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Are You "Commission Prey"?
5 Ways to Not Get "Thinned from the Herd"

By Dan Baldwin, Telecom Association

In the fourteen years since Telecom Association's ("TA") founding in 1995, few issues have been debated as passionately as the termination of carrier commissions.

At the recent 2009 Miami Channel Partners show the topic of agent commission termination was widely discussed in the corridors and in the sub agent peer-to-peer mixer due to increased agent terminations or threatened terminations by no fewer than three major carriers over the past six months.

TA has published multiple times on this issue in the past but we're publishing again this month to re-enforce five key points that need to be clearly understood by all agents.

1. Never Stop Producing New Sales

2. Use a Lawyer Familiar with Commission Agreements

3. Don't Contract Directly with Big Carriers

4. Find a Hard Core Master Agent

5. Cash Out Early

These five points are based on almost 20 years of observing what works (and what doesn't) from my evolving roles as a direct sales person, a "master agent", an agent manager, a VP of Agent Sales, a journalist and a sub-agent. Email your advice to Dan@TelecomAssociation.com.

Executive Summary: Carriers today maximize short-term "countable" profit

Regardless of what you think your agent agreement says, the commissions your provider pays you month after month is simply one variable in one of the two following equations:

Profitability for Active Agents = (Profit on Future New Agent Business) minus (Commissions Owed on Past Agent Sales)

Profitability for Inactive Agents = (Profit from Not Paying Commissions Owed) minus (Cost of Litigation)

You'll notice neither of these two equations contain any variables that might calculate reduced carrier profits resulting from a "bad reputation", "immoral" behavior or acting in an "unjust" manner. Whether it's the current state of the economy or simply the maturity of the channel, today's agent profitability equations account for no "soft dollar" consequences.

A month ago, in advance of the Miami show, I posted on the TA website an inquiry that openly asked if it was "immoral" for a carrier to terminate an agent's commissions just because the carrier had the ability to do so. I posted the provocative query in an effort to generate documentable discussion at the show that might produce tangible results.

While I certainly spoke with a dozen or more agents who'd "been screwed" by one provider or another, I spoke with just as many providers and master agents who could not be less sympathetic to those who'd been terminated. To those who'd been terminated I asked, "How many of you are there? Can you provide me a publishable statement of your grievances?"

Having not received any publishable statements from terminated agents I am forced to answer my own "immoral" inquiry with "Does not apply." A carrier terminating an agent's commission is no more immoral or unjust than a carrier customer defaulting on their account after they file for bankruptcy. It just does not apply.

The whole "lack of outrage" on the subject I experienced at the show was kind of sad but enlightened at the same time. Here I was at a show talking to people I've known over a decade about a topic that used to stir passionate emotions. Sure we're all ten years older and ten years more beat up from being under the bus but no one, not even those who'd claimed to have been terminated, seemed distraught. It was like some sort of telecom sales Darwinism had taken over. Everyone seemed to agree that "We're either growing our sales or we're being thinned from the herd." No right. No wrong. Just fact.

Action Check-List

That being said, agents that want to maximize their commission compensation (and not be thinned from the herd) should take to heart the following five bits of hard-learned advice.

1. Never Stop Producing New Sales

In 15 years of hearing sad commission stories I've yet to hear a single agent tell me, "I've brought on new, profitable business every month - and then the carrier stopped paying me!"

What I have heard more times than I can count is, "I'm bringing on the business but the carrier can't provision it, bill it, turn it up, collect it, make it work ... (fill in the blank)."

If telecom was easy to provision customers wouldn't need agents to help them. Whether we pick the carrier or the customer picks the carrier things are always getting screwed up and the fault is always equally divided between the carrier, the agent, the customer and Divine Providence.

If agents have taken the time to choose a good carrier in the first place (and not just chosen the lowest rates or highest commissions) then they need to respond to order provisioning problems by doing the only thing they can control - let the customer and carrier work things out while the agent goes on and sells something new to someone else.

The biggest gift an agent can give themselves sometimes is to put "direct sales" blinders on from time to time. One of the best sales managers I ever had, Jim Cannon, taught me this in my first telecom job (TelAmerica DBA Express Tel back in 1990) when I was in direct sales. "Dan, we're not beating up your grandma here - we're taking care of OUR customer. Yes, you sold them but they're OUR customer now. Let us do what we do. You go SELL something to someone new - that's YOUR job and that's what you can do to help!"

