We get much of our business from customers
who tell their friends and clients to use our tools.

Many do it for their own satisfaction.
Others make referrals part of their business.

Affiliates? Ambassadors? Referral Partners? Refer-a-Friend?
Whatever you call them…
(Please come up with something new!)

I’m all about rewarding people for their assistance and support.
We have a referral tracking system built into our e-commerce system.
(I even use that for tracking clicks and subscriptions from pay-per-click
advertising to see which ads are profitable, but here I’m talking about
making an offer that inspires referral partners and makes business sense too.)

How much is a good commission to offer?

The question becomes how much wealth can you afford to share,
for how long, and what would be inspiring for someone to refer you?

At one time I heard that an insurance company had determined that an average
life insurance policy lasts 17 years, so they pay their salespeople a commission
equal to the full first year of premiums, plus a small percentage thereafter.

Another example might be:
Instead of paying a straight xx% in perpetuity, what if
we paid 50% for the first year then 10% thereafter?

On the other hand, you could even offer more in the future term to inspire your referral
partners to keep your customers subscribed… If that makes business sense.

Since I don’t do math in public, and this is a complex enough issue, of course I built an Excel® calculator.
(And, like all of our models, it’s completely customizable in Excel for a perfect fit to your business.)

Referral commissions work best of course when you have a high gross profit margin,
nevertheless we include COGS in the model to make sure you don’t lose money on every sale!

Like the example above, let’s say you want to offer a higher commission for certain introductory
period of time, then the commission drops to a lower level…
Now you can specify the terms, in months, and the commission levels for each term.

Just in case, we added a 3rd term in case you want to reduce (or accelerate) one step further.
Remember, it’s best to keep this as simple and meaningful as possible!

This model was initially designed to measure commission payout for a subscription-based
product or service, but you can tweak it for any volume of product or services.

It’s simple enough to use and gives you the ability to try a variety of options.
I recommend that you download and play with it!

When you subscribe to our Business Power Tools dashboard, you’ll find this calculator under the Marketing tab.

In the meantime, enjoy this free Excel calculator on us, as a demonstration of our thinking and tools.
Come back for more marketing tools to build your sales and profits.