
Ask HN: A friend introduced me to a client, now he wants a 25% cut - thrwwwy123
I work as an independent software consultant in a somewhat specialized area. A friend recently introduced me to the founders of a company that are looking for help in this area. It&#x27;s interesting work and I want to pursue it. However, my friend is insisting that I bill his company at my rate of $X&#x2F;hr, and he bill them at $1.25X&#x2F;hr. The client appears to be fine with the rate he quoted them.<p>I understand that business is all about relationships, and I want my friend to be compensated for the value that he&#x27;s provided. However, this seems pretty steep to me, especially if it turns into a long term engagement. In my experience, recruiters usually charge a one time fee, but his reasoning is that he&#x27;s more of a staffing agency than a recruiter.<p>While theoretically I should be content with earning my rate, this has also made me realize that I should be charging more.<p>One possibility I&#x27;m thinking about is that we engage under his terms for a short term initial contract, after which point I start billing the client directly, either at my current rate or at his. However, I&#x27;m not sure how this might be received by both the client and my friend, nor what the norms are in this type of situation.<p>What does HN think? What is the value that a staffing agency provides to justify their cut? Is my friend being reasonable?
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saluki
If you're getting your full rate, let your friend enjoy marking up your
services. Make sure he's paying you promptly though, not paying you after he
waits for the final client to pay his invoice, so specify he's your client in
the contract and that he's comfortable paying your invoices in a time frame
you expect not dependent on the final client paying his invoice.

Maybe he will bring you other engagements, you could even outline this in your
contract with him that he will actively market you to his network.

Finding projects isn't trivial, it's mainly relationships and who you know. If
he can keep bringing you projects I'd enjoy the ride.

Maybe let him know that for future engagements like this you're increasing
your rate if you think you need to increase it.

~~~
brudgers
The standard rate doesn’t include a premium for the nonstandard conditions.

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aksss
If he's the one managing the relationship, doing the end-customer billing,
it's perfectly normal to have a markup, especially if it's for a short-term
engagement. He owns the relationship and is subcontracting you to perform your
service. A referral fee would be appropriate if he was handing the customer
off to you for direct billing and leaving you to manage your relationship
directly. In essence, he's also warranting your work (which means he's bearing
risk). Don't be so quick to say that this means you should raise your rates.
If you did, he might not sub work out to you anymore and you'd lose the
advantage of having people like him finding you work (which is a cost you'd
need to bear). We have worked with subcontractors like this where they see us
marking up their service and think they should raise their rates to what we're
billing. That's the wrong response, because I can't then mark that up further.
It just means we're going to find someone else to do the work for the rate we
need. Ultimately, maybe it would be good to consider a higher bill rate for
direct engagements and a lower bill rate for subcontracting jobs, and in the
meantime try and move more of your business into direct engagements. But
again, this takes work and will cost you, but at least you derisk the approach
by continuing to get business (and build reputation) through subcontracting.

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davismwfl
I have built two successful consulting groups, while some people here are
saying 25% cut is normal that is astronomical in my experience for what he is
providing. I would never agree to that rate just for an introduction, 8-12% is
more reasonable for an intro and payable only when the client pays their
invoice.

If your friend is doing some work and on-going management or something than
that's a different story and this may all be very fair. But if he is literally
just making an intro and then now saying you have to sub-contract from him
that is odd to me and for me and has red flags all over the place. Essentially
it seems like he wants to control the client relationship and just have you do
the work, there are a lot of potential downfalls here. For example, if you
aren't talking directly to the client and instead he is playing middle man you
may get a bad wrap from the client because your friend doesn't understand
something properly. That client then talks to other potential clients and next
thing you know you are taking a hit for your friends behavior. If he is
letting you have direct access to the client and he literally is just billing,
his 25% is insane. Other downfall is if you don't control the client
relationship how are change requests going to go? Is he going to properly
represent them? How is billing going to be handled, they pay him net 30 and
you wait again to get paid so you now risk 45-60 days of non-payment? Is his
company big enough you can feel confident he'll pay you timely and properly?
If things go south, is his company large enough to compensate or protect you
during a legal suit? Is he carrying all the proper insurance? This just has so
many red flags to me.

Essentially IMO your friend is taking advantage of you by introducing you to a
client he knows (maybe does business with regularly) and he knowing you charge
too little is jacking your rate to something more reasonable and taking the
difference. With friends like that you don't need any enemies for sure. I
usually introduce friends to clients for free because it is good business to
make sure clients stay happy and my friends find work. Plus if a friend fucks
up I am not on the hook for their screw up, just for the intro which I can
manage around. For people I don't know or that are just acquittances, I'll do
intros but I do take a referral fee paid as they are paid from the client.
Only time I take money for an intro when a friend is involved is if I need to
get involved or the value of the contract would be such they can afford to pay
a fair referral, but I'd never ask for 1/4 of the value even if I told them to
charge 1.25x more.

Don't compare to staffing agencies, that isn't an accurate representation
unless that is the business your friend is in.

