Business Introduction Fee: Everything You Need to Know
A business introduction fee is an amount of money paid by one business to another in exchange for the facilitation of a transaction.3 min read
2. Who Should Use Finder's Fees?
3. Determining Finder's Fee Percentages
4. Why Use a Finder's Fee?
5. How to Ensure Finder's Fees Work
6. How Finder's Fees Can Encourage More Business?
Updated October 28, 2020:
A business introduction fee is an amount of money paid by one business to another in exchange for the facilitation of a transaction.
What is Finder's Fee?
Another name for a business introduction fee is a finder's fee, which is a commission that a business pays to the person who facilitated the introduction. When a person or a company discovers a potential deal and brings to any parties that may be interested, they would receive a finder's fee for their involvement in the interaction. A finder's fee can be paid by the seller or the buyer in a specific transaction.
Other names for a finder's fee include:
- Referral fee
- Referral income
If no legal obligation to pay the finder's fee exists, one party may gift an amount of money to the other as a courtesy. For example, if one person is trying to sell their home and their coworker brings someone to look at the home who ends up purchasing it, the seller might choose to gift a percentage of the deal to their coworker in appreciation for bringing the purchaser to the property.
Who Should Use Finder's Fees?
Businesses in a variety of industries can use finder's fees to get access to networks of potential clients, many of which are hard to access. If an individual is part of a network that includes the target audience of a company, that company might choose to hire that individual to sell the product or offer a finder's fee for any clients they bring in. Other names for this role include influencers, advocates, and ambassadors.
Determining Finder's Fee Percentages
Determining the percentage that should be paid as a finder's fee can be challenging, so make sure to consider several key points:
- Price of the goods or services being sold
- When payment is made
- How long the sales process will take
Why Use a Finder's Fee?
When using a finder's fee, a company can encourage individuals to take more drastic steps to spread the word about a specific product or service. This encouragement comes in the form of payment, which is appealing to just about everyone. This idea is similar to the process of bird-dogging sales, which occurs when current customers of a company seek out potential new customers on the company's behalf. These customers are being rewarded for their referrals. A bird dog sales agreement might involve paying a flat fee for new business.
Finders' fees also help business owners save time and focus on other tasks since they don't have worry about finding and bringing on new clients and prospects. One of the greatest advantages of a finder's fee is that it doesn't come with a lot of risk for either party. The company offering the finder's fee will only have to pay out if someone brings in a potential new client, which is far less risky than funding an expensive advertising campaign that may not even generate a lot of leads or awareness.
Those on the receiving end of the finder's fee are more motivated to perform than they would be if they were just doing a favor for someone else.
How to Ensure Finder's Fees Work
If the people you're trying to engage for your business aren't excited about your products or services, the finder's fee will not be successful. This type of arrangement serves as an incentive for one person to share information with a company or other person. Not every interaction will generate a finder's fee. If the lead generated doesn't produce a positive business relationship or interaction, the person who connected the lead to the business may not request payment of the fee.
However, companies must provide fair compensation to anyone who is willing to take steps and connect with potential customers. It is also important for companies to respect the privacy of these potential customers as failure to do so could have drastic consequences.
How Finder's Fees Can Encourage More Business?
In most cases, a finder's fee is used as a reward, paid to someone who refers new clients or potential sales to a business. For example, you are looking to sell your business and someone you know sets up a meeting with someone who wants to buy your business. You might choose to pay a finder's fee for arranging this meeting.
If you need help with a business introduction fee, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.