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Agent Programs - How To Choose The Right One back to Publications Home back to TelecomAgent News Home June
2004 Master Agency Report: By Dan Baldwin, TAA Editor-at-Large No part of TAA's Master Agency Report may be republished, copied or transmitted in any form without advance written permission from TAA. For more information call 888-822-4695 or visit www.TelecomAgent.org. TAA members may print one copy for their own personal use. Telecom Association, Inc. © 2004
Contents: 1. Definitions of Master Agency 2. Types & Descriptions of Master Agents 4. The Current State of Master Agency 5. The Future of Master Agency 6. The Pros and Cons of Being a Subagent Under a Master Agent 7. The Pros and Cons of Being a Master Agent 8. The Pros and Cons of Being a Carrier That Sells Through Master Agents
1. Definitions of Master Agency
AGENT - You're an "agent" if you directly solicit end-users to become a direct customer of a service provider (AKA vendor, reseller, carrier, etc.). The end-user and the service provider have a direct relationship with one another. The service provider bills the end-user directly and receives payment directly from the end user. For all practical purposes, the service provider "owns" the customer account in that the customer account is an asset on the balance sheet of the service provider. In this scenario, once the agent causes the end-user to contract with the service provider for even month-to-month service, the agent has no rights or ownership of the customer account. Even though the agent has no legal ownership of the end-user account, the agent will certainly still have influence with the end-user. It is because of this assumed influence that service providers pay agents monthly residual commission, usually 10% of the customer's net charges, so that the agent will use his or her influence to persuade the end-user to stay with the service provider and not switch to another service provider.
MASTER AGENT - You're a "master agent" if your volume of orders submitted to one or more service providers causes you to receive higher commissions from the service provider than the service provider would normally extend to a new agent. A master agent's commission might be 15% where an new agent would only receive 10%. Continued receipt of the extra 5% commission is generally contingent on the master agent continuing to send the service provider a set amount of new business every month or maintaining a certain amount of continued monthly billing. A volume commitment might be "15% if the volume of new orders per month is $20,000 and/or the total of all customers to date sent by the agent exceeds $300,000 net billing per month" There is no hard and fast definition of a master agent. Master agents are generally thought of as small businesses that started out as regular agents calling directly on end-users who got so good at processing orders with carriers that they attracted the attention of both the service providers and other agents. Service providers are impressed with agents that can consistently submit good business without causing the service providers a lot of headaches. As well, smaller agents who are better at selling end-users than processing orders gravitate towards master agents and put their orders into the service provider through the master agent instead of attempting to contract with the service provider directly.
SUBAGENT - You're a subagent if you've elected to process your end-user orders through a master agent instead of with a service provider directly. The benefits of processing orders through a master agent include higher commissions and lower quotas. Master agents generally split their commission premium with productive subagents. Master agents generally do not require their subagents to carry the same monthly or base quotas that they in turn have to meet with the service provider. The liability of processing orders through a subagent is that if the master agent stops getting paid for any reason from the service provider, the subagent has no legal standing with the service provider and can not appeal directly to the service provider for payment on the accounts the subagent submitted to the service provider through the master agent. The other liability is that if the master agent stops paying the subagent for any reason the subagent can not retaliate by moving customers away from the service provider.
2. Types & Descriptions of Master Agents
FULL SERVICE - "Full service" master agents (MAs) are a new subagent's best friend in that full service MAs train new subagents (SUBs) how to prospect and sell, hand hold the SUBs through provisioning or even provision the the orders for the SUBs and then show the SUBs how to build their business. Full service MAs are also a service provider's best friend in that service providers like to have some place to refer small producers to. Few if any large service providers have the time or patience for new agents without a proven track record. Many agent managers for larger service providers are so busy supporting their productive MAs that they don't even have time to return the calls of prospective new agents who've "just fallen off the turnip truck". Full service MAs generally have two challenges - the requirement of having to have extra employees on the payroll to recruit, train and manage new SUBs and the challenge of having SUBs move on to other MAs or the service providers themselves once the MA has "taught them how to fish". SUBs frequently think about moving after they experience success because full service MAs generally pay smaller commissions to SUBs because the extra employees they must have on the payroll to attract and maintain SUBs seriously cuts into the margin available to pay SUBs premium commissions. Successful full service MAs are able to keep their experienced SUBs by constantly bringing on new service providers so the SUBs always have something new to call customers and prospects about and by providing full service marketing tools like websites and lead lists to the SUBs for the SUBs' use in generating new business.
