At Engage '09, during her speech Marcy Blum took the bull by the horns and said that she is a "reformed commission taker". She said that she does not approve of the practice unless it is plainly available for the client to see. There were a lot of nodding heads in the audience, but one person who argued the other way and said that those who refer business should receive compensation from the vendor receiving the referral. I had to literally sit on my hands not to steal Marcy's thunder.
Commissions, referral fees and hidden markups (where your invoice is marked up by the planner or other vendor on their letterhead) are not in and of themselves evil. They just have no place in today's market. Without efficient access to information (i.e., without the Internet), customers are subject to the power of those who control the information. So if a customer has no good way to find a reputable vendor and no way to discover what people really think about the vendor's work, the only real source of information is from a referral. In this kind of market, a commission or referral fee is far more powerful and valuable to less-established players in the market. However, with the Internet and the amount of information about ANY artist literally available at a potential client's fingertips, the closed system is now blown wide open. Simply, there is virtually no value in a stand-alone referral from a vested source any more -- a potential client may take the recommendation but will research the creative business prior to choosing to do business with it.
I abhor the lack of transparency in any business, creative or not. Unless you are willing to pay the commission or referral fee out of your own pocket, your client has the right to know what they are paying for. I might be puritanical about things, but failure to disclose a commission to your client is this close to fraud. It might not be illegal, but it certainly stinks to high heaven.
The biggest point though is not the ethics of the practice, but the impact it WILL have on your business. The goal of your business is to deliver your art at a price point you consider to be fair value. If what you are delivering is at an inflated price because you have to "bury" the commission, do less to be able to afford the commission or because someone else is marking up your invoice, your brand will suffer. Clients know when they don't get what they pay for and they are not shy about saying so to you or everyone on the planet via the Internet. And make no mistake, you are the one who will be singled out. After all, it is your business that delivered an inferior product relative to price not the vendor receiving the commission.
Should you be grateful for a referral? Of course. But show your gratitude by going above and beyond for both your client and the vendor. Overpromise and overdeliver. In the medium and long run, the value generated by your actions will far outweigh any commission you might have to pay.
And to the person at Engage '09 who questioned why a florist shouldn't pay a vendor who sent her many, many referrals a referral fee, I respond with this: why do you think the vendor was referring the florist in the first place? Because she is a GREAT florist and she makes the vendor LOOK GOOD. Your art needs to stand on its own.