Is Making Money with Kickbacks and Referral Fees That Important?
A custom cabinet manufacturer was upset about a designer who, after referring a remodeling project to him, asked for a referral fee. Unfortunately, getting/giving “kick-backs” is not a new practice. Does this practice bother you? Here’s how it impacts your remodeling investment, and what you can do about it.
“Kick-backs” for Referrals
Many design professional and contractors make money for referring homeowners to people they know. Are they recommending the person because you’ll benefit from experience, expertise and reputation, or are they going to benefit financially? How can this impact your home renovation? The referral may not provide the level of quality service you’re expecting, but how are you to know unless you are informed about:
- A “finder’s fee” related to the referral. If there is one, how much is it?
- Whether or not the referral fee would be disclosed to you, if you didn’t ask about it.
- The reputation of the company or person being referred (get and check references from former clients, and check licensing status).
Let’s say that you’ve agreed to pay a design professional the fee that’s outlined in their agreement, for the services they’re going to provide (you do have an agreement, right?). The fee is in line with other quotes you’ve gotten (you have gotten multiple estimates, right?). If the designer is making between $300 and $500 for each referral you hire, ultimately you’ll be paying more for the referrals’ products and services, because they’re going to pay the referral fee to the designer from your bank account. The referral fee is going to be built into their estimate (or bid).
“Kick-backs” for Products
Many designers and most contractors make money on products they sell. You have a right to know what their margin (or mark-up) is, the difference between the price they give you and the discount or bonus they get on the products they’re recommending and selling. Professional discounts can be as low as 5%, or as high as 50%. If you’re paying a professional fee for design/consulting or contracting plus product mark-up, you may be over-paying for products and services. I’m not suggesting that the designers or contractors shouldn’t make any money on products. I’m suggesting that there must be transparency in their bookkeeping, so you can make informed decisions about the products that you’ll be living with for years. You rely on professionals’ recommendations. How are you going to know whether a recommended product is right for your needs, and the best value for your investment?
What You Can Do To Avoid Being Cheated
- Ask questions and get all the information you need to make informed decisions
- Check professional references, experience, and credentials
- Demand financial transparency about everything that affects your investment
There’s real value in professional designers’ and contractors’ services. They’re helping you to achieve a dream, to make your life better by improving your home. They deserve to make a reasonable fee for their services, and a reasonable profit for products they sell. You deserve to receive the best products and services for your investment, and you deserve to know exactly what you’re getting for what you’re paying. Contractors and designers need to earn homeowners’ trust, by being more trustworthy, and more ethical. Referrals to products and services should be based on reputation and quality, not additional income. Professional relationships are devalued if they’re based on money, rather than mutual respect and trust.
“See the Possibilities. Create a Positive Difference.”
If you have any questions or comments about my professional philosophy, please call (503-632-8801) or send an e-mail (firstname.lastname@example.org).
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