Should you reward client referrals?

Referrals are always a good source of new business and can work both ways for practitioners and their existing clients. Rachael Power reports on recent exchanges on the subject.

An AccountingWEB member recently faced an ethical and moral dilemma when his client asked for a referral fee for introducing him to a contact who could attract lots of new business.

Michaelbeaver turned to Any Answers for advice: “Curious to know if anyone else does this routinely, and if so what do you offer?

The answers ranged from staunch support of referrals to those who were “gobsmacked” by the thought of paying clients.

PracticeWEB's demand generation specialist Alex Tucker also took an interest. “Looking at the thread, it struck me that only one participant felt that rewarding referrals is wrong. They thougt if you do a good job, you should get referrals without having to offer cash,” said Tucker. 

"The statement assumes that you have the right to referrals business if you do a good job, and also that prospects don’t have several people making a range of equally good recommendations." 

Tucker believes that practices do need referrals. Research on customers of a German bank by Christophe Van den Bulte at Wharton University found that...

Continued...

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Comments
MarkAOrr's picture

Always reward people who help you    1 thanks

MarkAOrr | | Permalink

Yes of course you should reward people for successful referrals.  You should also do it as quickly as possible.  However, find out what kind of reward they would really value.  It is not always money.

The more quickly you reward somebody for doing something you like the more quickly and often they will do it again.  On top of that they may also talk to others about how generous you are and how prompt you are and you may end up with even more referrers.

Publish the fact that you are always willing to reward successful referrals too.

Referral Fees    2 thanks

nickselectaccounting | | Permalink

I offer a nominal referral credit on the account of clients of between £20 and £40 depending on referral in question. There is no physical payment only a credit on the accounts of the client ready for the next year, which is only payable once the referred client has paid their first fee.

I see no ethical issues with this as it is a goodwill gesture which is not actively marketed on an aggressive basis. Clients tend to refer based upon merit and I simply reduce my fee in respect of such a referral for one year.

It is must more cost effective when you consider the cost of new client acquisition and the quality of the client is much better. 

I believe that if done correctly and on a discretionary basis it is ethical. . . If marketed aggressively in such a way that fees are purely defined on how many new clients can be brought to the table, then I would be inclined to agree that there are ethical issues with it.

Referral fees

AndrewV12 | | Permalink

I dont see it being a problem a lot of Insurance Companies & telecom do it now, though I dont think you should advertise the fact, as I think it may be against Accounting bodies guidelines. 

I suppose its part of a marketing strategy, if you dont do it  the next accountant might  do it. 

 

 

Yes you should

David Gordon FCCA | | Permalink

 

 It is ordinary business.

 Most of us if we pass a client onto a financial adviser will expect to receive a reward. It is in our standard letters of engagement. Providing we deal with it according to the rules there is no problem.

 It is common commercial practice to receive a reward for "Introduce a friend". So providing it is done in honest fashion, why not?

 We are all in competition with a host of firms offering tax and accounting services. Few of us can afford the costs of truly effective advertising. 

 This is therefore a sensible way of showing clients we are also in business, not providing charity, and appreciate their goodwill.

 I do not include that myriad of telephone salesmen offering to send us clients if only we will first pay their incredibly effective wonderful organisations an eyewatering up front fee".

To which I reply I will happily pay the fee and a bit more, when the new client pays me.

Strangely, the conversation always seems to end at that point.

 

andy.partridge's picture

We are talking client referrals    1 thanks

andy.partridge | | Permalink

If a client is demanding a reward for a referral I believe there is an ethical dilemma. Clients should be referring for one reason only - that through their own personal experience they know you do a good job. There can be no financial incentive for them to believe that. It must simply be the truth as they see it.

Having said that, it is quite right to thank the introducer and that thanks can take many forms, including financial. For me it would be vital that my expression of gratitude is spontaneous and not part of a contractual agreement.

 

Thank you notes and a little gift

Jimess | | Permalink

I always send a card or letter of thanks and perhaps a small gift for referrals.  They remember that more than getting a credit, or a sum of money.  I was brought up to say thank you to someone doing you a good turn and I don't see why similar manners should not apply in business.  

Tom 7000's picture

Someone put me right here please    1 thanks

Tom 7000 | | Permalink

I thought ICAEW regulations forbade it or am I wrong?

Lots of interesting points    1 thanks

AlexTucker | | Permalink

Lots of interesting points here. I think I would consider:

  • What kind of reward works best for MY client?
  • What can my business afford?
  • How does the cost of rewarding a referral compare to another lead generation method?

There's also a really interesting point around "aggressive" marketing - I think marketing should always be tasteful and appropriate and never risk being seen as aggressive. I do think though that we should not be shy about asking for a referral appropriately.

For example, if you did have a formal scheme, employing a telemarketer to phone your clients and ask them to refer business would be aggressive and inappropriate, while a footnote in a bill or P.S. in an email might seem more appropriate.

