Start a Referral Service

By - 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.

Dental Work

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).

Car Sales

Any car salesman who makes decent commissions would probably be happy to pay you for sending car buyers his or her way.

Pet Stores

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.

The Basics

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 the attorney.

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.



If you liked this page please let others know with one of these...


Want more ways to make and save money? Try my newsletter...

Full of useful information. Subscribe now...