What a referral is actually worth to you
A referred customer arrives already trusting you, so they cost far less to win than one from an advert. Work out the profit you make from them across the jobs you expect, and that is the ceiling for any referral bonus. A sensible rule is to keep a bonus to around a quarter of that profit.
Most trades get a lot of work from word of mouth and never put a number on it. Someone mentions you at a barbecue, a neighbour passes your number on, and a new customer appears. It feels free, so it gets treated as luck rather than something you can encourage.
It is worth putting a number on, because once you know what a referral is worth, you know how much effort it deserves.
Why a referred customer is worth more
A customer from an advert has to be found, paid for and then persuaded. A referred customer skips most of that. They already believe you are good, they are less likely to shop around on price, and they often become regulars. Over a few jobs, the profit adds up well beyond the first invoice, which is exactly the point behind what a customer is really worth.
A worked example
Say your average job is worth $600 at a 40% margin, and you expect a referred customer to give you about three jobs over time:
| Profit per job ($600 × 40%) | $240 |
| Profit from the referred customer (3 jobs) | $720 |
| Comfortable bonus (a quarter of that) | $180 |
| Profit left if you pay a $50 bonus | $670 |
| Return on each $1 of bonus | $14.40 |
A $50 thank-you earns you $14.40 back for every dollar you spend on it, and you keep $670 of the $720. Even at the full $180 you would be well ahead. The bonus only becomes a problem as it creeps toward $720, where you would be working for nothing.
How to run a referral thank-you without it getting awkward
- Pay it after the job, not before. Only reward a referral once it has turned into a paying job, so you never spend money on one that goes nowhere.
- Keep it small and consistent. A modest, reliable thank-you beats a big offer you cannot sustain. A discount on their next job also brings them back to you.
- Ask, and make it easy. Most people are happy to pass you on if you ask at the right moment, which is usually just after a job goes well. A short message they can forward does the rest.
- Say thank you either way. A genuine thanks for a referral costs nothing and keeps the recommendations coming.
Frequently asked questions
How much should I pay for a customer referral?
Should I pay the bonus before or after the job?
Do referral bonuses actually get more referrals?
The takeaway
Referrals are the cheapest, best customers you will win, and most trades treat them as luck. Work out what one is worth, keep any thank-you well inside that, and make asking part of how you finish a good job.