Referral Fees, Online and Off:
Marketing Minute Subscribers Weigh In

The Question Put to Marketing Minute Subscribers

Although they're standard in some industries, referral fees have always made me uncomfortable. I shy away when colleagues or strangers offer monetary rewards or commissions for sending over new customers. 

I prefer to send people who value my opinion to the best company or service provider I know, without any incentives or rewards involved. And at the other end of a referral, a new client showing up at my doorstep because someone she knew wanted a commission doesn't bode well for a clean, productive relationship, I feel.

Now on the Net, so-called affiliate programs - organized, automated referral reward systems - are spreading like wildfire. You recommend Product X or Company Y at your site, the visitor clicks, and if he buys, you receive a percentage of what he spends from X or Y.

I've decided not to play this game, and have posted notices at my web site that my recommendations have no linkage to money. Do you regard this as smart or as holier-than-thou? As interesting but inapplicable to your business? Please share your thoughts.

The Overall Tally

Of 63 respondents to the message above, only one appeared to disagree with my stance, in one terse sentence that I'm not certain I interpreted correctly. Forty people said they agreed with me and 22 chimed in with some form of "it depends." Naturally this was not a scientific survey, but I was astonished at the number of people who applauded my position. Many of those who had a mixed opinion made excellent points.

Comments from the Camp Who Agreed

"I have been a practising as a Architect for over 20 years. In that time, I have never paid nor received referral fees. I agree with you. I feel the practice is somewhat tainted. After all is said and done, isn't a 'referral fee' just another way of receiving or giving a 'kickback'? Seems to me kickbacks are considered to be illegal." - Peter Brown

"I agree with you completely. How can a consultant be relied upon for an independent and objective recommendation when he or she has a financial interest in the subsequent transaction?" - Bradley E. Hosmer, CMC

"I regard your move as smart and considerate. I don't want to be manipulated between colluding business people." - Yocheved Golani

"I find your business stand refreshing. I like to think that people come to me because they value my opinion. When I attach a price to that, it loses the human connection and becomes just another commodity. It actually devalues the human connection. While there are people who have built empires on that connection, I don't think it 'serves the world.' In this day and age, I prefer to appreciate simple and beautiful things in life. That includes asking someone for an opinion and expecting an answer that is in my best interest, not theirs! I do not see this as 'holier than thou.' It is sound business sense." - Christine Wight

"I think it is smart and the right attitude of a professional. You show you have 'morality,' and that I believe that is very valuable in today's business. Maybe that's European." - Christianne Kraan

"A relationship to a customer, referred by me or to me is always healthier when no fees are involved. As long as you can afford it and have enough other income." - Birgit Bernskoetter

"In Canada, it is illegal to receive a SECRET COMMISSION. I wonder how many people are disclosing these referral fees to their clients?" - Lorne Collis

"Smart marketing: You have distinguished yourself as 'fair and ethical' - or at least not a bloodthirsty money grabber. Leaves one with the impression that you will give good service and will not overcharge." - Sydney Rice

"Money presents an opportunity to corrupt. I think your idea to stay out of that arena is good." - Andrea Eagles

"Like Consumer Reports' no-advertising policy, your approach makes the statement that your advice and services are delivered without slant and are based solely on your professional judgment. [Applause from me.]" - Peter Storandt

"When I first went out on my own, I joined a leads club, where referrals were mandatory (although not for money). Not one of the people referred to me turned into a viable client. And two stiffed me! Much better, I think, to make a referral in the spirit of genuine helpfulness, and if something quantifiable later comes of it, great! If not, you will still have the satisfaction of having helped someone, and perhaps you'll rack up some karmic credit at the same time." - Bonnie Taher 

"The referral fees imply an obligation and a 'keeping the scales exactly balanced' by what you do for me and I do for you. This is hard to maintain fairly and if something goes wrong with what you have referred, you are partly responsible for having referred the product or company to them. It sounds cynical to think this way, but keeping your referrals free avoids problems later and helps you make a more objective choice." - Terry Craig

"Yes, you could add some programs to your site and make additional income from it. No, it's not such a horrible thing. But you need to decide what level of reputation you want. I believe in the long run you could possibly make more money by not having those programs on your site. Why? Because you will have a higher level of reputation which means you can set higher fees OR you will get bigger or more clients." -Gabrielle Campbell

