Pork Chops And Promos: Debating Supplier ‘Referral Fees’

Robert Fiveash is co-president of  Brand Fuel.

As distributor and supplier principals and leaders, we are always on the lookout for successful salespeople. In many cases, either by necessity or strategy, we pluck fresh-faced newbies from outside the promotional products space and spend time and treasure training them to become professionals in the industry. It’s a bit unsettling when they are approached by aggressively recruiting competitor companies, but the truth is that we must provide clear value to our salespeople and communicate this value effectively. If we do this, we should have little fear of poaching.

But what if our supply chain partners are incentivized to refer our salespeople to competitors? Does this change the conversation at all?

Last week, we were forwarded an email from a supplier who had been contacted by a distributor franchise company offering a “referral fee” to anyone who successfully connected an existing distributor salesperson with this distributor company. Distributors in this industry have weathered the introduction (and almost instant ubiquity) of recruitment ads in industry magazines, aggressive recruitment of top salespeople by phone/email/letter, and sanctioned “educational seminars” at industry shows by recruiters.

Are supplier referral fees just one more obstacle to be taken on and conquered—something that ultimately makes distributors work harder to hone their value proposition and retain talent? Or do they cross an ever-fading line where appropriateness, professionalism and respect for how the industry has operated fall by the wayside? Do some see these time-honored traditions as almost passé in light of the disruptive changes that are likely to take place in the coming years?

Referral fees for scarce talent have been commonplace in Silicon Valley (see www.seomoz.org/refer-an-engineer) for some time. If you’re a small startup trying to gain traction and compete with larger, well-established players such as Amazon, Apple and Google, you use every tool you have available—and often VC cash for recruitment is one of these tools. While established competitors can rely on their reputations and size for recruitment success, your very survival depends on your ability to compete with fewer resources. That seems pretty obvious, right? Yet, I think most of us would do the same under similar circumstances, don’t you?

If you would take a competitor’s client (likely most of us would), why not a competitor’s salesperson? Many distributors currently tell their supplier reps when they’re hiring, as supplier reps know which salespeople might be unhappy and can be a great source for leads.

So are referral fees different?

Referral Fees: Do They Help The Fee-Giver’s Reputation And/Or Business?

Rodney Dangerfield, the king of the one-liners, used to tell the following joke: “I was so ugly as a kid, my mother used to tie a pork chop around my neck so dogs would play with me.” Do companies offering referral fees unwittingly set themselves up to be the butt of Dangerfield’s joke? If they could rely on their reputations and/or cutting-edge industry advancements for referrals, would they need to offer the money?

Some might say buying talent shows that these companies cannot promote from within because current staff aren’t qualified candidates. Others may wonder what’s the rush; isn’t it best to build a team in organic fashion rather than go into battle with a patchwork group with few ties that bind?

So why is there such a rush? Are these companies beholden to investors (or suitors) looking for specific numbers? And if so, is this practice in the best long-term interests of anyone but the owner(s)?

Do Monetary Inducements Help The Fee-Taker’s Reputation And/Or Business?

Supplier reps walk a fine line. On one hand, they are trusted confidantes when distributors are hiring. On the other hand, they are responsible for maintaining strong relationships with a vast array of competing distributors.

When it comes to referral fees, what happens if the referred salesperson is not a good fit? What would the supplier rep say if confronted by a suspicious distributor-owner who had just lost a salesperson? If there is just an ounce of doubt, will that distributor’s business flow as freely as it once did?

Congress passed the Real Estate Settlement Procedures Act (RESPA) in 1974, whichrequired real estate professionals to disclose certain legal kickbacks—and made other types of kickbacks illegal. Apply this logic to our industry: Would a supplier rep take a referral fee if he or she knew it would be disclosed?

Let’s take it a step further. What’s to keep a salesperson from asking the referring rep for some of the payment back or the transaction will be exposed? Far-fetched?

Do Referral Fees Help The Industry?

In many ways, referral fees create secrecy and mistrust—this at a time when the industry needs more openness, transparency and the ability to put its best foot forward in the face of increased competition from other advertising medium. We’d be foolish to think that anything other than a closer, more trusting relationship between distributors and suppliers can produce the type of experience that today’s savvy end-users expect and demand.

With Promotional Products Work! Week coming February 25 – March 1, don’t we want to concentrate on distributors and suppliers working together to convince buyers that promotional advertising deserves a larger piece of the marketing pie? There’s an enormous amount of business out there. Isn’t it time to look at our market—and who we recruit—differently?

Are Referral Fees In The Best Interest Of The End-User Client?

If end-user clients knew that certain distributor companies were paying referral fees, there’s a good chance they would see such tactics as increasing their costs. It can be viewed as a hidden markup on their goods, and many would look elsewhere.

Additionally, recruiting with cash payments (and poaching in general) disrupts finely tuned account management teams, forcing clients to choose between two competing groups or leaving them to fend for themselves. This shortsighted practice helps create (and perpetuate) a system where salespeople are bought and traded like a commodity—and this is never in the best interest of end buyers or the industry.

So What Does This Mean For You?

The explosion of social media has made it clear that the trends in building a successful network point toward more openness, transparency and collaboration within and among those in the network. Referral fees fly in the face of this trend. If your goal as a supplier rep is to build your book of business with a network of trust, can you in good conscience make this transaction?

Without a steady flow of qualified salespeople entering this industry, there is an incentive to offer cash payments for referrals. But the truth is that the flow of new bodies entering the industry is shaped by a subscription model that emphasizes quantity over quality. That said, kudos to both ASI and PPAI for making continuing education a priority, and let’s hope the commitments remain regardless of whether there’s money to be made at it.

All players in our industry benefit from a vibrantly competitive and diversified gene pool. If all we’re doing is trading salespeople back and forth, the odds of the industry producing remarkable and inspiring innovations are slim.

So, we can express our disdain for the idea of offering bounties, and we can write about how it is not a good idea for any involved in the long run. But the truth is that companies will do whatever they think gives them a competitive advantage—regardless of what anyone else thinks. If they end up with a disparate group of mercenaries and malcontents, they have only themselves to blame. And if their strategy is a long-term success, then they deserve a good deal of credit.

But here’s a better scenario. Offer clearly superior products and services, and do it in a way that surprises and delights the buyer. Then, there’s a good chance salespeople will ignore the pitches that come their way (over and over) because they believe they can’t achieve the same level of success elsewhere. The truth is you’ve got to be great or you will lose salespeople. Be great.