Determining How Much to Pay in Tax Resolution Referral Fees

Today, we’re going to address the next most common question that I get whenever I start talking about this process of obtaining tax resolution referrals from other tax professionals.

I am fully aware that the issue of referral fees can be a contentious one. I anticipate no less than two dozen replies to this email slamming me for suggesting that we pay referral fees.

But I’ll say it loud and proud: If you’re able, I encourage you to pay referral fees.

While I would like to say that we live in a world where we could all do each other professional favors, and they will boomerang back in kind, the reality is that it’s very difficult to do. Many times, referrals are not returned in kind, nor are all they all able to be.

Think about it this way. One tax resolution referral to you is worth thousands of dollars. If you are a resolution-only practitioner, it’s impractical for you to try referring back to every one of your tax professional referral partners an equal revenue volume of tax prep work — you’re simply not going to have the volume.

So instead of quid pro quo (hmm, maybe I should avoid that phrase these days)…. So instead of trading favors, it’s easier to simply trade dollars. Money is, after all, a medium of exchange and a method of keeping score. Thus, we might as well use it.

To paraphrase a popular saying, “Money talks, favors walk.”

With that said, the next obvious question is: What is a reasonable referral fee to pay?

As a marketing person, I view this from a very practical standpoint. Let me explain.

If I engage in a direct mail campaign, telemarketing follow up, a pay per click ad campaign online, buy advertising in a niche trade journal, etc., my objective is to get back 3x what I invested in the marketing campaign. That’s gross receipts, and please note this applies to IRS Collections cases only, not tax prep, bookkeeping or other services.

In other words, I’m willing to invest $1,000 in order to get back $3,000. That math works for me, and it should work for you, too. If that math doesn’t work for you, then you need to reevaluate your expectations about ROI on marketing expenditure through traditional media (this is part of the beauty of referrals, public speaking, etc. — much lower cost of client Continue reading