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Referral Fees

Discussion in 'Heavy Equipment & Pavement' started by ARP, May 19, 2008.

  1. ARP

    ARP LawnSite Bronze Member
    Posts: 1,510

    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?
  2. KrayzKajun

    KrayzKajun LawnSite Fanatic
    Posts: 10,742

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

    RockSet N' Grade LawnSite Silver Member
    Posts: 2,454

    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........
  4. AWJ Services

    AWJ Services LawnSite Platinum Member
    from Ga
    Posts: 4,276

    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.
  5. YellowDogSVC

    YellowDogSVC LawnSite Gold Member
    from TX
    Posts: 3,758

    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:
  6. J. Peterson Grading

    J. Peterson Grading LawnSite Senior Member
    from IA
    Posts: 989

    $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.

  7. ksss

    ksss LawnSite Fanatic
    Posts: 7,129

    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.
  8. RockSet N' Grade

    RockSet N' Grade LawnSite Silver Member
    Posts: 2,454

    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........
  9. ARP

    ARP LawnSite Bronze Member
    Posts: 1,510

    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!
  10. RockSet N' Grade

    RockSet N' Grade LawnSite Silver Member
    Posts: 2,454

    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.

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