Trying to get a sense of best practices around finder's fees and client relations.
A business partner (BP) of mine introduced me to a company (X) where I have done web development now for several years. How it originally worked was–I would invoice BP, and he would invoice X (adding 20% for his fees).
At one point I found it was actually easier for me to deal directly with the client. I was essentially handling all of the client requests. So I offered to do the estimates and invoicing, and I would just pay BP the 20% difference. This way BP didn't have to add an extra step.
This has been an ongoing agreement, and over time I have been feeling like I do all of the work - why should I be paying him the 20% increase. When I brought it up to BP he said that it isn't technically a finder's fee, and that its an Industry Standard to expect 20% from clients that have been referred.
BP has a valid point in that he generated the relationship with X - its a client that he has been working with for years (even if he hasn't been for the last 7 years or so). I would not have this client if it wasn't for BP. On the other hand, I have also been nurturing the relationship with X for the last 7 years.
BTW-this wasn't just thrown at me, it was in our initial and ongoing agreement - not like there were any surprises here. So I take full responsibility for taking on the "dealing directly with client" - I preferred it to having to try to coordinate with BP and the Client.
So - I have chosen to honor BP's request, as I really value the relationship. But it scratched that part of my brain that wanted to get second opinions. As this is something that I would not apply to business partners that I refer clients to–unless I am actually managing the client relations (e.g. defining requests, generating estimates, invoicing, etc). I could see an initial finders fee for the first job, but after that I would consider the additional work to be theirs. So...
- What are the industry standards for Finder's Fees (percentage wise, is 20% reasonable)?
- Would what I described above fall into the category of Finder's Fee? If not, what would you call it?
- Whatever you call it, is it reasonable to last forever? Or at some point would the client become my client? He also mentioned that in these circumstances what usually happens is I would buy out X from BP. Where BP would determine how much it's worth to give up X. Is this common?
- Do I need to 1099 the BP for the amount I am paying to BP?