Never Cap Referral Commissions
Reducing the commission by increasing the number of new customers a person refers is improper yet common method in calculating the present customer’s profit. Some companies define a limit for commission and, no matter how much a customer increases your sales through referring new customers, he/she won’t receive a commission more than the defined monthly amount. For example, they won’t get more than 500 dollars per month.
In this case, the broker or the person who refers a customer eventually will postpone referring other new customers to the next month if the monthly limit of a commission is met. At the long run, such method of referral will work to the company’s disadvantage. Don’t put a monthly limit for customer referral commission. Instead of putting a limit on commission that can be earned through referral, depending on your profit, define different percentages of commission for selling each product or service.
You may be able to pay a certain percentage of commission for a certain type of product or service based on the prime cost of those products and services, and you can pay different percentages for other products and services. Based on the price and type of your services, define a payable commission to the person who refers a customer.
If you define the commission based on the sales volume, you can increase the commission as the number of customers who are referred increases because with more customers and more sales, you have gained more profit as well. Let’s say your service price is 250 dollars. If you pay 10% commission for any customer referral, but the customer or the broker has referred you five customers instead of one, then because they have increased your sales, increase the commission percentage and don’t decrease it.
That way, the customer will be ready and happy to refer more clients to you. The way some companies work is that they pay for example, 10% commission for the first referral and then they reduce it for the next referrals.