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Is this a good referral fee?

post #1 of 39
Thread Starter 
A woman I have met before, but don't know very well personally, has asked me if I would consider making cakes, etc. as part of party packages she offers through her childrens' themed party planning business. Here is part of what she wrote:

"How it would work is, a mom would order a party from me, either a tea party, a princess party, Under the Sea Party, or a Spa Party, and she would have the option to order a coordinating cake/cupcakes or cake pops, choc covered strawberries as an add on. Any orders that come in, would go to you, and you would provide that through me. I would bill and collect and pay you. In return I would keep a percentage of the sale, say 20% or whatever you feel is fair for the referral."

This is not a typical referral, where she would tell her clients that she recommends me and then gives them my contact information (for that, I would not pay a referral fee). Rather, when she has a client that would like to "add on" a cake to a party package they purchase through her, that client automatically goes to me, so there is regular, guaranteed work involved here. I would be her only cake vendor, so there is no competition. In this case, I don't see a problem with a referral fee. However, I'm new to this - is 20% a reasonable take? If not, what is? Do you foresee any issues I would have to watch out for? Thanks for your input!
post #2 of 39
So, with her business plan she wants to be a one stop birthday planner - cake, decorations, theme etc am I getting this right?

Instead of taking a % from you as the "referal" why doesn't she buy the cake from you at your agreed upon price and she tack on the % to the person buying her services?


Say you agree on $100 for the cake set in a certain theme/size or what not why should you lose (just pulling a number out of thin air here) 20 % making it only $80 for you. Why doesn't she charge $120 for the cake, keep her 20% and give you the $100.
post #3 of 39
I agree with Halifax. I work at a kitchen and bath remodeling firm and we have our own crew to do most of the work. But we also have a tile guy, a counter top fabricator, a plumber, and an electrician that we give jobs to. We need them and they need business.

My boss gets a quote from them, and tacks on a percentage so she can still make money off of it. She supervises these people so if there is an issue they report to her and she has them do it all over again until it is up to code and has been approved by her.

The customer sees a number that includes her fee and the subcontractor's fee. She has never said to any of the subs that she will charge them a fee for throwing business their way. As far as the sub is concerned, he makes money and however much my boss makes is none of his business.

This has worked out for them for several years without any issues or resentment. No one wonders if they are getting the short end of the stick and everyone is satisfied with how much they made at the end of the day.
post #4 of 39
Thread Starter 
I understand your point, and I would love if it would work that way, but then it would effectively cost her client MORE to buy my cakes through her than to just buy them from me. That gives her absolutely no benefit because she would not get any business by partnering with me, and it gives her client zero incentive to include a cake in their party package. I understand about the remodeling business too, as my family has owned multiple kitchen/bath remodeling businesses, but the contractor method they use doesn't quite work that way in this application. icon_smile.gif
post #5 of 39
Yes, the cakes bought via the party planner is going to cost the host more money BUT you aren't losing money and that is business ownership 101. Chances are if the host is willing to pay some person to plan out their child's birthday party and extra $20-40 dollars is not going to break the "budget".

Sit down with the planner and design two cakes per theme and have two price points - cake A is X dollars and cake B is Y dollars and let the planner put her fee on it afterward. And have standard flavors and filling to make it easier on everyone - batta bing - steady cake business. If the customer wants to speak to you to arrange a truly "custom" cake you and the planner are going to have to work out her commission before hand.

If you give this woman a percentage of your own profit margin for the "referrals" you are going to have to widen your margin to make your set % of profit which means a higher price for your cake. If you don't you are going to become the local "cheap cake lady" and will be doing two or three birthday cakes with the same theme every weekend and giving money away hand over fist.

Why should you be doing all the work while she gets your profit?
post #6 of 39
When a customer chooses a "on stop shop" then yes they will pah that little more for the cake, but then again they don't need to do the running around hence the reason they chose a planner so there is nothing wrong with Being more expensive through her!

Or like the Above poster mentioned, increase your profit margin so that 20% fee is still leaving you with a satisfactory profit!
post #7 of 39
And don't forget that if you increase your prices the commission will also increase. For example, if you charge $100 for a cake, after 20% commission you would have $80, but if you increase the price to $120 you would only have $96 after the 20% commission. In this case you would need to increase the price to $125 to adequately compensate for the commission expense.
post #8 of 39
Thread Starter 
Hmm... I'm understanding what you're saying, really I am. But having her customers pay her more for my cakes than they would pay me for my cakes would sabotage her business too. Her repeat clients would never order a cake through her again, because they would know after their first time that it is cheaper through me. Right? This is what I mean when I say that it needs to benefit both of us.
post #9 of 39
Two things. First, how would they know it was cheaper through you? The transaction goes through the other woman. And second, it isn't your responsibility to make sure the other woman makes money. This is your business and you need to make sure you are making money. She'll have to figure out how to make it worth her while, but allowing her to eat into your profit doesn't make any business sense for you.
post #10 of 39
Thread Starter 
Quote:
Originally Posted by crushed

Two things. First, how would they know it was cheaper through you? The transaction goes through the other woman. And second, it isn't your responsibility to make sure the other woman makes money. This is your business and you need to make sure you are making money. She'll have to figure out how to make it worth her while, but allowing her to eat into your profit doesn't make any business sense for you.



I would not be advertising on her website, but I when I deliver the cake, I would be giving my contact information and business cards to the client so they can tell all their friends at the party where that fabulous cake came from. I do get valuable contacts and leads from this arrangement, so that her party clients can contact me if they need a wedding cake, etc. in the future. One look at my website, and they will know they paid more through her.
post #11 of 39
If you are comfortable losing 20% then go for it. In the end it is what YOU feel comfortable with.
post #12 of 39
Quote:
Originally Posted by glanduners

I would not be advertising on her website, but I when I deliver the cake, I would be giving my contact information and business cards to the client so they can tell all their friends at the party where that fabulous cake came from. I do get valuable contacts and leads from this arrangement, so that her party clients can contact me if they need a wedding cake, etc. in the future. One look at my website, and they will know they paid more through her.


Typically this type of situation includes an agreement to refer clients through the event planner instead of directly to you for future orders, otherwise the planner would only be making a commission on the first order. The event planner's site would have a different price structure from your own site (like when products sold wholesale to a retailer are priced higher than the same products sold direct to consumers), but the whole point is for future clients to book everything through the planner instead of going to each individual vendor themselves.
post #13 of 39
Right, if I were the party planner I would not allow you to pass out your card at my event, that would be undercutting MY business. If her customers decide to do all their own party planning for their next event they can do their own leg work. I don't believe you should allow her to cut into your profits either. She is providing a service, her party planning and if they want her to provide the cake also she has should be adding a charge for HER service.
post #14 of 39
Thread Starter 
Quote:
Originally Posted by paulstonia

Right, if I were the party planner I would not allow you to pass out your card at my event, that would be undercutting MY business.



Yes, that would be totally crazy! But she is not a party planner, in the general sense. She doesn't do weddings, showers, adult birthdays, or any other kind of party. Only these themed kids princess parties with face painting. That's why she's okay with me handing out business cards. She would not be able to help someone wanting to plan a wedding, or 50th birthday, or Bar Mitzvah... etc. But she would happily direct them to me for their cake.
post #15 of 39
If her business is planning childrens parties then yes she is a party planner.

If you are ok giving her your profit margin and barely or just breaking even on every cake you do with her then have it at it.

Losing profit or not even breaking even on a cake job will happen on occassion if it will guarentee a high ROI in the future. This is not going to happen here becasue you are giving away profit each and every time.
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