What agents do best is tell their prospects, "If I were you I would go with this carrier and here's top three reasons why ..." Once you've picked a good carrier to place your customer's business with, don't let problems slow down your new sales. New sales are your only real commission protection.

If you don't have the experience to pick a good carrier or you're not sure you will be able to produce new sales every month for the carrier then see #4 and #5 below.

2. Use a Lawyer Familiar with Commission Agreements

Once signed and filed, it's never good when you have to pull your agent agreement back out of its folder. Pulling a signed contract back out means the carrier or the agent has a problem - either of which means the agent's commissions are in jeopardy.

Of all the agents I've talked to who've received a commission termination letter, the only ones who've prevailed are the ones who immediate had their attorney file off a letter in response disputing the carrier's reason for termination (using the same attorney that did the initial contract review).

Before signing an agreement in the first place, know what each line says and means after reading it yourself. Then make a list a list of all the provisions which "give you pause" or seem to be in conflict with another clause. Then make a list of all the provisions you think "give you protection". Then send the agreement and all your agreement notes to an attorney familiar with agent agreements.

To save costs on attorney fees, before asking for a contract opinion ask the attorney for a "not to exceed" fee arrangement. For an "agent friendly" list of attorneys send an inquiry to Dan@TelecomAssociation.com.

The big clauses you will want to make sure you have or want to avoid include the following:

     a. Make sure the agreement says that you'll get paid on accounts you've sold even after the carrier terminates the agreement for reasons other than cause.

     b. Make sure the agreement does not give the carrier the power to "change anything" after some reasonable notice.

     c. Make sure the agreement gives a period of time for the agent to "cure" or fix anything the agent has done wrong that would jeopardize his or her commissions.

     d. If signing a master agent agreement, make sure you have the ability to go directly to a carrier or another master agent with your "customers" if the agreement between the carrier and the master agent sour.

     e. Don't take on a quota or ramp period that you don't have a history of beating in half the allowed time period.

     f. Make sure any amendment to the agreement is included in the agreement. Verbals, emails, letters of addendum, agent manger "promises" are all worthless when the poop hits the fan.

If you can't get what you need in an agreement, don't sign the agreement. I recently spoke with a master agent who said he had to wait for over two years for a carrier to finally concede on an important "must have" clause. "I didn't have any choice", said the master agent. "I couldn't sign an agreement that I knew would put the future commissions of our sub-agents in jeopardy".

If you're an agent that's "the real deal" (one that can sell with or without an agreement with one particular carrier) then eventually that stubborn carrier will see they need you more than you need them and finally give you what you need to earn your new monthly orders.

If you can't wait and you have to place an order with a particular carrier or loose the deal then find a good master agent to place the order through (see #4 below).

3. Don't Contract Directly with Big Carriers

The life of an agent contracted directly with a carrier is very sweet about one-third of the time and very cruel about two-thirds of the time. It's very sweet when the agent is piling on the business AND the carrier has consistent channel management and ownership. It's very cruel at all other times.

Even piling on the business is no perfect shield from unpleasantness when a carrier gets bought by another carrier or when the VP of sales or the carrier's channel program chief changes to a new person that has "all new ideas".

In all fairness, there are carriers out there that take agents of any volume on as direct agents and treat them very well. I have personally been direct with several carriers that have never missed a commission payment even though my business with them has been problematic at best.

Smaller carriers and newer carriers are the best to take on direct. A good rule of thumb though is to only contract with a carrier direct if you've had a drink with and you trust the owner. If there are a lot of W-2 employees between you and the owner of the carrier you want to do business with, access that carrier only through a "hard core" master agent.

4. Find a Hard Core Master Agent

In the late nineties I was a "master agent" for about two years and I hated it. I put quotes around "master agent" because I only had a couple of subs and just one carrier. Still, the unending sub-agent whining, the annoyance of paying commissions every month and having to take care of the sub-agent's customers problems just about put me over the edge.

Back then though, "telecom agency" was still in it's "Wild West" days when money was flowing like water and agents (and masters) who barely knew what they were doing were landing monster deals left and right and getting paid ridiculous sums of money.

Telecom agency today is a much more sober world. While the hang-over of the telecom "Nuclear Winter" that began in 1999 and 2000 has pretty much worn off - it's been replaced now by the "Great Recession". Thankfully the migration by business customers from TDM to IP telephony as a way to save money is finally kicking in. But even so, carriers are wanting every dollar spent on telecom agency accounted for and tied to more new revenue coming in.

