Finder's Fee – What is it and how to approach that?
A Finder's Fee is an interesting way to make money. In my opinion, it is also a unique way to make money.
How so?
Well that's because you are not selling a product. You are not even just selling yourself… you are selling another guy's dream. That guy could be dreaming of establishing a café. The other guy could be dreaming of exporting his goods offshore and going internationally, or maybe just expanding a business, It could also be a guy that all he wants is to enrich his holdings or investments portfolio to real estate or to another retail business. And often – it's not just about the money. It's the DREAM.
A lot of us are dreaming of going big someday, maybe making a fortune by selling the business, maybe just selling it for the peace of our mind. A lot of us, sometime in life, thought of doing the perfect "Exit" or just enjoying the passive income. So in the middle of all that, many times, there is a guy that could help us find the right person to make that dream come true – The Finder.
That guy should be well connected and very good with people. His mission is to make all parties in a deal trust him and his judgment. Above all, his job is to make them believe in that dream. Together.
After we understood the Finder's part in a deal, let's dive into the types of Finder's Fees by Industry:
Investments If you find an investor for a project, the Finder's fee is typically paid from the investment proceeds, on behalf of the client. effectively – the client, the one that needed the investment, pays the fee out of the investment he received. That fee typically ranges from 1%-5%, depending on the Finder's experience and the role they played in the deal. For example, if you only made the introduction between the parties – it would probably be in the lower range. If you are actively involved in forming the deal, assessing risks and more – you should be on the higher range.
Another kind of a Finder's Fee is for helping others expanding their business by using network referrals to get new business – could also be known as a Referral Fee[1]. If you are helping businesses to expand by finding new connections which will help them develop their business – it is worth money. How much does it worth? Well, that depends on the lead. If it’s a person that 'pays back' with leads – that is also worth money, and you might not ask for anything in return. In another case – if it’s a lead you just met – it is worth, but not much. But if you have a long-lasting relationship (and influence) with this person and can take part forming the deal and being relatively involved – that would be worth more. How much? Well… that fee goes around 15%-30% of the net revenue of the deal (net revenue is the net profit that the deal will gain for the company involved) or it could also be 5%-15% of the total value of the deal[2] (the sale).
So why should a business get a Finder? Because he will be much more accurate finding what the business needs, He will also usually well-connected ant thus will be much faster with helping the business entering a market or getting the relevant partnership. The Finder is a high motivated, skilled professional that derives his satisfaction not only from the commission, but also from the competition, the achievement and even from improving his skills. All that is the power of the Finders fee. ?
The Real Estate business could be another source for a Referral Fee. Here are two examples for that: a. A seller that is trying to sell a house, but no buyer could be found, could pay a friend[3] that referred a relevant buyer to the seller. In this case the fee would be relatively small. b. Real estate agents are allowed give Referral Fees?to other licensed agents from their commission as well for similar purpose. In these cases, the Referral Fee could get to 5%-35% of the real estate agent's commission.
Another Industry is Human Resources and Recruitment. A Finder - recruiter usually get 15%-20% of a new hire compensation pack and even 30% for hard-to-fill positions. That fee would be paid directly by the hiring company.
Two other industries where it is customary to use a Finder's Fee are Consulting and Freelance (which is a more experienced, skilled professional in his field). A consultant that will successfully get a new customer could pay the Finder a fee of 5%-20% out of the business he conducts with this new client. A Freelance could pay 2%-10% out of the business he'll get from the Finder. These numbers would vary, among other things, based on the total value of the deal.
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In conclusion, if you're stuck or things going slow, if you need a good kick-off to your business, or if you just want to start your own thing or expand – get a Finder and remember – he is here to make your DREAM come true (plus – he won't get anything if you won't, so you're winning anyway :)).
If you want to read some more you can also read these interesting articles:
Investopedia - https://www.investopedia.com/terms/f/finders-fee.asp
ReferralHero - https://referralhero.com/blog/finders-fees
Cornell Law Schhol - https://www.law.cornell.edu/wex/finder%27s_fee
Referral Factory -https://referral-factory.com/learn/finders-fee/#
[1] Finder's fee and Referral fee are similar but not identical. Usually, the Finder is a professional in the field, and in some fields – licensed professional. Rates are also different, and in accordance with that – the commission is different.
[2] Some will say it should be double or even up to 35%. And I guess that in some cases – it would. But commonly speaking – that's the benchmark.
[3] The reason that it is 'a friend' is that in some states you must be a real estate agent in order to have an official commission or a fee in that field. Having that said, if the situation is that it is not a licensed profession, and he does not do that for a living, well actually a friend that introduces a one-time buyer – he could be entitled for small percentage of the sale.