Guide
Pay a percentage of gross profit on the job, not a flat $50 gift card. Here's the maths on why 10-15% of GP works on both a $250 drain clear and a $1,200 install, and why it still beats paid leads.
A lot of trades set a referral fee once, print it on a card, and never touch it again. $50 for every referral, no matter the job. It feels simple. It is also the reason referral programmes quietly bleed small-ticket trades dry.
Think about what $50 actually represents on different jobs. On a $1,200 install with a 45% margin, gross profit is $540, so $50 is under 10% of GP. Fine. On a $250 drain clear at the same 45% margin, gross profit is $112.50, so $50 is over 44% of GP. You've just given away nearly half the job's profit for one phone call.
Run that $250-job maths across a busy month of small callouts and you can end up paying out more in referral fees than you keep. That is how a flat reward bankrupts the small-ticket side of the business while barely denting the big-ticket side.
Pay 10-15% of the gross profit on the referred job, not a round number. Gross profit, not revenue, because revenue ignores the cost of parts, subcontracted labour and materials that vary job to job. If you don't already track gross profit per job, the job profitability calculator will do it in a couple of minutes, and the markup margin calculator is useful for checking your margin assumption on a specific job type.
The formula is simple:
Referral fee = Gross profit on the job × 0.10 to 0.15
Where gross profit = job price minus cost of goods sold (materials, parts, subcontracted labour, disposal fees — whatever it actually cost you to deliver that job).
| Item | Value |
|---|---|
| Job price | $1,200 |
| Gross margin | 45% |
| Gross profit | $540 |
| Referral fee at 10% | $54 |
| Referral fee at 15% | $81 |
A $50-$81 referral fee here feels about right, and matches most trades' instinct for what a "good" referral reward looks like. That's exactly why the flat-fee approach was invented — someone did this maths once, on a big job, and assumed it scaled down.
| Item | Value |
|---|---|
| Job price | $250 |
| Gross margin | 45% |
| Gross profit | $112.50 |
| Referral fee at 10% | $11.25 |
| Referral fee at 15% | $16.88 |
$11-$17 looks stingy next to the $54-$81 on the big job. It isn't. It's the same 10-15% cut of what the job actually made you. If that feels too small to bother mailing a cheque for, that's a sign to batch small referral payouts (pay quarterly, or roll them into an account credit) rather than a sign to round up to $50 and lose money on every small call.
Cash referral fees come straight off your bottom line. A credit toward the referrer's next service costs you less than its face value, because you only pay out the cost of goods sold on whatever work they redeem it against, not the full retail value.
Say you offer a $100 credit instead of cash. If the referrer redeems it against a typical $250 job at 45% margin, your cost isn't $100 — it's roughly $100 worth of your COGS rate. At 45% margin, COGS is 55% of price, so a $100 reduction in what they pay you costs you about $55 in materials and labour you'd have spent anyway, not $100 in cash out the door. And you get a repeat visit, which is a second shot at upselling, another data point on their property, and one more reason they stay loyal instead of shopping around next time.
Credit works best for referrers who are also active customers. If the person referring you rarely needs your services themselves — a supplier, a neighbour, a tradesperson in an adjacent trade — pay cash. They can't redeem a credit they'll never use.
The percentage feels small next to what marketing agencies charge for a lead. Run the comparison properly and referrals win by a wide margin.
Even at the top of the referral fee range — 15% of gross profit — you're paying a fraction of what you'd spend acquiring an equivalent closed job through paid channels, where the cost is spread across all the leads that didn't convert. A referral fee is only paid on a job you actually won. A paid-lead budget is paid whether you win the job or not.
Ask when the invoice is paid, not when the job finishes. The gap between "job finished" and "invoice paid" matters more than most trades think. A customer who has just watched you clean up and load the van is happy but hasn't yet closed the loop financially. A customer who has just paid, in full, with no dispute, is at peak trust and peak goodwill. That is the moment to say "if you know anyone who needs this done, send them my way — I'll sort you out."
Asking at invoice-paid also filters out customers who are unhappy about the bill. If someone hesitates or queries the invoice, that's not the moment to push for a referral. Wait, resolve it, and ask on the next job.
Write the percentage and the payment method into your standard operating process, not just your head, so it survives you being on holiday or handing invoicing to someone else. A one-page referral policy — percentage, cash vs. credit rule, when to ask, who approves payout — takes ten minutes to draft and stops the programme drifting back to a flat number out of habit. If you're building out that kind of paperwork alongside pricing and job costing templates, the small business operations kit has templates worth adapting rather than starting from a blank page.
The short version: work out gross profit on the referred job, pay 10-15% of it, ask right after the invoice clears, and consider credit over cash when the referrer is a repeat customer. Do that and the programme pays for itself on every single job, big or small.
The Small Business Operations Kit ($19) turns guides like this one into fill-in-once worksheets: rate card, quoting sheet, job costing, payment terms and follow-up templates. Built by the same people who write these guides.