You Should Probably Turn Down Vendor Referral Fees
You Should Probably Turn Down Vendor Referral Fees
Most consultants, if approached, accept referral fees. That's often a bad idea. You have far more to gain by not accepting vendor referral fees for recommending new clients.
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Vendor Referral Fees Are A Thing - A Big Thing
Once you reach a certain stature in your field, platform vendors will contact you to create a partnership agreement.
In a recent coaching call, we discussed whether the consultancy should partner with platform vendors.
By ‘partner' we mean taking a referral fee to recommend a specific platform vendor.
Some vendors offer fees ranging from 5% to 10% to recommend a platform.
Given that some of our clients spend $5m+ on their platforms, this could be a substantial sum of money for something as simple as making a recommendation.
Why on earth would anyone turn that down? It’s free money!
…but at what cost?
Why Most Consultants Accept Referral Fees
Yes, it might be easy money. But….
The reasons why you might want to accept referral fees from platform vendors are simple to understand.
It’s (potentially) easy money. It’s money that improves your profit margins with little work. You can theoretically set up partnerships with every vendor and then make the same recommendation you would’ve made anyway - but now you keep an extra few percentage points for yourself.
It builds closer relationships with vendors. You have a close relationship with vendors who might also host events, help you build your profile, and attract more clients over the long term.
Vendors are more likely to recommend you if you recommend them. Those recommendations can drive additional revenue for you. This is a mutually beneficial relationship.
You can list the vendor as a partner and highlight your relationship with the vendor on your website. More partnerships essentially reflect your own credibility.
Most consultants accept partnerships with platform vendors for the above reasons (notably the first).
If that’s your stance, that’s fine—but there’s a reason why I don’t accept them.
Why You Probably Shouldn’t Accept Referral Fees
It’s worth considering why you might want to turn down referral fees in these situations. Here are some reasons.
It biases your judgement. You might argue that your judgment isn’t impacted, but that’s the entire purpose of the fee. And it works. I’ve seen people become partners with a vendor and then immediately recommend them to all clients. And if you were going to recommend the vendor anyway, you’re essentially charging money for non-existent services. Referral fees are essentially a legal kickback.
Are you delivering the best value to your clients if one vendor pays you a kickback and another doesn’t?
It creates a disadvantage in the sales process. I love nothing more in a competitive sales process than saying, ‘Some of our competitors take referral fees from platforms they often don’t disclose. So make sure you check if they have any relationships with platform vendors. We don’t take any money from vendors - we will genuinely make the best recommendation for you’.
It creates a dependency. I’ve noticed that people who take referral fees from platform vendors never make any negative remark about that vendor (another sign of their compromised neutrality). When you become dependent on vendors, you can’t say or do the things which might attract more clients. I wouldn’t have been able to create this series if I was taking money from vendors. I want to be the trusted source of vendor information.
You need to disclose it. If you’re taking a referral fee from a vendor, you need to disclose it. If you don’t and the client finds out later, that’s a recipe for problems. And it’s always better to have as few things to disclose as possible. Again, you can tell the client it won’t influence your judgment….but then why is the vendor paying you for something you were doing for free anyway? 🤔
Attribution problems. Vendors typically have sales teams that, if they’re worth their salt, have already had some contact with almost every major prospect in their space. This creates an attribution problem. What if a vendor has already had conversations and demos with your client? Will the vendor still pay you if they were already a couple of layers deep in their sales funnel? They usually caveat this by saying it has to be a ‘fresh lead’ you register through a specific source for it to count. Or, what if the sales process takes 9+ months from your introduction to purchase? Does that still count as yours? This can get messy fast.
You won’t earn much money anyway. It might add a few percentage points to your revenue, but it won’t be a game-changer. If you haven’t been the decisive influence on who vendors will choose in the past, you won’t be in the future either. The hassle of the process and the downsides usually mean it’s not worth it.
However, If You’re Going To Take The Money, Make The Most From It
That said, if you decide to go down this route, aim to get the most from it.
Set up partnerships with as many vendors as possible, and then create content and resources to ensure people come to you before selecting the vendor.
Create comparison guides, reviews, and more that people download. Contact people who download them individually and ask if you can introduce them to the vendor. Explore whether they’re considering changing platforms and pass over relevant leads.
Just make sure you disclose the commission you receive to the prospect.
Make Independence A Competitive Advantage
If you don’t decide to take the money, make that a competitive advantage.
I maintain healthy relationships with most of the vendors in my space. They sponsor my courses, I speak at their events, and we have regular calls during which I can stay informed about new updates and share them with my clients.
But I’m also free to publish comprehensive reports identifying their strengths and weaknesses - and create content with my personal reviews. I don’t doubt sometimes they would prefer me not to do this (especially Salesforce), but they also respect my independence. And that independence can be a competitive advantage.
Be Seen As A Trusted Source Of Platform Expertise
If you want to be the person everyone in the industry follows, you must give trustworthy advice on which tools and technologies to use.
This sounds easier than you might think.
A friend of mine is an influencer in the beauty space. Companies fall over themselves to send her products for review. The problem is she always gives a good review. If she doesn’t like the product, she writes to the company and says it will be a bad review. Would they prefer her not to post it? Inevitably, they say yes.
You can see the obvious problem with this. Would you trust someone who only published positive reviews?
Likewise, I know consultants in my sector (and others) who don’t dare publicly criticise vendors for fear of harming a relationship (relationships often formed working for that vendor in the past). That’s an understandable choice, but it always strikes me as short-sighted.
If the vendor knows you won’t criticise them, they don’t need to please you.
If you establish yourself as a trustworthy, independent source of expertise, you will find vendors need you much more than you need them. If you build a large audience that comes to you for honest, unbiased opinions, you hold more influence over vendors than vice versa.
If a bad review of a vendor from me causes five organisations (not an unreasonable number) to select a different vendor, that could be $3m+ in lost revenue for organisations in my sector.
Once you’re the trusted source of expertise, vendors want to impress you, keep you informed of updates, and win you over. You can build a more honest partnership that isn’t based on financial kickbacks.
Better yet, people will come to you before choosing a vendor. This is far better than people coming to vendors before selecting a consultant. You get to guide them through an independent review of the platforms and provide the most value for clients. This is better for clients too. It’s always better if a client doesn’t start their journey by approaching a vendor and asking how much of their product/service to buy.
Make Independence Part Of Your Story
If you will turn down referral fees, ensure you maximise the value you get from turning them down.
I love nothing more than competitors announcing vague partnerships with platform vendors. Whenever we're in a competitive sales process, I can contrast my independence against their undisclosed kickback fees. Sales is a battle of stories. If clients believe they will get independent, honest advice from me (which they will), then that’s an advantage I want prospects to know.
I can share my public platform reports with vendors and my independent reviews and highlight that I’m on their side - not the side of vendors.
Thanks for reading