Are Digital Marketing Referrals Worth It?
This question comes in from Stephen and Stephen says, Hi, Jeff, I'm working on an agency for a program. Now I've done some research. And in terms of commission rates, it seems like 10 percent of the first deal revenue, not including recurring revenue, is of what love is, what lots of people use. Would it be what would be your thought on the percentage of commission? Also, how should I design that program without Zafra sacrificing too much profit or causing other problems? Anything else I should be aware of? Love to hear your thoughts and experience.
Awesome question. And so, Steven, you know, first thing is I can't count in tens or even hundreds of thousands of dollars. The amount of money we've made off of getting referrals from referral partners at my agency. So my agency, since I've owned part of it, as has probably made 75 million dollars or so, and we're talking a very, very small percentage of revenue comes from referrals or referral partnerships. Now, I've seen other people who are who claim that referrals are everything right, that they get referrals left and right and that's how they run their business.
But what I find is that when you get referrals, they're often un targeted and they're not really either in the niche you're going after or they're not really going after the right service. And so a lot of times the arrangement is it's simply people refer somebody to you, but they're not a good fit. And so you can't really do much for them. And it actually wasted burns your resources trying to even pitch something to them when they're not in your market. And so referrals are sort of a take what you can get thing. And if you rely on them, then your business sort of can get out of whack because you're always working with certain types.
You know, you're always working with businesses that fall in your lap, but maybe they're not part of your target market or who you want to go after. And so I haven't had a lot of success with referrals because it takes us too far away from our core business and it can be a problem. And not only that, but you have to do a commission pay out to somebody so it can be challenging. And I have not had a lot of success with it. Then again, I've had people who've gone to my programs who say everything is referrals, but most of the time we're not talking about multi-million dollar agencies. We're not talking about big agencies. We're talking about people as a starting point, really just referrals coming in that way. And even then, most the time when people get referrals, they're not the other person is not expecting compensation inside. I don't I have not had a lot of success, that success with it. And so I can't really speak to the wonders of how it works. I have seen disruptive media, disruptive advertising,
I believe, take a bad guards agency. They they seem to have a pretty good referral program that makes them money. And they have a referral manager who's in charge. That said, maybe some of you want to look at and see how how they did it. But, you know, as far as percentage goes, 10 percent is the standard. It makes sense. Everybody involved. It's sort of like a sales commission. Of course, 10 percent of a project just in order to get somebody to make a contact, you know, unless it's a done deal, if you start to pitch them and stuff like that, it's not you know, you're giving a whole sales commission when you start to do all the sales work.
So you're not gonna be able to get much lower than than 10 percent if you're doing it off of a percentage. But some people might just say, okay, I'll take a five hundred dollar or a thousand dollar referral fee regardless of the price, the contract. I'm actually more tempted to do that or more tempted to recommend that versus these percentage things now profitable, you know, profitable. It shouldn't make a big difference if you're giving up 10 percent commission on a project. If it was going to be profitable beforehand and you bit it correctly, the 10 percent shouldn't really affect you all that much. It's only when you underbid a project to get it or you you know, somebody who is the referral under sells your services and sets the expectation it's gonna be a lot less expensive than you are, that you end up getting trapped in a situation where you give a commission on a bad deal, a deal. It wasn't really part of your wheelhouse or part of your niche.
That's again, why I don't love paid referrals, because it usually attracts people with the wrong incentives. It's not an organic thing that's happening. They're actually going if they're going out, they're trying to find referrals for you're trying to find business for you. They're going to lower their standards in order to make the commission. And so it's like having it's like giving somebody all the all the glory of being a salesperson without any skin in the game whatsoever. So that's another reason why I don't love it. So I'm not trying to discourage you from doing it. I think it's a good it is an opportunity at the beginning, especially if you're a good networker and you have people who are who are good networks, networkers surrounding you, and they don't want to do certain items and you can be their go to person.
So not much to lose there. But I would temper your expectations as to the upside of it. And so and then as far as profitability, just build just just build your quote normally, because even if you're building a quote for a non referral based project, you're still expecting to make profit out of it. If you take 10 percent off that for revenue than for sales commission, that's the sales commission, you'd have to pay somebody anyway. So if you have the right profit model, it shouldn't really affect things all that much. I mean, obviously, it is taking 10 percent off the project, but at the same time, you know, that sales cost should be 10 percent anyway, so. You look at the referral fee is the equivalent of you advertising on Facebook, are you going out there and speaking at conferences and paying for your expenses? It's just it's just shifting one thing for another.
The advantage of the referrals is that you're not actually pinning your cash in to it. You're you're you're only putting cash into it when it's successful. So obviously, that's tempting. And it sounds good on paper. It's just more. If you're shifting your business in order to get these referrals and to make that successful, then it has an opportunity cost that most people don't account for. And that's, you know, my company realized it along. You know, my agency realized that early on in the process. And that's why we don't didn't really focus that much on it. OK, hopefully that helps. And let me know if you've any other questions.
Want to get your question answered by Jeff?