Referral Fees

[ARP]

Hey guys,

So I've taken the plunge and formed my own company. I've started working with a landscaper friend in town who owns a S185 Bobcat and is too swamped with his maintenance contracts to complete the various lawn installs/ property renovations he is called to do.

My friend and I have struck up a very informal agreement where he will "sub" me his earthmoving/ grading jobs so he can focus on his maintenance work. In turn I have access to his Bobcat for $200 a day (still have to work out insurance responsibilities) and he will deliver it for free.

While the original agreement was that he would contact me as a sub on his jobss, due to his hectic schedule we have found that I am the one contacting the customer, visiting the site, calling suppliers, and generally arranging the job. In essence, I am the primary contractor on site, rather than the sub.

My question to everyone here, is what "referral" arrangements do you have with fellow contractors? I understand that his advertising got the contact for the job, but how much should he really expect to receive for just passing a name and number on to me? I have a large $10k job right now that I am bidding out and my friend has asked for 30% of my profit. I was originally thinking that a max of 10% of my profit for his referral would be sufficient, if not too high already.

While I don't want to ruin my relationship with my friend, I also need to make my own money to pay my bills and OH.

Any thoughts?

[KrayzKajun]

Make sure you get sumthing in writing, even if he is yur friend. Money can ruin a friendship quick!

[RockSet N' Grade]

30% referal fee? That is outright greed, ignorance of not being in the business for very long.......or whatever. So this guy is getting $200 a day rental, leaves the whole deal to you and wants money? I work for some big boys and some small contractors too.....what we do is just trade work - no money. If I get something that fits them, I turn them onto it and likewise they turn me on to my niche. It works great. As soon as you start owing me or I start owing you......the waters can get muddied real fast. So tell me this, if you get him a job is he going to pay you 30% of his gross? Me thinks not........

[AWJ Services]

You said 30% of the profit?

Not sure what that would be on 10000 dollar job but that seems excessive.

I usually pay a 10% of the Total job referral fee with a cap of 500.00 bucks.

If I am the sub for the job I hand the contractor my bid and he can mark it up accordingly.

Once you become the bidding contractor your responsibilities change and are increased dramatically.
For him too ask that much for a referral is absurd.

[YellowDogSVC]

Hey guys,

So I've taken the plunge and formed my own company. I've started working with a landscaper friend in town who owns a S185 Bobcat and is too swamped with his maintenance contracts to complete the various lawn installs/ property renovations he is called to do.

My friend and I have struck up a very informal agreement where he will "sub" me his earthmoving/ grading jobs so he can focus on his maintenance work. In turn I have access to his Bobcat for $200 a day (still have to work out insurance responsibilities) and he will deliver it for free.

While the original agreement was that he would contact me as a sub on his jobss, due to his hectic schedule we have found that I am the one contacting the customer, visiting the site, calling suppliers, and generally arranging the job. In essence, I am the primary contractor on site, rather than the sub.

My question to everyone here, is what "referral" arrangements do you have with fellow contractors? I understand that his advertising got the contact for the job, but how much should he really expect to receive for just passing a name and number on to me? I have a large $10k job right now that I am bidding out and my friend has asked for 30% of my profit. I was originally thinking that a max of 10% of my profit for his referral would be sufficient, if not too high already.

While I don't want to ruin my relationship with my friend, I also need to make my own money to pay my bills and OH.

Any thoughts?

Is that 30% for just giving you a name? I don't think so!

When someone sends me a big job, I thank them and make sure to return the favor rather than pay for the referral. If the job is big enough, I might send them to dinner but most times I just reciprocate the referral and it has worked out well for 11 years. If your friend doesn't like that, run a lot of ads in his area! :laugh:

[J. Peterson Grading]

$200 per day? That sonds like your friend is making some good bank off your hard work.

If you are bringing in all this work it would be more cost effective for you to go and rent one for a month @ $1200 to $1600.

Thats how I started. Now 3 years later I have a fleet of equipment.

You have to start some place.

J.