I suspect for many firms, simply discussing referrals and the associated rewards in a timely, polite and transparent way might be  the most effective to "market" for referrals.

 

E3Consulting's picture

Materiality, conflict and disclosure - question of balance?

E3Consulting | | Permalink

It always nice to say thank you and mainly we would send a small gift - (e.g. a bottle of wine, bunch of flowers or box of chocolates - depending upon client preferences) to acknowledge a referral for a job well done.

These days the Bribery Act 2010 has to be considered so any referral fee that become a material sum (by reference to total fees) can be consider to be intended to influence a decision and potentially becomes more problematic.

The Institutions (ACAEW/Law Society/SRA/RICS/CIMA etc.) are to me all a bit woolly on this - tending to hide behind disclosure principles - i.e.so long as the referral fees are disclosed to the client openly then they seem to be happy to allow - but these need to be underpinned by integrity such that the client understands the choices and that the referral between A, B or Care in their specific interests.  I suspect few do actually disclose referral fees at the time, if at all.

This area could and should be policed better by the Institutions and/or Insurers (? Quis custodiet ipsos custodies?!) via disclosure within PII renewals or any regulated annual returns by requesting details of the level (as % of turnover) and quantum (largest individual fee £) to help flag those firms at highest risk of being 'swayed' by a referral fees rather than 'best person for the job'?!

Then there are pyramid sellers too ...  You've no doubt had a call from them... you'll spot the hard sales approaches, pushy telesales teams that are only interested in their commission revenue, not service delivery or client outcomes - these have great potential to fuel conflict of interest.  Harking back to bank mis-selling of Protection insurance etc. these were driven by fiscal incentives of the sales reps to generate sales, irrespective of the specific client requirements, service etc.  Where commissions influence the adviser to recommend a particular firm - i.e. they refer to the firm paying highest commission or referral fee then this can't be right or in the client's interest?

I suspect the vast majority of modest thank you's are ok, but the structured pyramids with referral upon referral; each taking commission at levels often higher than 'the usual project fee'  - verges well and truly into the realms of conflict of interest and must surely be wrong!

 

Strongly agree with your

AlexTucker | | Permalink

Strongly agree with your comments about pyramid type schemes - I think there is a gulf between this kind of activity and client referral which I believe is essentially earned (even if there is a reward or thank you gesture).

 

We have an open referral

pauljohnston | | Permalink

Every client or potential knows about it it is called "introduce a Friend" because we send a card about it with every letter.

Every person who gets the reward which is fixed always rings or speaks to us and say thank you.  Therefore I assume that it is greatly appreciated.

I agree with Andy - No I would not pay anyone for a referral

sarah douglas | | Permalink

 

 

I pretty much agree with Alan.   I would always give the referrer a ring or email if they were busy to thank them.   As a practice we refer clients all the time to various business that we know are good locally and I would not  dream of asking those businesses for money.   That does not sit well with me at all.   I believe in supporting other businesses it is something I feel very strongly about and I certainly would feel awkward if one of them  gave me a gift.   If I think they are good I have no problems referring them to another business.      

The ethical question is probably with the referrer

the ins and outs | | Permalink

being on the the receiving end of a referral - clearly it makes financial sense to pay a referral fee and receive substantially more income than no fee and no income.

 

The question becomes more tricky for the person making the referral

  • does the potential client they are referring know they are being rewarded for this? If not would this impact their decision? Would it be ethical not to tell this client that you are being paid for the referral? What do they think of you if they know that you are getting paid for referring them?
  • does the fee impact on whether you would refer somebody or not and/or who you refer the potential client onto ? If just referring based on who pays the most money then isn't that referral suspect?

My motivation for referring is wanting to match a need to a skill and help people out. There is the potential for it to get clouded by financial rewards.

JAADAMS's picture

Interesting comments...

JAADAMS | | Permalink

Before I read this commentary I was on the phone to a prospective client introduced by a current client who has, in fact introduced 4 clients to me over the past couple of months.

I was wondering what to do. I automatically thought of a 'discount' but that will not come through until I do his next set of accounts.

I liked the idea of presents - easy for a lady (flowers/chocolates) but any suggestions for a man?

And no funny suggestions such as 'a 4 pack'!

michaelbeaver's picture

Well, back to where I started really!

michaelbeaver | | Permalink

I'm glad my original question has generated a good level of discussion!

Initially I was hesitant to offer any kind of referral fee, thinking that my level of skill and customer service should stand on its own merits.  

However, I'm now thinking that I certainly won't offer a referral fee for every client to every client, but there are certain ones that I may be able to motivate with small discounts to their fees to think about other people in their network that they could refer to me.  Clients to whom it just may not occur to to refer an accountant to anybody.   This could be quite an effective strategy, I think.

Others will be happy to refer others to me without thinking of any kind of reward, and I wouldn't insult their loyalty by offering cash.

