Commission Payments & Referral Fees - Can you use them in your creative business?

Rise Up In Business

One topic that has been coming up a lot lately with my interior design clients in particular is commission payments and referral fees. If you are considering a referral arrangement or perhaps you already have an affiliate relationship in place, there are certain considerations you need to keep in mind.
Commission Payments vs. Referral Fees

Commission payments and referral fees are often used interchangeably, but they hold distinct meanings and implications. Commission payments are typically tied to a specific sale or transaction, involving a percentage based on the revenue generated. On the other hand, referral fees are compensation for leads provided, not directly linked to sales revenue. Understanding these differences is crucial for setting clear expectations and agreements in creative business relationships.
A Two-Pronged Analysis:

If you’re contemplating entering into a commission or referral payment arrangement, you need to analyse what’s best from a legal perspective and a business perspective. While it may be lawful to engage in these types of agreements, it's essential to assess whether they align with the goals and ethos of your business. Some of my clients enter into affiliate and referral agreements and others are a hard no. There is no right or wrong, but you do need to understand your legal obligations and assess whether this is the right move for your specific business.
Full Transparency:

Some industries have legislation that dictates business owners must disclose commission and referral relationships in their documentation to clients. For creatives, there is no such legislation, however, my guidance is that it’s always best practice to disclose any commission, referral payment or affiliate agreement.
Under the competition and consumer legislation, consumers are protected from business owners engaging in anti-competitive conduct or deceptive conduct. What you don’t want is for there to ever be a suggestion that your recommendations to clients were misleading or made in bad faith. Full transparency will not only build trust with your clients but help you avoid unnecessary legal disputes.
Documentation Requirements:

In my experience, misaligned communications and expectations can cause business relationships to sour very quickly, but that can be avoided by having the right documentation in place. Properly tailored client service agreements can serve as a platform for transparent communication regarding payment structures and relationships with referral partners. Additionally, having written agreements in place for affiliate or referral arrangements helps clarify roles, expectations, payment terms, and intellectual property protection. Never rely on a handshake agreement. Get everything documented and clearly outlined so there’s no cause for dispute.
The decision to accept commission payments and referral fees in a creative business is not a one-size-fits-all scenario. It requires a thoughtful analysis of your business landscape, alignment with your core values, and an understanding of what is legal in your specific industry.
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