Flat Fee or Percentage? Choosing the Right Referral Commission

One of the most common questions SME owners ask when setting up a referral program isn't "should I pay referrers", it's "how should I pay them".

Flat fee or percentage? Both work, but they work for very different businesses. Pick the wrong one and you either overpay, underpay, or confuse your promoters so much they stop referring altogether.

Two Ways to Structure a Referral Commission

Flat Fee Rewards

A flat fee means every successful referral earns the same fixed amount, regardless of how much the customer spends.

For example: $30 per referred client who signs up, no matter if they bought a $200 package or a $2,000 one.

This works best when your product or service has a fairly consistent price point, or when you want to keep the math simple for your promoters.

Percentage-Based Rewards

A percentage reward ties the commission to the value of the sale. Refer a $1,000 customer, earn $100. Refer a $5,000 customer, earn $500.

This works well when your deal sizes vary a lot, and you want bigger wins to feel proportionally rewarding for the person who brought them in.

Which Structure Fits Your Business

There's no universal right answer. It depends on how your revenue actually looks.

• Property agents: Deal sizes vary wildly (a 2-room flat vs a landed property), so percentage-based rewards usually make more sense.
• Insurance agents: Policy premiums vary too, but many agents prefer a flat fee per qualified lead to keep things simple and compliant.
• E-commerce stores: If average order value is fairly stable, a flat fee per new customer is easier to track and explain.
• Coaches and consultants: If you sell one core package, flat fee works. If you sell multiple tiers, percentage rewards the referrer for sending higher-value clients.
• F&B and retail: Flat fee per new customer is almost always simpler here, since margins are thinner and spend per visit is unpredictable.

The Hybrid Option Few SMEs Try

Some businesses use a tiered flat fee: a base reward for any referral, with a bonus if the referred customer crosses a certain spend threshold.

For example: $20 for any new sign-up, plus an extra $30 if that customer spends over $500 in their first month.

This gives you the simplicity of a flat fee with some of the upside-sharing of a percentage model. It's slightly more complex to explain, but it rewards quality referrals without needing to calculate percentages on every transaction.

Common Mistakes When Setting Commission Rates

The biggest mistake is copying a number from another industry without checking your own margins first.

A 20% commission might be generous for a service business with healthy margins, but it could wipe out your profit entirely in a low-margin retail business.

Another common mistake is setting the reward too low to actually motivate action. If the effort of referring feels bigger than the reward, promoters simply won't bother.

Work backwards from your profit margin and your customer lifetime value. A referral that costs you $50 to acquire but brings in a customer worth $2,000 over a year is still an excellent deal, even if $50 feels like a lot upfront.

Test Before You Commit

Whichever structure you choose, treat it as a starting point, not a permanent decision.

Run your referral program for a month or two, track how many referrals convert, and check if your promoters feel the reward is worth the effort. Adjust from there.

Getting the commission structure right is one of the fastest ways to make your referral program actually work, instead of just existing on paper.

Want help setting this up without the guesswork? Join ReferSales as a founding member and we'll help you design a referral commission structure that fits your Singapore business.