Kickbacks and Business Ethics
Recently in the Dallas market there was a conversation in our DFW Wedding Industry Facebook Forum about the practice of kickbacks. There are typically three main types of common kickbacks:
1. If you receive a referral/booking from a vendor who sent a client your way, you pay them a percentage (often up to 15-20%) of the deal or a flat dollar amount.
2. You’re asked to be on a “Preferred Vendor List” for a Venue, Planner, etc. You can either pay them a flat fee, monthly rate, etc. to be on their list they give clients.
3. You receive a discount from another wedding pro (ie – Planner receiving discounts on linen rentals) and instead of telling the client about the discount and passing it on to them, you pocket the discount.
This topic stirred up quite the conversation as there are many Venues and Planners in town who are just calling up companies they don’t even know to ask them for a kickback to see if they want to be on the Venue or Planner’s “preferred list”. Just last month while Michelle and I were in LA for The Simple Plan workshop, this question came up again about kickbacks and the ethics related to this practice. So here is where I (and the majority of successful business owners I know) stand on the topic:
- A strong, healthy business model is built on solid relationships you develop with other professionals because of the way you treat them, their clients, and the value you provide them – NOT from kickbacks.
- Just randomly asking people you don’t even know if they’re willing to give you a kickback so you can put them on your “preferred vendor list” is just bad practice, plain and simple. It leaves a bad taste in the person’s mouth that you hit up.
- When a business offers a kickback, often times they are charging the client much less than market value because they are “making up” for the difference by earning kickback income from the vendors on their “preferred list”. This is terrible because that business is devaluing the industry and their profession, low-balling everyone else. That business also starts to be known as the “cheap” or “budget” option in town. Not good.
- It’s an old school practice and times have changed. If you’re trying to get kickbacks, you may be cutting off the hand that feeds you. People talk and once they know you’re in the “kickback” category they may automatically write you off from ever wanting to do business with you.
- It’s a major disservice to your clients. By not disclosing that you receive kickbacks, you’re not being truthful to your clients. The wedding industry is based on a HUGE amount of trust that our clients must have with us as wedding pros. Holding back this information from them is in my opinion, a dishonest way to treat them and run a business.
- Most solid business/networking associations in the wedding industry have policies where their members are not allowed to accept kickbacks (or at least if they do, they must disclose the practice and amount to their clients).
- Instead of kickbacks, send the wedding pro who referred a client to you a small gift card, a bouquet of flowers, etc. Or even just a thoughtful note in the mail thanking them. It’s often the small gestures that go a long way these days.
Bottom line, if it feels wrong in the slightest or it’s a gray issue to you – it probably is wrong.
What are your thoughts on this controversial topic?
There are so many thoughts about this. I am not a fan of this practice at all. In my community, there are a few pros who have pay-to-play preferred lists and websites. The bottom line is that I want to recommend somebody I believe in, not somebody who paid me, and I’d love the reverse to be true as well. There are plenty of paid directories of vendors online as well (blogs, premium Wedding Wire, etc), but it’s different if the business in question is providing a service to couples themselves–it just feels like a conflict of interest instead of an advertising opportunity.
There are so many benefits of trusting the karmic give-and-take of meaningful friendships between professionals. Small gifts and thank yous like you said are great. The order in which clients book vendors doesn’t always let us refer clients back and forth to one another. For me, people usually have their photographer booked by the time I meet them to talk flowers, and I get a lot of business from my photographer friends. Even if I can’t always send them clients in return, I can help them out in other ways like providing flowers for a concept shoot or introducing them to new networking connections.
This is a important issue because of the ethics or lack of ethics involved. Especially for those just starting out trying to break into a market. Here’s my spin on kickbacks. You can’t kickback same value for same value. If a venue refers Tony G Photography I’d have to make sure I refer them in equal numbers of times or equal dollar for dollar amounts. I had a venue call me out of the blue and say they’d give me $100.00 if I referred them. But I wouldn’t refer them I wouldn’t refer anyone I didn’t think was the right match for my clients. Not some venue I’ve never been to 10 times and enjoy working with and trust. And I’m certainly not going to give them $100.00 if they refer me! I already book up my prime weekends a year out without paying for referrals. And I think the worst side of kickbacks is just that..the tax ramifications. In most states you can not give money for referrals with out a written agreement of some kind. This varies from state to state. And in most states is considered racketeering! You could go to jail for it! It’a a question of anti trust law. You can’s show favoritism for money!
1. Do good work
2. Make friends with other vendors
3. Know your couples well enough to match them up with the best vendor for there style and personality
4. Give away great images (if your a photographer)to them of their service or product.
5. Meet other vendors socially or at industry events outside of the wedding day. That give you time to build relationships
6. bring a list with the 411 of your favorite vendors to Consults or bridal show. Brides love it that you know the business in your area.
You are correct….honesty and openness is the best way to create referral business that lasts
My two cents…pus Tax
Tony G
This is a hot topic in Chicago as well.
I sincerely hope this practice goes by the wayside so all photographers, caterers, musicians, florists, etc. know that they are being matched with clients that are the right fit for them, and not because a planner’s wallet is being padded. The client benefits as much from this as the vendors. It is simply unfair to all parties involved to refer people based on this archaic model.
And I challenge any planner who takes commission, or referral fees, or whatever they want to call them, to come out in the open about their business model. If they truly believe in this practice and find nothing wrong with it, then why is it such a secret?
This makes my blood boil as I have lost jobs to planners that take commission bc they undercut my pricing and don’t tell the client that they will ultimately make more than I would bc of the kick-backs.