Ill give him your number - he's an Aggie...

Scenario:

An individual not employed by or partnered with your company hands you a client/project. Your company makes zero effort to make this connection before the introduction. Your company would have never made this connection without the help of the unaffiliated individual. You make a sale, you have a new client.

Questions:

1.Is it legal for your company to compensate the individual who introduced you to the client?

2.Assuming it is legal...would you compensate the individual? And why?

The only "moral" issue i can think of here is that now the individual only recommends you to their clients...even if you aren't as good/fast/cheap as other companies.

This sounds a lot like a realestate agent wanting to use her loan guy and home inspector...or a Crestron or Control4 (for example) selling a client on why they should go with these products vs Harmony even if its a single zone system.

Having a go to guy usually makes more sense than trying to find the perfect fit each time.

It's common for a new to the area home buyer to ask the real estate agent for a contractor contact. I can imagine that the agency would maintain a handout that lists various services. In my naïveté, I would probably just give out this list, thinking that if I (as the selling agent) am helpful, I'll get a call if the property goes back on the market, but I suppose that others would want to monetize the list.

---

I also think that there is a fundamental misunderstanding about the margins available to us and there is an overall negative attitude towards us. We are perceived as making way to much money doing something that is just a small step away from DIY. Therefore, it is only fair that we can give a 10-20% referral fee to someone who is also doing very little for the customer.

They can pay you a referral if you have a real estate license. If you don’t have a real estate license, it is illegal to accept any compensation that’s based on the sale of real estate. I had my license for years too but got tired of sending the state my money each year for nothing. And if you sat through enough continuing ed classes then you know the commission says to not recommend just one person (inspector, surveyor, handyman, etc) due to liability. If you give someone a list of three people then the accept the liability because they are making the final pick.

If you can't use the work tell them to pound sand, if you can use the work counter their offer.

They should be hearing no with their opening offer pretty often or it's probably too low

10-20% of Net Profit maybe. Not of gross sale.

So all the people that are advocating an outside person, that brings you business, should get a % of the Net Profit... You are going to open your books to this person and let them see your inner business workings, to prove the % they are getting paid is legit?
WTF is wrong with you? No way in hell I'm opening up my books to some 3rd party person.

If I were to go down this road (and I wouldn't), I would pay them a set fee for a certain $ of job.
Example:
For service calls & hang/bangs up to $500, I might give them $10 depending.
For jobs $500-$1K, I might give them $25.
For jobs $1K-$5K, $50
Etc...

I would have to look at my average profit in those brackets. My point is, they would get paid a "SMALL" percentage of the overall value. NO ONE needs to know my business profits, that is only for the IRS.

Thanks, Brad. You address an important point. I didn't say it, but that person could be allowed to see the invoice from me to the client, and that's all.

And being they are use to working with trades that have a MUCH higher profit than us (very little material cost, huge markup on it, and large labor)....
Cabinet guys bill $50K with $30K profit, they get a check for $6K.
Landscape guy bills $50K with $35K profit, they get a check for about $6K.

We bill the client for $50K and after all our expenses, change orders, overhead, and go backs; we profit $10K. They get a check for $2K. They are not going to be happy and call foul. Because they doesn't understand this business, it is not a simple contractor job. And since I'm not showing them my books, they will be mad and probably feel tricked. Become an enemy rather than an ally, despite the initial good intention.

% of the project profits, is just a bad way to go in my opinion.

And the trades don't understand what we are doing. In the days when we were installing Fujitsu Plasma sets at $6K+ and the trades were buying their large screen sets in the $1000 range, thinking that we were ripping off the customer, the trades would stop dead in their tracks the day we fired up the TV. This set looked VERY different from their set.

How many cabinet shops have you run?

None.
But at one time this area was just flooded with custom cabinet shops everywhere. Nobody seem to buy pre-made stuff, it was all custom built and customers had their choice of many places to do it.
I had talked at length with many of them before. The markup & profits were huge, hence why there were so many shops throughout the area. The biggest problems were finding skilled workers and meeting demand.

The depression of the late 2000's, saw many of these shops go under as the housing market crashed. But there are still a few around.

yeah this seams strange and 10% is steep

I'd like to make 10% off other peoples work, but I'm not a GC, so I just make my money the old fashion way, I earn it:)