by Tony Vidler
For referral alliances to be sustainable both parties must feel that the alliance is equitable. If one party keeps getting more out of it than the other, is that alliance likely to last long term?
One party at some point is going to feel that the relationship is rather one-sided and and therefore unfair. Everyone knows this, and pretty much everyone has been in a job, business partnership, personal relationship or alliance at some time in their lives where they have ended up feeling like the one doing too much of the “giving”. So probably everyone knows what it feels like to be in the situation where “it just isn’t fair”. It becomes perceived as an alliance where there is a clear “giver” and a clear “taker” by at least one party.
Nowhere is this more true than when the business alliance is essentially an ad hoc arrangement between 2 individuals, such as two professionals agreeing to try and help each others respective businesses by cross-referring. Creating, or being, a Centre Of Influence (COI) for each other in other words.
Such business relationships depend upon trust and mutual respect together with each providing complementary professional expertise which is relevant to the other parties target market or clients. In the sense of creating mutually beneficial COI relationships therefore it is largely a personal relationship which is being developed. As with any other sort of relationship between 2 humans it needs to be equitable to flourish and be valued by both parties.
Equitable is the important word in the business sense. It is also the word which is often overlooked in trying to build great COI relationships, and the primary reason for them not flourishing. All too often one party feels that the business outcome is not fair, and that there is a disproportionate return for the other.
But does each know what equitable looks like to the other?
Let’s consider a typical (simple) example:
A Financial Adviser and an Accountant both do complementary work with the same sort or clients in the same area, and both agree that it would be helpful to each other and to their respective clients to cross-refer to each other. No money is changing hands for these referrals, and each keeps whatever revenue they derive from their own business efforts.
The Accountant refers 4 clients to the Financial Adviser. In this example let’s assume that the Financial Adviser does business with all 4 of them, and the average revenue per client is $2,500. So the Financial Adviser has generated $10,000 from the business relationship. All good so far.
The Adviser refers 2 clients to the Accountant, and in this example the Accountant does business with both. Each is worth $5,000 to his firm. So the Accountant has generated $10,000 in revenue from the business relationship.
Yet, in examples such as this (which are not uncommon), both parties become dissatisfied with the relationship.
Why? It makes no sense surely…both were getting some new business and both were helping clients….and both were essentially getting the same business results.
It is about the lack of clear expectations and equitable success measurements.
The Accountant feel that they have referred more people than the Financial Adviser and that this is unfair. The Financial Adviser feels that the Accountant is not referring enough business to make it fair given the value of the accounts…but usually neither actually knows that the value of those referrals really is to the other. Assumptions have been made regarding value of each lead by the referrer…the Accounant thinks the Financial Adviser makes much more from each client that actually occurs…and the Financial Adviser thinks that the Accountant makes much more from each client than actually occurs….dissatisfaction begins to build…..resentment starts to fester…the relationship begins to wither….
It is all because there was not enough transparency to being with. It could all be avoided with a conversation that established what was good business for each, and what the appropriate success measures are. For example; if both understood that on average the Accountant generated $3,000 from each new client because the firm was focussed on tax preparation work (and was able to receive revenu/referral within 8 weeks) and the Financial Adviser focused upon complex business risk cases generating $30,000 from each new client (which took 6 months each to produce the revenue), then it would be a reasonable expectation for each that an equitable business alliance might be one where the Financial Adviser was introducing a lot more clients to the Accountant than the other way around. But not quite as many as you would think as the Accountant would have a clear un derstanding that 2 or 3 referrals might not generate any revenue at all for another 6 months for the Adviser.
With an understanding of each others business dynamics both parties can have some clear measures to help understand how the the alliance is progressing.
If both parties understand the others type of business and general revenue models of each they can form reasonable views as what would make for an equitable ongoing business relationship. Dissatisfaction is far less likely. A mutually beneficial business alliance which lasts long term is far more likely. It ceases to become a tit for tat exchange of introductions as each understands the potential value and workload required to unlock the potential value.
Two growing practices getting the types of business that is valuable to them while providing great service and expertise to mutual clients is the outcome isn’t it?
So be clear about how that is defined and what is equitable for both, and there is a far stronger likelihood of having an excellent COI relationship that lasts for a long time and benefits both parties.