"As a career counselor, I suppose I could make some money by referring clients to employment agencies that would give me a commission. I had one offer like this, and I did not take advantage of it. It would seem unethical to refer a client to that agency without telling the client that (1) I will receive a fee, and (2) that there may be other agencies out there which might be better." - Tim Parker

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"The Internet leaves room for a lot of high-flying snake-oil salesmanship. We dedicated helpers are all, I suspect, uncomfortable with what feels like kick-backs. I am a trained and dedicated helper. You are an experienced and gifted marketer with a huge component of helpfulness, beyond what is expected or commonplace. The trouble is, those of us who are new to the Net get told by 'experts' what it will take to have a successful e-commerce business, and many of the experts are pushing what propels their own success." - Roz Van Meter

"I am a nutritionist in New York. I recommend products and/or other professionals only because I believe in them - I do not seek any monetary reward. I don't classify this policy as 'smart' or 'holier than thou.' I just think it is a matter of good ethics and having the client's best interest at heart. This is something that has, unfortunately gone by the wayside, for the most part, in this society. I applaud your scruples." - Abby Gerstein

"I don't like the mentality of 'you scratch my back, I'll scratch yours' as I think it has the potential of tying everyone up in knots. Much better to recommend somebody because you genuinely think they have an excellent product. That shows important qualities of having high standards and a love of sharing information to help others, rather than wanting to get something out of it. The satisfaction of genuinely helping someone is much more satisfying and rewarding in the end." - Deb Gracie

"In your case, where you're expected (at least by me) to provide me with a fairly objective perspective, you would be hurting your credibility to take any other approach than the one you've outlined. I believe business owners need to give serious consideration to the brand image, voice and positioning they are trying to achieve when making any decisions likely to impact the brand." - Michael Sullivan

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Comments from Those who Said "It Depends"

"Any recommendation you give automatically links you directly with that other supplier. If your customer gets a bad experience from someone you recommended then your name will be present in the discussions about that experience. Not good press. So, you had better make sure that you have 100% confidence in those other suppliers. This must take priority over any issue about commission. As for receiving money for those referrals I have mixed feelings. I believe that quality does not come cheap and if I strongly believe that my referrals are of benefit to the other company then I would accept fees for my service (subject to client satisfaction). If I were referring just to receive the commission then that is immoral and I would not condone such practice." - Phil Allen 

"I own multiple businesses and I've never allowed fees to become part of the referral process although I give and receive them regularly. Since I've moved two of my concerns online, as an experiment, I've joined one affiliate program for books I recommend at my site. Even though the links have generated some cash, I don't believe the revenue is worth the appearance of impropriety or 'selling out.' The real money in business is in building a good reputation." - Bill Watson

"I think it is O.K. to offer people a finders fee or commission commensurate with their level of involvement in the consulting opportunity. I also agree that the value of one's opinion and the referral is the most important part, not the monetary reward." - Steve Paulson

"On my site www.GoTo-France.com I have a car rental link and two of the companies listed there pay me a small commission on rentals (5%) I have found these two to be good value for clients and make it clear that I do earn a little from them. It is my integrity on the line here and I have no intention of recommending rubbish." - Tony Tidswell

"The debate reminds me of the old money crowd turning their noses up at the Gatsbys of the world. Each is enriched by the same thing, but the former likes to pretend that money just happens. And naturally, a professional risks credibility referring people to folks who can't deliver the goods satisfactorily. But this risk attends whether money is involved or not. With money, the temptation is greater to take a chance on someone at the margins, but this is a risk-reward business decision like any other." - Jim Olsztynski

"I think affiliate programs are fine for e-tail sites. It seems to me that, in that context, they help e-tailers set up linked 'communities' that drive more sales for everyone in that community--and that's fine. But I also think that in the writing/editing business, where credibility makes or breaks relationships, incentive-based referrals are a bad idea." - Leslie Limon

"In the mortgage industry (which is where I consult), referral fees are illegal. The Real Estate Settlement Procedures Act prohibits referral fees based on the fact that they promote unnecessarily high closing costs for the consumer. How would you feel if you found out that your real estate agent sent you to the mortgage lender that paid the highest referral fee, rather than a lender that offered the best service and competitive interest rates? However, I do feel there may be times when some form of compensation may be in order. This would only be when EXTENSIVE work has gone into determining which product/company/service provider offers the best fit for the customer." - Kevin Eggemeyer

