How to Start a Referral Business
By Eric Hammer
Starting a referral business basically means becoming a middle
man (or woman). In essence, what you will do is to help connect
the people who want to buy a product or service with those who
want to sell a product or service. Your referral business can
cover virtually anything you can imagine, from a business where
dentists sign up to get referrals from clients (like the old
1800 Dentist program) to a program where you help connect people
who need a writer to the writers willing to do the job (like
Text Brokers).
The other option is to arrange for the referral business to
have a range of specialties. For example, if you work in a smaller
area, you could provide referrals for all kinds of services and
not just one particular service. In this case, you are acting
more like an advertising service than like a referral business,
but the concept is basically the same. You, as a trusted source
are recommending people for their services.
That last point is probably the most important thing to remember
about running a referral business. You need to be a trusted source.
If you just let any plumbers join your referral business for
plumbers and some of them do a good job while others end up leaving
behind flooded homes with thousands of dollars in damage, you
will not last long since your referrals are meaningless. They
need to be worth something in order for both the service provider
and the customer to be interested in working with you.
How Much Can You Make?
Since this is a business rather than a job, it's difficult
to quantify how much you could make. Typically though, referral
businesses work in one of three ways: they charge a fee from
the business that wants to be a member (typically around $200-$500).
Or, they charge a fee from the consumer for getting their
list of recommended businesses (typically anywhere from $10-$50,
though presumably, if the information is valuable, you can sell
many more of these than of the former).
Or, they provide both services for free and rely on advertising
to pay the bills (especially if they are on the Internet). Some
people who run a referral business try to combine all three.
Therefore, how much you can make depends on your niche, how
valuable your information and your referral is and how many people
will care what you recommend.
Ways to Make More | Related Opportunities
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Keep in mind that running a successful referral business is
all about integrity. The people advertising their services with
you and the people looking at your listings need to know they
can trust your referral. Therefore, make sure that you actually
have some kind of quality control in place to review businesses
that apply for membership on your referral service. At the very
least, you need to have a mechanism for weeding out con artists
and scammers from legitimate business people, though ideally,
you should also have some kind of a rating system available as
well.
Beyond that, learn to network. Talk to anyone and everyone
within 5 feet of where you are standing. You never know who you'll
run into and so it's important to know as many people as possible.
If the number of contacts you have gets to be too unwieldy,
consider keeping a Farley file on your PDA or smart phone (A
Farley file is a file where you keep basic information about
a person you've met, which you can then review later when you
meet them again. It gives the impression of perfect recall if
you review it moments before someone walks in and you can ask,
"so, how's your wife Susan? And how are the boys? Timothy
and Jeremy if I recall correctly, right? Is Timothy still in
little league?" This sort of banter makes a huge impression
and makes you seem much more trustworthy even though you are
using a kind of a cheat).
Qualifications / Requirements
The only thing you really need for a referral business is
a good personality and a good idea.
First Steps
First, decide what niche you want to focus on. While you can
focus on more than one niche, that is much trickier to do since
you are diluting your value that way. You also need to make sure
there is a critical mass of the number of businesses in your
area that compete with each other that there will be a value
in running such a business. For example, if you live in a town
with just 20,000 people, there may be 3-4 dry cleaners in the
area that people can choose from, but it's unlikely you could
make a business out of just three or four dry cleaners. When
the choices are that limited, people will just ask friends or
relatives rather than looking to a trusted service.
Finally, check around and see if there is already an established
referral business for the particular area that you are interested
in working in. If there already is, do some research to find
out if there is room for a second service or if your business
would just end up spinning its' wheels without gaining any ground.
Resources
Check out these helpful resources to find out more about starting
a referral business:
eHow: How to Start a Contractor Referral Business
- While it's not particularly well written and it focuses only
on a specific niche, this does have some good ideas for how to
get started in this business.
ABA Legal Services - This is an example of a
referral business, this one focusing on attorneys.
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