"Finder's Fee" for Designers
Yet another discussion of the ethical and practical business issues involved when a designer is in the middle of your relationship to a customer. April 19, 2015
Question
The design firm I just sent a proposal to stated they are asking all their cabinet makers to include their 15% referral fee into the total cost of the job. I refused, thinking if someone saw my pricing it would be an obvious rip off. Also, are all bids doing the same even though they asked of this? Who knows? Now they are asking for a separate line item stating their markup. I’m wondering if anyone has any exact sentence for such a line item clause.
Forum Responses
(Business and Management Forum)
From Contributor J:
If you are willing to pay a 15% referral fee (commission) from the onset, then their fee should already be in your number - just like any salesperson. So divide your number by 1.15, subtract that from your total and then add it back in just under your subtotal as "[insert-firm-name] Designer Referral Fee." See if they squawk about the lingo. It could be just them trying to be transparent with their client.
From Contributor E:
I would not get into that. The designer should have a deal with the client directly and not engage in kickbacks. Can you imagine how upset the client would be if they found out that they were paying for something that was hidden in your price and going to benefit the designer? It seems dishonest to me. Your price is your price. If they want to put a line item markup let them do that and explain it to the client and not you. Why earn them money on your effort?
From contributor K:
If you don't do it, someone else will. If they brought you the customer, it is their game. Play by their rules if you want the work. Mark it up 20% so you can give them 15%. Now if the client asks directly, I would not lie to them. If the designer pays you it's easy. They just take it off the top. If you have to run it through your account, the designer gets a 1099.
From Contributor O:
If it is a line item, it is up front and transparent. It cannot be said that it is a hidden cost, or underhanded in any way. I'm not sure why some folks feel there are secrets or use hushed tones when we talk about money. It certainly is not a kickback, in a legal sense. "Finder's Fee" is as good a term as any. We also do work for GC’s that are building on a cost plus basis - they send my invoice to their client with an invoice of theirs for 10% or 8% or whatever their fee is - very open and transparent.
Should the client see your invoice, it is plain that the design firm is reaping the benefits, so you cannot be held. If the client gets your invoice, they know what they are paying for the design service. Lastly, if the check you receive is from the designer, they are buying your work, and they can sell it for whatever they want to.
From contributor S:
I do not follow why you are distraught. The designer asked you to show their fee as a line item, it's clear to the client why it's there and how much it is. They expect to pay, in this instance, for the professional (I hope) services rendered. Have you spoken to the designer at all about how they operate? Could they possibly be working primarily on the commissions of what they sell? Some do it that way, no sales, no pay for them.
It seems too many here try to find ways to not work with the people that are trying to sell your product and assume the designer is raking in bucket loads. The relationships that could be developed and massaged into a positive are being scorned - seems counter-productive. Learn how to make the designers your ally and partner. Your Sales Order Line could read: "Design Services at 15% of Above Product" - $x.xx- that's all you need. At that point the designer is working for you, too, so your relationship needs to be open, both working together for the person writing the check.
From Contributor O:
To Contributor S and E: Ok when explained that way I guess it’s ok. I prefer Contributor E’s way when working with GC's. Perhaps in my head this is what I was trying to say and should have said that rather than kickback. Good points guys.
From contributor R:
You can sure tell times are better in the shops. This is the second post in about a month where guys are wondering about referrals. It's the way business has gone on forever. Who do you think is going to see your price and then think it's a ripoff? Ever seen anyone else's bid? Bids will come in all over the place, and vary way more than 15%. If you don't need the marketing help, just decline to bid.
From contributor F:
Make sure you clarify with the designer if it’s an additive number to the net price or a deductive number from the gross. If you are going to deduct 15% from the selling price for the designer, multiply the price by 1.17647059 (100/85). So you add 17.65% to the sell price to be able to deduct 15% for the designer.
From Contributor G:
Most of the time the designers want you to put 10-15% into your bid and give it to them as a "finder’s fee" and keep it hush hush from the client. You do realize they have already been paid by the client and this is a double dip for them, right? What are they doing to earn that finder’s fee? If they are doing everything, getting the job, dealing with the client, getting all the information, dealing with all changes and all you are doing is building and installing, then the 15% is worth it. If they basically handed the client your card and you need to do all of the above and more than the finder’s fee should be about 2-3%.
From Contributor O:
The designers I work with are usually charging a design fee for a larger project, then additional percentages for the things they provide - my work or other items. For their fee, they provide good clear scale drawings, material and finish selections, sell it all to the client, will come to the shop to help resolve questions or concerns, and are there at delivery/install to exclaim how wonderful everything looks! In short, they earn their keep and I do as much of that work as I can get.
From contributor D:
Finders fees or referral fees are nothing new, heck the medical profession calls it a residual to this day. As long as the client realizes where the dollars are going all is good, if it is a hush hush just add this to your invoice then I pass. As long as any other bids are going through a designer type of arrangement otherwise the designer fee packed bid will be high in most any case don't you think ?
From contributor S:
Assuming the designer fee is buried in the proposals the designer is presenting to the client all the proposals would be equally increased. Your proposal would appear no higher than any other presented proposal. Now, if the client decides to then short cut the designer and cut them out after doing their work and go low ball shopping to another builder the difference may show up.
Developing a good open relationship with the designer helps in that when choosing between proposal A, B or C the client is gently nudged or flat out directed to you, the one the designer has a history and comfort level with. If you shut out the designer and only take the bid and return a proposal without much interaction you'll probably be left on the outside looking in and begin to think you're only there to provide the typical three bids requested, which will happen if you don't work the relationship. I see folks here that seem afraid of the designer trade or shut them out or don't want them "making money off of my work". They can be your partner and promoter and as noted can do all the footwork with the client for their pay.
From contributor Y:
Who is paying you? If the design firm wants to make 15%, then maybe they should be purchasing the cabinets from you, and selling them to the customer at whatever markup they want. I wouldn't be the middle man for the firm. We pay designers a 2.5% commission for bringing us a customer.