Which means for certain clients, JADDAMS, bringing me back to perhaps just offering a bottle of whisky to the men, or champagne/flowers/chocolates to the ladies or whatever I think each one would appreciate.

 

andy.partridge's picture

Chocolates, please

andy.partridge | | Permalink

JAADAMS wrote:

Before I read this commentary I was on the phone to a prospective client introduced by a current client who has, in fact introduced 4 clients to me over the past couple of months.

I was wondering what to do. I automatically thought of a 'discount' but that will not come through until I do his next set of accounts.

I liked the idea of presents - easy for a lady (flowers/chocolates) but any suggestions for a man?

And no funny suggestions such as 'a 4 pack'!


As a chocolate aficionado, Ok addict, I would welcome a gift of chocolates. The traditional bottle of whisky or whiskey is declining in popularity amongst the younger crowd unless it's bourbon. I also like posh socks, eg. Duchamp. They are about the same price as a fair bottle of spirits.

bookmarklee's picture

Ethics    1 thanks

bookmarklee | | Permalink

It is all too easy to confuse different issues here.

Modest, or even generous, thank you gifts can be given to introducers who were not expecting anything. I see nothing even close to unethical here.

Promoting the concept to clients or third parties that you pay for or 'reward' new work introductions also seems perfectly reasonable to me if it suits your style. Again I don't see anything close to unethical here.

The 2010 Bribery Act means you need to be even more careful that you are not doing anything that might be considered to be unethical in terms of persuading anyone to do something that they wouldn't or perhaps shouldn't otherwise have done. "Very generally, [bribery] is defined as giving someone a financial or other advantage to encourage that person to perform their [official] functions or activities improperly or to reward that person for having already done so."

Many larger organisations have tightened up on their internal rules and deny their employees the right to receive personal gifts that might be seen to fall foul of the Act. This can mean that the RECEIPT of gifts etc can cause such people an issue. And if it does they will let you know.

Again I can't see that any gifts of the type referenced in this thread - even the most generous ones - could fall foul of the Act.

So far as I can recall ICAEW guidelines on referral fees are more focused on how you deal with those that you RECEIVE, not those that you pay. But of course inappropriate payments intended to encourage anyone to do something that they should not do would be unethical.

Hope that helps

Mark

bookmarklee's picture

Gifts for men

bookmarklee | | Permalink

Suggest you ask their PA (if they have one) if they would appreciate wine, scotch or similar or would they prefer something non-alcoholic. best not to assume booze is ok. Some men (like me) prefer chocolates or port.

Mark

stepurhan's picture

Not so easy    2 thanks

stepurhan | | Permalink

JAADAMS wrote:
I liked the idea of presents - easy for a lady (flowers/chocolates) ....
So you've just really upset your female client who is allergic to pollen and on a diet at the moment.

If you're going to give gifts, you have to think about the specific person. A generic gift that you think is suitable for men/women might actually have the opposite effect to that intended.

Not sure I agree    1 thanks

sarah douglas | | Permalink

Hi . I do not need to be paid to recommend anyone . I am more than happy to recommend someone without being paid are receive a gift . I would be very unhappy to find out the person who referred me to someone is getting paid . I do not think it is ethical and I did not want to say earlier a bit tacky . The way you behave , work and treat others with respect is enough .

referrals

timmypunk | | Permalink

I give my clients a referral fee, reduce there fee by 10% of the client they have referred fees  up to £50 a client .example one client got me 2 new clients , wanting full service ,so I reduced his fee by £100 the following year as a one off

 

 

Glennzy's picture

I offer a discount

Glennzy | | Permalink

of 15% of the new clients fee offset against the referring client annual bill once new bill has been paid. Similar to Timmypink above. I have a few good referrals through this basis although I probably need to review it as mentioned elsewhere the clients don't refer me to get a cheap fee for themselves they do it because I do a good job.

we give wine vouchers for    1 thanks

howdomonty | | Permalink

we give wine vouchers for referrals up to about £25 - clients appreciate it and can chose what they like

 

I steer well clear of discounting fees - a former employer did this only to find clients moaning as to why their fees fees increased from one year to the next and giving no real regard for the discount given

Cash referral

Peter Jarman | | Permalink

We pay clients £75 per successful client and advertise this on the front page of our website. Some of our clients are our best introducers giving us multiple referrals. I see nothing wrong with this. We are very grateful to them.

Paul Scholes's picture

What's that smell?    2 thanks

Paul Scholes | | Permalink

OK, so not all these back-handers will smell, but the risk is always there and so I'm with Sarah Douglas on this.  99% of any client I've ever got has been by recommendation and I too recommend lots of businesses to others based on my experience and knowledge of what they do.  So, for example, I have waxed lyrical about Hosted Desktop's brilliant service & support and have had many calls with prospective users, how would it sound if I finished the conversation with "go for it, I get £100".

In fact, for all those paying out, if someone recommends a new client to you, how many admit to the prospect they are in for a kickback?