"In the computer consulting business, some consultants end up recommending a product that they have an interest in. Professional ethics require disclosure when that's the case. Sometimes, that case is unavoidable. If the best product is, in fact, one that the consultant has an interest in, so be it. But the client deserves to know. I also appreciate that you are concerned about 'holier than thou.' It's a useful cross check on ourselves whenever we embark on 'doing the right thing.' But we all have to be holier than somebody, or else we will all descend to the lowest common denominator: in ethics, in quality, in business practices, etc." - David Cressey

"I am a real estate broker and it is customary to pay and receive referral fees for the referral. Will I turn down such fees? I don't know. Will I continue to pay such fees? I, again don't know. However, you have brought the thought to my attention. I did have that same attitude as you before I got into RE, but the prevailing practice was so easy to adopt I just did. I applaud your show of integrity regarding referrals." - Jack Wilkinson 

"I believe it depends on the link or type of referral. If I refer a friend or colleague to a vendor who is going to perform tailor-made or personal services especially for my contact, then I want to be sure that referral is to the best vendor possible. And I agree with you that the potential for a referral fee contaminates that kind of relationship from the start. On the other hand, if I link to a bookstore that pays a percentage of sales generated from my link (like Amazon or Barnes & Noble) I see no problem with receiving what in effect is a royalty." - Rae Baskin

"Several times a year a client or vendor suggests that I will earn finder's fees for recommending them to my contacts. My response has always been, 'I will gladly refer you because you prove such a benefit to me. At some point I hope that you will return this favor. I require no other compensation than your kind words when appropriate.' This said, if I was in other businesses then I would employ this revenue tactic as it has a 'traditional' feel to it. But in my work, in marketing as are you, it has a poor feel to it and I take a 'miss.'" - John Galavan

"I agree with you in principle, and do not sell my recommendations to others, so that I feel free to recommend the best, not the highest-paying. That said, I recommend the Amazon.com affiliate program to my Web design clients not because they pay the most but because the company has always dealt honestly with me when I purchase from them. I feel that their excellent customer service helps establish the credibility and trustworthiness of ecommerce in general. I know a link to Amazon.com will generate goodwill for my clients. The same cannot be said for all affiliate programs." - Paula Sato 

"Despite the 'grab a fast buck' mentality prevalent in much of the business world today, I will not compromise my own (and my company's) reputation by recommending a source unless we know it and have strong confidence in it. Still and all, though, if you have a direct personal relationship with a source you know to be qualified which can provide services beyond you own range, having a 'finder's fee' arrangement for referrals can be all right in specific cases, especially if the project or account is a large one. An automated fee-for-referral set-up such as you describe, however, is, in my opinion, just plain bad business." - Dick Weltz

"I agree with you on the whole, that it does create 'bad vibes' to have money as the main motivation to recommend someone. However, an arrangement to resell something that you truly believe in and trust is a different affair entirely." - Simon Young

"I think I agree with this as far as professional advice is concerned, so I wouldn't engage in that sort of scheme in my role as a consultant. On the other hand, when I'm selling products myself, I don't see anything wrong with taking a commission for products I would be happy to have sold myself, but don't stock. I'm thinking particularly of books; if a link to someone such as Amazon would make it easier for someone to buy the book, I don't see any reason to forego the reward." - Tim Bourne

"To me, paying for referrals themselves makes them meaningless. Worse than that, it violates the law of the Universe: Give freely and it will return to you many times over from unexpected directions. Once you've been paid, you aren't owed any return from the universe. Worse, you are now in greedy-mode, and everyone around you will sense that. Yet if I talk about a book, and provide an option of one place to buy it (say a link to Amazon.com), I have no problem with accepting a cut of the sale price -- which is already earmarked for advertising. The publisher and the writer will get their cut no matter who sells the book to the customer." - Jean Nick 

My Conclusions about Referral Fees

From this feedback, I think it's fair to draw the following conclusions:

1) A substantial number of people feel that a no-referral-fee policy enhances trustworthiness and professional credibility.

2) If you do pay or accept referral fees, customers/clients should be told. Also, be sure to check relevant laws and professional codes.

3) Where referral fees are concerned, people make a distinction between recommending service providers and recommending a place to buy commodities. The latter carries much less of an ethical charge for most people than the former.

All in all, I'm glad that people feel good about the stand I've taken, although that was not my purpose in doing so. Thanks to everyone who participated in this informal poll!

Copyright 2000 Marcia Yudkin. All rights reserved.