~~~
thrwwwy123
Thank you very much for the detailed response, this is extremely helpful.

> But if he is literally just making an intro and then now saying you have to
> sub-contract from him that is odd to me and for me and has red flags all
> over the place.

This is indeed the case. But the work is interesting, and I believe my friend
is just inexperienced. How do you suggest I proceed?

> Is his company big enough you can feel confident he'll pay you timely and
> properly?

As far as I know this is among his company's first engagements of this kind. I
don't believe he is able to pay until the client pays him.

> If things go south, is his company large enough to compensate or protect you
> during a legal suit? Is he carrying all the proper insurance?

These are great questions, thanks. I will follow up with him regarding legal
and insurance.

> For people I don't know or that are just acquittances, I'll do intros but I
> do take a referral fee paid as they are paid from the client.

I think this kind of arrangement would make more sense under the
circumstances. What is the fee you normally take? Do you have any advice for
how I can convince my friend that this is the better option for both of us?

> Don't compare to staffing agencies, that isn't an accurate representation
> unless that is the business your friend is in.

I believe that is the business he wants to be in. Can you please clarify why
this isn't an accurate representation?

Thanks again, you've been very helpful already!

~~~
smacktoward
_> I believe that is the business he wants to be in. Can you please clarify
why this isn't an accurate representation?_

Not the parent, but: a staffing agency typically handles lots of
administrative stuff for its workers. They handle billing the client, they
make sure taxes are withheld and give you the documentation you need at tax
time, they may provide group benefits like health insurance. They also provide
the legal entity the client contracts with, so the workers don't all have to
incorporate individually. This is the ongoing value they add, they shield
their workers from all the messy and complicated hassles that come with
entrepreneurship.

If the idea is you're an independent contractor who's still expected to handle
all that stuff yourself, your friend isn't acting as a staffing agency.
They're just bringing you on as a subcontractor.

As to whether the amount they're asking for is reasonable, _anything 's_
reasonable if all the parties involved agree that it is. It sounds like you
don't, and are looking for some justification you can hang that objection off
of. But you don't need a justification, you're two parties trying to strike a
deal, it's perfectly within your rights to say "I think this deal sucks" and
make a counter-offer you like better or even walk away. That may not be
_smart_ , depending on how badly you need this work -- remember though, he
needs you to make this deal happen as much as you need him! -- but it's
absolutely something you can do.

~~~
thrwwwy123
Thank you!

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mdorazio
Consultant here. 20% cut is pretty normal. 25% is a bit high, but not
excessive.

Also, no, recruiters often don't charge a one-time fee anymore - they will
often get an initial fee plus a percentage of the employee's salary if they
stay for a full year.

To your next point, what you're describing about going direct to the client is
not only likely a breach of contract, but also generally a dick move. If you
want to get 100% of billable with no sales/subcontracting commission, find
your own client.

~~~
thrwwwy123
> To your next point, what you're describing about going direct to the client
> is not only likely a breach of contract, but also generally a dick move.

We haven't signed anything yet. I wouldn't go direct to the client
immediately, but rather let him have his cut on the initial engagement. After
that point, I feel like I would have more of a relationship with them than he
does.

> Also, no, recruiters often don't charge a one-time fee anymore - they will
> often get an initial fee plus a percentage of the employee's salary if they
> stay for a full year.

Just to clarify: this isn't a full time engagement, but a short term hourly
contract, with potential to extend to long term if things work out.

> If you want to get 100% of billable with no sales/subcontracting commission,
> find your own client.

This is what I'm struggling with. What does it mean to find a client? Is it
the case that as soon as there is someone performing an introduction of any
sort, they are entitled to an ongoing fee?

~~~
mdorazio
It seems like you're thinking about this in terms of perceived value fairness
instead of objective if/then outcomes. If your friend hadn't brought the
client to you, you would get exactly $0 from them. Ever. 80% of a profitable
amount is a hell of a lot more than 80% of nothing.

If you've never actually landed a client yourself, it's _a lot_ more difficult
than you're likely thinking it is. I highly doubt this is merely an
introduction based on nothing - more likely your friend has been working his
network for a long time, vetting potential people who need work done, ruling
out the ones that can't or won't pay a decent rate, setting up a business and
all the contracts you need _beforehand_ to make it easy to get started, etc.
You're also probably not accounting for the fact that being a subcontractor
has a lot of benefits. You're not that one that needs to chase POs, AP
payments, renewals, etc. on a regular basis.

