.
How to manage your referral relationships – Drafting an effective Referral Services Agreement
Referral arrangements are an excellent way to build trust and authority in your business whilst boosting your bottom line. Drafting an effective Referral Service Agreements allows you to manage the quality and integrity of your referral relationship.