It's like every dollar received from by an agent from a carrier, whether it's commissions or co-marketing money, is viewed by the carrier as "deal bait on a hook". If it doesn't lead to more new business they feel cheated.

All these current realities make it more important than ever to work with a "hard core" master agent. I define "hard core" as a master agency that is doing most of the following:

     a. One of the top five master agents of the carrier you most want to sell AND the VP (or higher) of that carrier tells you the master agent is WELL ABOVE their quota for a LONG TIME. This is especially useful if you NEED TO be able to sell a carrier that can't be substituted by another carrier and you don't have what it takes to go direct.

     b. Is an expert at something. Some master agents excel at landing enterprise accounts. Other masters have a huge in-house telecom expense management ("TEM") program. Still others are adept at working with IT VARs and converging voice and data IP communications. Pick a master agent that isn't a carbon copy of another.

     c. Have automation software. There's automation software for quotes, keeping track of prospects and commissions. Make sure your selected master agent is automated.

     d. Have in-house design expertise. If you find a hundred location deal who's going to decide which design is most appropriate or cost effective? Does the master agent have an in-house design expert or do they had you off to a carrier sales engineer.

     e. Have "closing" expertise. You've cued up the deal but do you have what it takes to close it? Deals don't always close to the best or even the lowest priced proposal. Sometimes it takes a "closing expert". If a master agency lacks on many of the other "hard core" qualities here is where they must make it up. which master agent would you least likely want to see competing against you?

     f. Have in-house project management. Who handles all the customer's inquiries from the time the customer signs the contract until the time they get their second invoice after installation? Is it handled in-house or are you and the customer told to deal with the carrier?

     g. Have in-house customer support. The quickest way to stop generating new sales is to get too caught up in customer support. Let a master agency earn their over-ride by letting them take care of quarterly bill reviews, etc. Again, do they do it in-house or is that too turned over to the carrier?

When choosing a master agent there's no "one best" fit. Every master agency is different just like every sub-agent is different. Meet as many as you can but when you pull the trigger and sign with one, do what you say you'll do with the business you have to place. Few things annoy master agents as much as sub-agents that don't deliver.

Master agent nay-sayers will suggest that going through a master agent is even more risky than being carrier direct because you're one more step removed from the commissions. It's true you're one more step removed but a good master agency is a co-operative power house where trust is based on the fact that all the shareholders are all 100% commission compensated. Except for the largest master agencies, the sub-agents usually know the owners of the master agency fairly well and share the 1099 "we only eat when we sell" kinship.

Experienced agents and sub-agents know that as much as they count on the carrier employees and want to bond with them, at the end of the day they are pretty much all W-2 employees that can be "gone any day". When push comes to shove and things get ugly, productive agents that want to enjoy life want to be teamed up with a "hard core" master agent to handle and shield them from all the carrier unpleasantness.

5. Cash Out Early

If you can, take the money and run! Seriously, everything with a beginning has an end.

On any deal you do, if you want to maximize your compensation, maximize the money you take from the deal up front. This might include getting your customer to sign a "shared savings" contract with you where they actually write you a check for two times the monthly savings you achieve for them. Even if you can't get accelerated commissions up front, have some idea of when you've been fairly paid for your services on an account such that all the money that comes after is "found money".

The quickest path to eventual commission termination comes from the thought that you as the agent are deserving of an everlasting "entitlement" for bringing a customer to a carrier. While that may be true in your mind - and your agreement might even back it up - nothing aggravates a carrier more than a "retired" agent bringing in a big monthly commission check.

The happiest agents I know have invested as much commission money as possible outside their business and stay hungry for new business every day. when they are not vacationing they're are hustling new business like crazy.

Bottom Line

Being a successful agent ten years ago was like winning the lottery every other day. It's not like that any more. Today I tell my friends who aren't familiar with telecom agency, "It's like being a plumber. If I work really hard I make pretty good money but I can never coast. I'm always looking for the next clogged toilet."

As telecom agency evolves into IT, managed services and business applications agency, the opportunity and income potential before us as agents and "business technology partners" has never been greater. But as the opportunity is great so too is the requirement that we evolve as sales professionals by constantly improving and constantly selling.

Sure, it's annoying to have to constantly be looking for new sales but not half as annoying as the thought that you're the next weakling to be "thinned from the herd".

Respond!

Agree or disagree? Email you publishable thoughts to Dan@TelecomAssociation.com.