Should Your Company Pay a Finder’s Fee?

Question:

Do you have any experience or recommendations on whether or not to use some kind of finder’s fees for people who refer business to you?  I’m trying to decide if it would be a good idea, the legalities involved, how to establish a reasonable amount to pay and how to spread the word that we offer finder’s fees.

Charlie Masters,
Vintage Contractors

Answer:

I have used finders fees for outside people or consultants who bring us business on a few occasions. The rules are simple: No fee is given for leads. Too often people tell us about an opportunity and want to get paid for no more than a phone number-this is not worth a finder’s fee. People who have an inside track with the customer and can deliver us a negotiated contract via their introduction are worthy of a finder’s fee. Only referrals that lead to exclusive meetings with the customer qualify as a payable lead.

I usually offer 0.75 percent of the contract value as a finder’s or referral fee to an outside party. For example: a $1 million contract = $7,500 finder’s fee or 10 percent of your gross profit/contractor’s fee.

Another example: $1 million contract at 8 percent contractors fee = $80,000 x finder’s fee of 10 percent = $8,000.

Fees are legal if you make sure the recipient pays their taxes – just be clear about the rules.

Construction Business Owner, September 2008