[ksss]

30% referal fee? That is outright greed, ignorance of not being in the business for very long.......or whatever. So this guy is getting $200 a day rental, leaves the whole deal to you and wants money? I work for some big boys and some small contractors too.....what we do is just trade work - no money. If I get something that fits them, I turn them onto it and likewise they turn me on to my niche. It works great. As soon as you start owing me or I start owing you......the waters can get muddied real fast. So tell me this, if you get him a job is he going to pay you 30% of his gross? Me thinks not........


I have never heard of this either. Some of my best friends push dirt. We have never exchanged money for leads on jobs or even jobs that were just given away. Doesn't work like that, at least not here. It is a reciprocating deal, guys throw you work, you throw them work. My suggestion is, buy your own skid steer (CASE) and don't do any more business with your "friend", 'cause he isn't much of one.

[RockSet N' Grade]

The contracting business to me has always been about putting together a like minded team who work together and empower each other........no matter what particular trade it may be. A "referral fee" to me is short term thinking and not long term relationship building. If you want to be here tomorrow and years to come, it just doesn't work for the long haul. Developing trust, competence, "I can count on you", quality and performance even when the chips are down far outweighs anything else out there. Return phone calls, show up when you say you will, look professional and go the extra mile with the quality of your work and you are ahead of 99% of the competition. Go explore a "rent to own" option on your own machine........

[ARP]

I appreciate everyone's responses. I completely agree that it is unfair to earn a large profit for not making a contribution to the job effort.

My dilemma is that as I just started my business and am scrounging for work, I don't want to burn any bridges so to speak. As I am building up my job bid list, I don't want to ruin a relationship that could get me more jobs to help me get going.

I spoke again with my friend today and he was willing to accept a much lower referral fee. I walked him through my bidding methods, showed him my
numbers and got him an ice coffee and we both walked away with a deal that was acceptable to both of us. I talked him into the deal I would refer all hardscapes to him (and I would do the excavation for those projects as a sub) and he would continue to give me his earthmoving jobs.

In terms of renting equipment, my goal is to get a few more jobs lined up and then I will start renting for a month at a time. Once I get a steady work load, I will be able to justify monthly rentals. My bigger concern is finishing my CDL and getting enough money to get a truck that I can use to haul rental equipment and put a toolbox and transfer tank in.

And as much as I would like a Case skidsteer, I'm thinking I'm going to have to settle with a John Deere 328 with the VTS or a Cat 262C with VTS as I have no good Case dealers nearby. KSSS, if you want to send your 440 with VTS I'll gladly accept it :rolleyes:
Thanks again for all your responses!
Andrew

[RockSet N' Grade]

Good luck Andrew.......go talk with a dealer and get an idea what is available in the way of purchase options......rent to own may be easier than you think, and less expensive than you think.....it would be good to go get a handle on it now, even though it may be down the road that you do purchase.

[RockSet N' Grade]

Oh, by the way.......if you want to pay me $200 a day for a machine, I will ship you a semi full tomorrow........that is potentially $4,000 a month in payments vs. $700 a month (+/-) if you bought your own......

[ARP]

I actually just sat down with my Cat dealer the other day to discuss a rent to own option on a Cat 262C with VTS. Reason being is that I am targeting larger jobs such as concrete flatwork grading and grading for commercial projects, rather than my starter projects of grading yards.

In terms of developing relationships and a good team of contractors to work with, I completely agree. That is my goal and I am searching around for that "good team." I am leveraging my relationships with large site contractors in my area and I will see how things progress.

And regarding going that extra mile for the customers, that is the essense of my business plan. I just met with a couple earlier this evening at their home and walked them through my written bids. They said they were glad that I was willing to meet them late in the evening and that I took the time to prepare a good bid package. Just hope I get the job now:rolleyes:

[ARP]

Thanks for the good wishes RS'N and thank you everyone else for your advice. :) I value everyone's thoughts.
As much as I like paying a daily rate that is 3x+ more than what I would pay to rent monthly, hopefully I will get enough jobs lined up in the next few weeks to get going with a rent to own option. So RS'N, you might want to hold off on that shippment, unless one of those machines is free:rolleyes: Thanks everyone!
Andrew

[YellowDogSVC]

I actually just sat down with my Cat dealer the other day to discuss a rent to own option on a Cat 262C with VTS. w:rolleyes:

Let us know how it works out.

