I Ask For Referrals

Like those of you who are reading this, I’m a big fan of reading other people’s blogs for all of the traditional reasons:

  • Entertainment
  • Learning something new about a topic that I don’t know much about
  • Having my opinions or thoughts challenged about something
  • …and more

Of course, we all have our preferences for what and who we like to read, but I think that we also have our preferences for the types of topics that we like to read.

Case in point: One of the things that I enjoy reading the most is from people who offer opinions that challenge my own because it gives me food for thought to re-evaluate my own position on any given topic.

Sometime, I end up conceding a point; other times, I end up reaffirming my stance on a position. The thing is, I end up taking a significant amount of time to mull things over, so I rarely end up commenting on the post as soon as I read it.

Then, when I am ready to comment, it’s often too late and the time for the discussion has passed. Sure, sometimes I go back and leave a comment, sometimes I’ll chat with the person on Twitter, and sometimes, I’ll respond in a blog post.

On Referral Fees

A couple of weeks ago, I read an article entitled I Don’t Ask For Referral Fees written by a fellow developer whom I greatly respect.

As I mentioned above, this particular post ended up giving me a lot of food for thought primarily for two reasons:

  1. I’ve taken referral fees from sharing work with others.
  2. I’ve given referral fees from receiving work from others.

Obviously, reading another’s opinion that’s in contrast to my own lends itself to my re-evaluating my own position.

To that end, I mentioned to Curtis that I’d like to respond to his post, but do so – respectfully, of couse – on my own site where I’d have more time.

I Don’t Ask For Referral Fees

In his original post, Curtis summarizes his stance in the following:

I never ask for referral fees first because it feels super odd to me. I’ve got work I just can’t do. I’m going to have to say no to it anyway, but because I’m sending it to you I want money.

Wait, read that again. I couldn’t have done the work anyway. Either I was too busy, or it was just not something I could tackle. So I wasn’t going to make money off the project, but now through some magic I feel that I deserve 10% of a contract I can’t do?

That just don’t seem like sound logic to me.

This is the part of the article that stuck with me the longest primarily because there have been times where I have sent other people work and accepted a commission for doing so.

So there’s the rub.

But why?

In complete honesty, it’s because it made me re-evaluate my decisions as to why I have not only given others a commission for passing me work (and felt okay with it), but also why I have requested a commission for passing on work (and felt okay with it).

Simply put, it challenged me to determine the logic behind it.

A good exercise, right?

Accepting Referral Fees

For anyone who’s self-employed and who has had some level of success, you’ve – at some point – felt the weight of having more work than you can do, but not having anyone to do it.

Thus, you end up turning down said work.

Now, I’m assuming that most of these projects are the type that could be done if you opted to cut something else out (say, time with family, friend, exercise, or whatever), but there is a balance that has to be struck so sometimes, the overflow just can’t be done.

This is a tough position to be in because when the overflow gets to a certain point, a company should want to hire someone. There are times where I’ve seriously considered hiring someone.

But here’s the problem: The amount of overflow may be enough to pay someone a decent wage, but if they were to be employed, then there are a number of taxes associated with said employment, and then the wage leftover isn’t necessarily enough to truly pay the person what they are worth.

The thing is, this is a good position to be in, but you have to get to that tipping point where the backlog of work is enough to pay a person what they’re worth.

This is where referral fees come into play.

If you take the employee/employer relationship and reverse it, then you get into the idea of a commission. You’re paying a person for the majority of the work, but your business isn’t necessarily absorbing the overhead that comes with having an employee.

As such, the person to whom the work is contracted receives their due wages, and the person commissioning the work receives payment for the work and giving someone else work (or giving someone else a job).

This Isn’t Political

Finally, don’t read me wrong: I’m not making a political statement.

I’m not saying that companies shouldn’t hire to avoid taxes or anything like that, but there is that point during which a company gets into a position where it needs to hire more people, but can’t quite pay them a decent wage or can’t justify the cost of doing so for that moment in time.

How Do I Take Referral Fees?

So, to that end, there are some projects that I’ve sent to others and haven’t asked for any commission and that’s fine.

For others, there are times where I have taken a commission – sometimes, I’ll manage the project while a contractor will do development; other times, I’ve simply provided someone else with work to do.

At any rate, I’ve never done commission without an expressed agreement between the people with which I work simply because I think that’s what works and what’s honest.

Ultimately, it boils down to the fact that I don’t yet have the ability to justify hiring someone, but I want to be able to provide someone work, and I don’t mind running part of the project in order to justify part of the project.

Again, this was never meant to be a political discussion, but more of one on how the self-employed or small businesses handle this same situation.

With that said, I’m genuinely curious how you guys have handled this same situation if for nothing else to learn how you guys are managing it.

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Join the conversation! 5 Comments

  1. That’s my exact problem is that I can’t justify hiring a full time person, but I’m very frequently booked solid to where I can’t take any more work on. I have about 3 guys who I know that are independent that we pass work to each other and take commission off the top for the referral and it’s worked incredibly well. We’ve got .NET overlap, but we’re all better at different things than others, so our clients are happy that we’ve each got experts in different things that might come up, and we’re happy because we spread the feast/famine risk around, and make some money for essentially acting as a project manager or each other’s marketing/recruiting funnels.

    • Yep – we’re on the same page, just in different areas of the development community, for sure.

      A couple of years ago, I did the same thing where myself and a couple of guys were basically doing what you and you guys are doing.

      Now, we’re obviously working hard on going heads down to build up our own company, but we each had strengths and weaknesses in areas that one another did not and so we were able to share work with one another to make sure the client got the best possible product.

  2. So now I’ve been thinking about this all day. I don’t think it’s a referral fee if you’re still managing the project – that’s subcontracting and I’ve done that as well. We may be splitting semantic hairs but if that’s what somebody calls referrals then I do it.

    I don’t see any ‘flaws’ in your logic that I didn’t address in my post. I think that it just comes down to what you’re comfortable with and it always feels really odd to me. That just means I don’t do it.

    • We may be splitting semantic hairs but if that’s what somebody calls referrals then I do it.

      I almost mentioned this exact same thing in the post because I wasn’t sure if hairs were being split.

      The thing is, the core of your logic was based on the idea of “if I’m not going to do it anyway, why should I get paid for it,” and that’s very sound, as far as I’m concerned.

      At the same time, I just wanted to offer one extra perspective on the flip side of the coin even if it ended up splitting hairs.

      Either way, I think the thoughts and considerations around it are important and something that people with overflow need to consider, you know?

      Thanks for the initial post, though – gave me food-for-thought for a few days :).

      • Yea, our group takes referral fees even if we don’t “manage” the project. In those cases we tend to see the referral fee as being in exchange for the referrer doing marketing, or knowing people and finding work that the other wouldn’t be able to do.

        There are some of us in the group that are into personal branding and speaking and such, and we get more requests, while some just want to be heads-down and code and freelance, and that’s ok, too. Obviously, though, the ones who go out and try and find work get a lot of questions for work, like you guys, that I think totally warrants a referral fee, even if you don’t do anything more.

        If I write code for a living and do good work, but don’t market myself and get contracts handed to me, then I think a little off the top is totally acceptable.

        This is an awesome topic! Referrals like this are the only reason I was able to even jump ship a few years ago.

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