Smart Answers

Referral Etiquette for Consultants


I'm starting a consulting firm. Several friends and former colleagues have promised to send clients my way. What's the etiquette in relation to introductions and networking for a consulting firm? —M.N.R., La Crescenta, Calif. Referrals and networking are crucial to consulting firms and should be encouraged, particularly as you get started in business. Having colleagues who will recommend your work and put their friends and clients in touch with you before you are known in the community will get you started building a client base. How you motivate that behavior—and sustain it after you get established—depends on what kind of consulting you're doing and who's referring prospects to your firm. Saying thank you, both by telephone and following up with a written note, is absolutely required within a day or two of the referral. Returning the favor, and referring business to others, is expected in formal networking groups such as BNI International, which is headquartered in Upland, Calif. "If you're getting a lot of introductions from someone, it might be worth sitting down with them to express your thanks or buy dinner," says Jim Nightingale, a longtime business consultant based in Chicago. Beware of State RestrictionsIn some industries, such as real estate, it is common to provide a referral fee if you close a real estate deal, says Gene Fairbrother, of MBA Consulting in Dallas. You must be careful, however, because some states restrict referral fees only to licensed brokers. Government employees are also often prohibited from taking fees or gifts over a certain dollar amount. "Most professions have a history or a precedent on how to treat referrals," Fairbrother says. "For some, it might be saying thank you with a percentage of the sale or a finder's fee, as it is in manufacturing sales, where one manufacturing representative might bring business to another manufacturing representative. For other professions, it might be a simple thank-you card with a $100 bill in it or a gift certificate to a nice restaurant." Mae Lon Ding, principal of Personnel Systems Associates in Anaheim, Calif., and former president of the Irvine (Calif.) trade group Association of Professional Consultants, says referral fees typically range from 5% to 20% of the value of the project. If you are in a strong cross-referral relationship with another firm, you may not need to exchange money, she says. Weighing Other FactorsAside from following the norms for your profession, look at several factors when determining whether a referral fee is in order, Ding says. How much effort did the referrer make on your behalf? If he or she tossed you a name of someone with an unconfirmed interest, that's not as valuable as actually recommending you to a qualified lead or making a sales call with you. Also consider how many other consultants they could refer clients to and what fees (if any) those competitors are paying. Finally, is the referring party sending you overflow business that he or she could do in-house? "You would typically pay more [people] whose alternative is to keep the money by doing the work themselves," Ding says. Another factor is the size of the new business that resulted from the referral, says Marcia Rhodes, spokesperson for WorldatWork, a trade association in Scottsdale, Ariz., for human resources professionals. "If it was substantial, then your thank-you should express your profound gratitude," she says. And making sure you do a great job for the new client will reflect well on the referrer and increase your chances of repeat business. If people referring clients to you "expect a piece of the action or a specific dollar amount, they are probably not going to be shy about being up front and letting you know," Fairbrother says.
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Klein is a Los Angeles-based writer who covers entrepreneurship and small-business issues.

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