[ARP]

I will be in contact- I'm following the other thread about laser grading with a keen eye....

[J. Peterson Grading]

Sorry to break it to you. But as a start up business you better take what ever job you can get. Keep the "Target Jobs" untill you get a repretation built up for what you and your business has to offer.

Plus taking anything will keep the phone ringing.

And my advice since I am on a roll here, Don't get the biggest loader you can get. It will totally limit you to only the bigger jobs, and we all know that the bigger jobs are starting to dry up. Go mid sized and you won't be sorry.

And you don't need to be looking at loaders when you don't even have a truck to pull it with.

Go in with super low expectations and the let downs wont hurt so much.

J.

[ksss]

Sorry to break it to you. But as a start up business you better take what ever job you can get. Keep the "Target Jobs" untill you get a truerepretation for what you can offer. feel for what you have to offer.

Go in with super low expectations and the let downs wont hurt so much.

J.


There is a lot of truth in this statement.

When dealing with smaller contractors and larger contracting companies you only get one opportunity to make a good impression. If you don't have the stars aligned the first time you likely wont be back. Making matters worse they will tell everyone they know you that you dropped the ball. Gaining the experience and job history may take you a year or 5 depending on what your trying to get into and your backround. Don't rush it. When a GC asked have you ever done this before, and how much experience do you have doing it. It is good to have something positive to say, better yet be able to give examples and names of projects that were similiar. That takes time, but it is best not to rush it. Some jobs you have the advantage of learning on and some jobs there is no learning curve. It is important to know the difference. Get it wrong and its an expensive lesson.

[ARP]

There is a lot of good advice here. Sorry I haven't responded back yet as I have been busy bidding out some jobs and running a dozer for my old boss doing some grading on a sports field complex.

I apologize for not being clear before, when I mentioned doing precision grading. It is my every intention to take whatever job I can to get going. I just got three bites on my first several bids and will be installing two, possibly three lawns in the next few weeks. However, it is in my business plan that I would like to get away from residential work and get into the commercial work. Again, a goal to be working towards. Thank you for keeping me honest.:)

Can anyone offer any good tips for an unusual approach to networking- ie some creative partnerships that someone might not think of right off the bat?
Appreciate it,
Andrew

[J. Peterson Grading]

Just be as flexible as you can be. Its a real Bitcsh Getting started.

I had all these grand dreams about what it was going to be like and it took 3 years to get them to all happen.

you need to watch yourself more, This whole post got started because you were getting "Played" by someone that you think is your friend. If you are going about business that way you aren't going to get very far at all.

Start small, Throw the business plan out the window, Because when it gets bad (And it will) a plan doesn't do as much as bsiness action will. try not to deal with other contractors as ofthen as you can. They all want somethinng for free or as little as possible. They talk real big but never back it up. Now by ontrators I mean home builders. Not the large companies. But they will get you to if you are not careful.

Just remember, With me, I just got through my second year of on my own business. Its been an interesting time.

[RockSet N' Grade]

"Unusual approaches"........here's one for ya. It is right in front of all our noses, yet most don't do it. Introduce yourself to as many people as you can and hand out business cards like they were on fire. Visit nurseries, sprinkler supply houses, any type of industry related shop.....introduce yourself and hand them a business card. Don't be pushy, just start putting it out there.......you just never know where the next job will come from.

[ARP]

Congrats on getting through your second year of business- I'm glad to hear things are slowly starting to work out. I'm not expecting this to be an easy road- if it was I wouldn't be doing it.

To clarify, I knew I was being taken advantage of when I started the post, which is why I was asking. I guess I should have let on a little more rather than seeming like a total noob :rolleyes:. You just can't seem to express several years of planning in a few short paragraphs so that people won't fall asleep reading.:rolleyes:

Anyway, the crux of my situation is that I was given the opportunity to bid on several jobs by my inexperienced friend- jobs which are serving as a launching point for my business. Hopefully through these first few jobs I will build up some capital and a list of references to keep building further.
Again, thanks for the advice- I definitely still have a lot to learn:)
Andrew