To your last question, it tends to be a spectrum in practice. A casual
introduction that leads to a deal with no actual involvement from the
salesperson will have a lower rate (possibly one-time) than one where the
person is setting up the whole deal and subbing it to you. In your case, your
friend already quoted the company a rate and they're ok with it, so this isn't
a casual intro - he basically did the hard part for you.

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brudgers
Your standard rate does not include the overhead created by the more complex
relationships. Your standard rate doesn’t apply a discount for the lower
probability of future work when you don’t own the client relationship. Your
standard rate does not include a risk premium for the increased chance of
payment problems, law suits, and misunderstandings.

If you think it’s bullshit, then it’s costing you. Here you are on HN fooling
with “the deal” instead of doing billable work. And it’s just the honeymoon.

It takes a while to learn to trust your gut. It takes a while to learn
avoiding bad projects is important.

If your friend can find someone else should you take a pass, then your friend
can find someone else for the client’s next project, too.

My gut is “the deal” isn’t in the client’s interest. But I could be wrong. The
test is your friend getting the client to sign a contract paying 25% of
whatever the client pays you. That’s the test of a win-win-win.

Good luck.

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yabadabadoes
In my market, most consultants bill the customer directly and pay 20% of the
first 2 years to each other as finding fee for introducing a new customer.

When they subcontract in the fashion you suggest, it is more about keeping the
relationship and looking like more of a one stop shop. It's really not a good
way for them in terms of numbers and responsibility.

I would raise my prices on future business to 1.25x or try 1.5x given the
indication the market supports it, and so I could pay fees and costs of
finding new customers from my standard rates.

I would look to negotiate something that would work in future business in both
directions (assuming your friend also does some consulting) making it clear
that the more the deal looks like subcontracting the more likely it is a one
off deal.

~~~
aksss
> it is more about keeping the relationship and looking like more of a one
> stop shop.

IME, it's often about the customer trust relationship and convenience. The
customer doesn't want to deal with 10 W-9s and managed 10 new vendor
relationships, and they trust us to source the other work and warranty it. A
good analogy would be a GC in construction.

~~~
yabadabadoes
> A good analogy would be a GC in construction.

Yes, and a GC is very much on the hook, dealing with communication and looking
to make as much as any subcontractor on the project even if that is by taking
a small percentage from each. If a project amounts to work by one
subcontractor, I think a busy GC doesn't make an offer.

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codegeek
Everything is fair in business. Your friend has a right to ask you for
whatever cut he thinks is reasonable. You have the right to negotiate that. It
is simple. But make sure you don't undercut/undermine your friend. I would
just say "Hey 25% is a bit high and I would like to give you x% instead".

You may now think that your friend is not really adding a lot of value by a
simple introduction but if he had not introduced you to the client who
probably are going with you due to the referral, you would make $0. That is
how business works. Referral and Networks is the key and try not to burn
bridges with anyone.

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chrisbennet
Consultant here, some data points:

30+ years experience, consulting prob 10+ years

If they are paying you on a timely basis (not waiting until they get paid, pay
you even they don’t get paid). * Yes, OK even if they take up to 100%+

Intro and nothing else: I try to give these away. Your “friend” is trying to
exploit you in my view.

Intro and nothing else: If he won’t let me take nothing. (He’s stretched or
otherwise needs financial help) I’d give him 20%.

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muzani
I've done an 80% cut from someone who intro'ed me to a major telco. Sometimes
the value of the job is not just the money, but also the connections. He
charged them a ludicrous price, but also paid me well.

It depends a lot on his role. I'd be happy to pay up to 50% to someone who
acts as a full time agent, dealing with negotiations, client filtering,
writing and proofreading contracts, harassing them for payment. They have to
eat too. Unfortunately, most people who take this role don't do it very well.

But as a pure referral fee, 10% seems fair.

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Fr33maan
While you could increase your rate, I feel it's fair as your friend company is
billing his client for the entire period. For me it feel like your are
employed by your friend company. 1.25x is really low then. If he just
introduced you to the client then it's not his company who should bill the
client but yours. In this case it's your client and your friend just get a
commission, 25% seems then pretty high. I usually give 15%. But what I
understand is that the business relationship is between the client and your
friend, it's not your client.

~~~
thrwwwy123
Regarding who the business relationship is between: I've never worked with the
client before. But as far as I know, neither has he, beyond introducing me to
them.

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svennek
I think that his cut is about normal, I have heard of higher and lower. Both
short and long term...

I think you are going for a world of hurt, if you try to cut him out later.

My advise, in the contract with your friend make sure, that HE is listed as
your customer (and not the end customer) and hence that HE has to pay you
regardless of what the end customer does (i.e. he cannot say "I didn't get
paid, so neither will you"). If he barks, then you have some room for
negotiation...

Also for a long term engagement 25% is a rather cheap sale (which is even free
(in monetary terms) for you)!

