Referral partners can be one of the most cost-effective growth channels a tech business has. Someone trusted makes an introduction, a deal closes, and they take a cut.
It often starts with a handshake and an email setting out a percentage. That works until the first large deal lands and both sides remember the arrangement differently.
Most referral disputes are not about bad faith. They are about questions nobody answered at the start.
What counts as a referral?
This is where most disputes begin. A partner mentions your name to a prospect. Six months later, the prospect signs. Has the partner earned the fee?
The agreement should define a qualifying referral precisely. Common approaches include:
- Requiring the partner to register the lead in writing before you have had contact with that prospect
- Excluding prospects already in your sales pipeline
- Setting a window, such as six or 12 months, within which the deal must close
- Making you the final decision maker on whether a lead qualifies, acting reasonably
What is the fee actually based on?
Ten per cent of the deal sounds simple. It is not.
For a SaaS business, the agreement needs to answer:
- Is the fee based on first-year contract value, total contract value or revenue actually received?
- Does it include implementation fees, professional services and pass-through costs?
- Is it paid once, or for as long as the customer stays?
- Does it apply to upsells, renewals and additional modules?
- What happens if the customer does not pay, or receives a refund or credit?
Commission for the life of a customer can become a real drag on margin as accounts grow. Cap it, time-limit it or tie it to cash received.
Introducer or agent?
A partner who simply makes introductions is in a different legal position from one who negotiates deals on your behalf.
If a partner starts negotiating terms, the relationship can drift towards a commercial agency. In some circumstances that brings statutory protections, including compensation when the relationship ends. Whether those rules apply to software is not always straightforward.
Keep the role clear in the agreement and in practice. The partner introduces. You sell, price and contract.
Bribery and transparency
Referral fees are legitimate. But under the Bribery Act 2010, a business can be liable if someone performing services on its behalf pays a bribe to win work, unless it had adequate procedures in place to prevent it.
The risk is higher where the referrer also has a relationship with the customer, such as a consultant advising the customer on which supplier to choose. An undisclosed fee in that situation can create real problems for both sides.
The agreement should include anti-bribery obligations and, where appropriate, require the fee to be disclosed to the customer.
Data protection and marketing rules
Referrals involve passing on personal data about prospects. The partner needs a lawful basis to share it, and you need one to use it.
Unsolicited marketing introductions can also run into the Privacy and Electronic Communications Regulations (PECR). The agreement should make the partner responsible for how they collect and share lead data.
Protecting your brand
A referral partner is talking about your product, usually without you in the room. The agreement should:
- Limit what they can say about features, pricing and performance
- Control use of your name and logo
- Prohibit them from making commitments on your behalf
- Make clear they are not your agent, partner or employee
What happens when it ends?
Termination is where the money questions come back. Will you keep paying commission on referred customers after the agreement ends? For how long? What about deals in the pipeline on the termination date?
Agree a tail period at the start. It is a much easier conversation before anyone has money at stake.
The commercial takeaway
A referral agreement does not need to be long. It needs to answer the questions that cause disputes: what counts, what is paid, for how long, and what the partner can and cannot do.
Get it right and referrals become a scalable channel. Get it wrong and your best partner becomes your next dispute.
If you are building a partner or referral channel, get the agreement right before the first commission is due. Book a free 20-minute call with the Ethiqs team.