A reader sent me the following question:
What’s your opinion on referral fees? I’ve just paid my first one to get some business – it was just over 10% of the first project. All fees that come after it will be my own. For years I’ve been practicing good karma, believing that what goes around comes around. But your opinion on this would be very helpful.
This is an important issue. Here is my response. I would welcome others:
Referral fees are a complex subject. In some areas of business they are a standard procedure, and, being so, it is reasonable to assume the client knows about them. So, when an accountant retires, he often charges his successor to the account for the referral. In other areas, this isn’t true. I do not pay referral fees, because I do not think it ethical to accept a payment for a referral unless the client knows about the exchange. Otherwise, I would be misleading him to believe that my referral was impartial. Not wanting to explain that, I simply decline to give or receive such fees.
If the client knows that there is money in the deal for the referrer and has no qualms about it, I don’t see why anyone else should care. But, be careful, even then. There can be legal issues. Especially if you are selling your services to governments, check with a lawyer before accepting or giving any referral fees.
To avoid the ethical problems sometimes associated with referral fees, if there is a financial aspect to an introduction, I will set it up as a subcontractor relationship. A financial exchange is implicit in such an arrangement and the client need not know the details–nor has one ever asked.
I hope this helps.