~~~
ddingus
This:

>My advise, in the contract with your friend make sure, that HE is listed as
your customer

That is a reasonable margin, but only when your friend is willing to earn it.
Paying for value now will serve you later.

Then, yes! Up your rates for work you source. Leave the margin there for work
brought to you.

Find enough, and form a firm. That is where the real money is for both of you.
Seems like your friend is already thinking along those lines.

Join him, bring others to the party and make similar deals.

This will leave you and your friend as peers, a great basis for establishing a
firm.

Invest in your networking with your time freed up by other people taking on
work. Bank some money so you can offer similar value to others.

~~~
thrwwwy123
> That is a reasonable margin, but only when your friend is willing to earn
> it.

Can you please clarify what you mean by this? Are you saying that his 25% is
reasonable as long as he takes on the risk of paying me, regardless of whether
the client pays or not?

> Paying for value now will serve you later.

Can you please also clarify what you mean by this?

~~~
ddingus
Yes. If it was just an introduction, that does not warrant an ongoing 25
percent. That kind of thing is what finders fees or referral fees are for.

However, if your friend is leveraging his relationship with the customer, and
he is carrying the risk, that does warrant an ongoing percentage.

What I mean by both recognizing and paying for value serving you later is you
will be participating in and learning from and how to do business at a higher
level than just a simple client relationship. You too can cultivate
relationships and you too can leverage them and carry risk and profit.

Value takes many forms. And when you learn to see it, pay for it, later you
also can do it, and ask for payment.

Just the negotiation on this will benefit you.

Make the case referral vs ongoing customer relationship and carried risk.

You are happy to pay for the latter, otherwise there needs to be a cap on
things as you will be doing the work, taking the risk and building the
relationship. You should get all the income.

Everything costs something.

If he wants 25 percent, fine! You need to come to an agreement on what that
pays for and all is well.

And you need to make sure those things are real, so that your own time,
appetite for risk and resources are otherwise free. If they are not, then your
friend is not adding value and the 25 percent is a freebie, unreasonable.

And maybe he can only add some value. That is fine too, maybe he takes 20
percent. That is the basis of negotiation right there.

Think in these terms and more deals get made with better terms and fewer hard
feelings, everyone adding value, doing work, making money.

Make sense?

Also, do raise your rates. Get a client that will pay them and then find a
friend with whom you can make a similar arrangement. Take care of this friend
to get your percentage cut.

Does that also make sense as a future possibility?

If it does, then you now have a basis for placing value on time you free up
that goes beyond billable hours. That is the next step beyond mere
contracting.

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Spooky23
I did something like this once and was able to have the middleman pay me upon
customer acceptance of the time card. I benefited from not having to deal with
the receivable. There was also the ability to push off business issues to the
middleman and avoid mixing money with the technical work — which was hard for
me at that stage of my career.

If you think this may turn into longer term work, negotiate a compromise.
Maybe you pay your friend for a year, for a particular project, or something
similar.

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cascom
I don’t understand why you care if you are Still getting full billing? E.g.
list is $100/hr and you are still getting $100/hr net...

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TaylorGood
I give a 25% referral fee standard and bake it in on the backend. Value based
projects have plenty of "margin" where I am happy to share the profit. That
business wouldn't have happened otherwise.

Does his company regularly practice "finder" services?

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rajacombinator
Your friend is in the wrong here for not discussing terms up front. Maybe an
honest mistake by him. Tell him whatever you’re comfortable with and walk
otherwise. But this “friendship” is likely over regardless of the outcome.

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Mikeb85
If he's marking up by 1.25x, he's actually only taking 20% of the total (0.25,
his cut, divided by 1.25, the total charged, is 20%). Dunno, it's probably not
too bad. And it is his client after all...

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sarcasmatwork
Value depends on the user, and the ones that benefit from the arrangement
imho. Counter offer with something lower? Make sure contracts are signed when
an agreement is made.

~~~
thrwwwy123
Just to clarify, are you suggesting that I offer the client to bill them
directly at a lower rate right off the bat?

My friend would not receive this well, since he would get nothing from the
introduction, and he probably not refer me to something similar in the future.

Do you think my friend is being unreasonable?

~~~
segmondy
You're being unreasonable.

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rat9988
I have a hard time understanding how does his rate affect exactly your
situation.

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cityzen
how much time have you wasted thinking about this? Is it worth it? after over
20 yrs of being independent, any engagement that starts out with drama will
end in drama.

