Start a Referral Service
By Steve Gillman - February 9, 2013
There was a fellow employee at the casino where I used to
work many years ago, who I'll call Bob. He seemed to know everything
that was going on with the other employees lives. I was renting
out rooms in my home at the time, and I had a vacancy, so I went
to Bob, told him I needed a new tenant, and that I would pay
him $20 if he sent someone my way and I rented out the room to
whomever he referred.
Less than a week later a friend of an employee contacted me
and said, "Bob says you have a room to rent." A few
days after that my new renter moved in and I paid Bob his $20.
At the time I hadn't really thought about it as a business, but
Bob's little referral service could have become a sideline income
at least, if he had promoted it more.
Bob mostly just liked being helpful, but if he had been really
trying to make money at this, he might have also charged the
guy looking for a room to rent a fee for finding one for him.
It is not uncommon to collect from both sides with this kind
of business. But what other types of referral businesses could
you build? According to my brief research online, people (or
their businesses) have been paid for referring home buyers to
real estate agents, hooking people up with the right day-care,
sending people to travel agents, and more.
Why does a referral service work? There are two good reasons.
First, people will always need to find something, and businesses
will certainly always want more customers. Second, businesses
sometimes don;t get the results they want with regular advertising
and marketing methods. A referral service not only helps out
businesses with finding new customers, but it typically does
so without any up front charge. Normally, as an operator of a
business like this you charge your clients only when you have
brought them a customer.
For example, a small carpet cleaning company can spend $10,000
per year on yellow-pages advertising without knowing for certain
if the ads will generate the $30,000 or $40,000 in sales necessary
to make them worthwhile. Advertising in general often has two
problems. First, the business pays up front without any guarantee
that the expense will generate sufficient sales to cover the
cost and leave a profit. Second, the success of many forms of
traditional advertising cannot easily be tracked. As a business
owner, how do you know if your latest sale came from a radio
or television ad?
A referral fee, on the other hand, is (or at least can be)
something that the business pays only if they actually make a
sale. They know from the start that this kind of marketing is
essentially guaranteed to generate profits or cost nothing. As
a provider of this service you just have to agree to a fee structure
that leaves them a good profit. If a restaurant has a 30% margin
on sales after the costs of food, labor and overhead, for example,
they can easily pay you 10% for referring customers to them,
and still make a good profit. If you truly send new business
that they would not otherwise have had, the profit is entirely
in addition to what they were already making.
Getting Creative With a Referral Business
You may have heard of referral services for renters before,
and even for employment opportunities. But since this site and
newsletter is about unusual ways to make money, let's look at
some of the more interesting ways you could apply this idea.
Auto Mechanic Referrals
If you are the one who friends and family come to for advice
about their car problems, you might have the knowledge to send
people to the right auto mechanic. You would line up several
mechanics who specialize in different areas and send the customer
to the appropriate one, collecting either a set fee from the
auto garage or one based on the amount of the sale.
I would love to have some good advice on which dentist to
go to (we have been to several recently and had problems with
almost all of them). If you could tell me who could do the best
job for me I would go there. You might have several dentists
who agree to pay a fee for new customers, and the customer is
going to call you to see which is best suited to deal with their
particular issues (which could be a dentist for children, one
for elderly patients, one who does orthodontics, one who specializes
in pain-free work, etc).
Any car salesman who makes decent commissions would probably
be happy to pay you for sending car buyers his or her way.
Perhaps a pet store would pay you for referrals who bought
a pet. You could take a bunch of digital photos of the pets and
show them to your friends and others. You might post photos online
for several pet stores in the area, with each agreeing to pay
a fee for any sale made from your referrals.
The possibilities are endless, and you may want to get creative
with this one. There are industries in which companies do not
yet use these kinds of services commonly, and they may love the
idea once you suggest it.
This can be a very low-investment business. An article at Entrepreneur.com suggest that you
can start for $2,000 to $10,000. Of course Bob was starting from
nothing if he wanted to promote himself by word of mouth, but
if you want to actually make a living at this eventually, you'll
want to have business cards and contracts, as well as a fax machine
and other office essentials. This can be run from home, so overhead
can be kept to a minimum.
The real opportunity today is to automate the whole process
as much as possible by setting up your business online. You can
add the human touch by having a phone number for people to call
in order to get referred to the right vendor (and you should
always have that for your clients), but it isn't strictly necessary.
In fact, affiliate marketing is just the newest way of referring
customers to businesses for a fee. When I find products I like
and they offer a commission, I let subscribers to my Unusual
Ways Newsletter know about them, and then I get something
for each sale I refer.
Tying the power of the internet to more traditional off-line
businesses is perhaps where the biggest opportunities are now.
For example, a website can be the primary "place" for
an attorney referral business. Visitors might be offered solid
information about various aspects of the law, and then referred
to a specific attorney (who pays you a fee for this) according
to their particular needs. You could charge a fee just for being
listed on the site, but you could also get paid just for results.
How do you track results? There are many ways, but lets use
the example of sending people to the right lawyer. In that case
you might use software that collects basic information like a
name, email address and phone number, and then gives the visitor
a recommendation and a code that they use for a free initial
consultation (if this is okay with your clients). You can do
a follow-up call or email weeks later (an email follow-up can
be entirely automated) to see if that person did indeed hire
Note: In some areas, including law, there are regulations
relating to this type of service. For example, in California,
an attorney referral service has to be certified by the State
Bar and must conform to certain standards adopted by the California
Supreme Court. For many professions, like painting, pool cleaning,
and pest control, there are no regulations in regards to referring
customers for a fee--in most places (you'll have to check).
This is just an introduction to the idea, and not a manual
on how to start and run one of these services. You'll have to
decide how much to charge, how to verify a successful referral
and collect the fees, and more. In fact, marketing your new business
is perhaps the most important part, and one I didn't even touch
on here. There is more information online, but the more unusual
the type of business, the more you'll have to experiment and
figure it out on your own.
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