COOPERATIVE - "Co-Op" MAs are usually a bunch of MA "wanna-bes" that have banded together to process all their orders through one service provider agreement to maximize commissions to all the "co-op members". Like most large service providers, Co-Op MAs have little interest in "newbies" (new agents). The Co-Op MA unwritten motto is, "Players only, posers need not apply - and will be soundly thrashed if they do." MA co-ops generally keep a low profile. Those "in-the-know" know how to find them. Of course the obvious challenge in any MA co-op is that there needs to be an awful lot of trust since each MA co-op member is in fact a dangerous partner. (Think Clint Eastwood, Eli Wallach & Lee Van Cleef in "The Good, The Bad & The Ugly". Click here for a video reminder.) If one co-op member brings in a large account that ends up not paying their carrier bill the whole co-op could go down. On the other hand, the benefits with being in a good MA co-op can outweigh the risks in that SUBs that can get their end-user customers to pay premium rates can end up with commissions approaching 50% or more
SOLUTION PROVIDER - The solution provider MA is generally a specialist in a particular telecom service category like wide area network (WAN) management, hardware integration or phone bill auditing. Solution providers are the old-fashioned telecom consultants that provide both design services and implementation management. Most solution provider MAs charge premium hourly rates for their consulting services or extract their margins by "reselling" the network solution they design and implement to their clients. It's not easy to get on with solution provider MAs unless you are a SUB that has solution providing experience of some sort from another company. SUBs with such experience can easily get in with solution provider MAs and should because the solution provider MA has all the billing functions in place to make sure everyone gets paid. Solution provider SUBs only gave to do what they do best, design & implementation. Solution provider MAs will take newbies from time to time if the newbie assures the solution provider MA that they are in it for the long haul and don't need a lot of money up front until they can build up some of their own billable hours.
SPECIALTY - As the name suggests, specialty MAs focus on a more narrow network service category and may in fact only distribute one product category or the services of one network service provider. The majority of specialty MAs focus on facilities based services like CLEC local dial tone services or point-to-point private line services. Many other specialty MAs have made their mark by distributing the Bell services of the RBOCs.
MICRO - Micro MAs may have just one or two employees and just a couple of subagents but command a monstrous amount of traffic. Like the solution provider MA, the Micro MA generally exploits a small but highly profitable niche with higher than average barriers to entry. But while solution provider MAs are generally open to taking on new business from any prospect type in need of their services, Micro MAs may have only a few very large customers and are only open to new customers or subagents that can bring in business that looks exactly like the micro MAs current business.
Master agency has been around since the late 1980's and like the entire telecom network resale industry had its birth in 1984 when AT&T was forced to break itself up. AT&T kept long distance services and spun off the responsibility for local dial-tone to the RBOCs. The original master agents sprang up to answer the sales call of the original long distance resellers - the switchless distributors of AT&T's much maligned "SDN" products, MCI, Sprint and the true heros of the original MAs, the entrepreneurs who actually coughed up real cash, bought a long distance switch in the late 80's and started facilities based long distance resale. Ask anyone who witnessed the long distance carnage of the late 80's and early 90's first hand and they'll generally confirm that while most of the early agents got into telecom to sell AT&T's SDN ("AT&T but with 40% savings"), most quickly moved to MCI's network marketing programs or settled with one of the new switch based resellers. AT&T's SDN long distance resale program was a disaster from day one. It was the "Act One" that prefaced the "RBOCs Forced To Allow Resale of DSL" debacle. More than one original master agent lost all their cash hiring, marketing and selling a program that almost never seemed to actually exist. It took AT&T upwards of four months to switch a regular AT&T customer to the AT&T SDN resale network. Of course the agent-sold new SDN customer assumed their 40% savings would be available to be spent immediately and did. When the promised switch to the SDN network and accompanying 40% savings never materialized, the customers switched back to AT&T or went elsewhere. Many original master agents lost hundreds of thousands of dollars as they invested their own money preselling a service that never materialized. Many original master agents not wiped out by the SDN nightmare in the late 80's took repeated lickings through the early and mid-90's delivered by their "white knights" - the switch based LD resellers. Many switch based resellers had little money to field an inhouse sales force after the capital intensive startup costs of actually installing their switch and therefore had to rely on independent agents to generate sales. And generate sales they did. Unfortunately though for agents looking for a consistent services provider, increased sales and decent margins had a bad habit of attracting investors who gobbled up every decent switch based reseller prior to 1996. Many of the the switch-based resellers became instant millionaires. Many of the new owners of the agent-sold long distance bases would however "conveniently on purpose" start forgetting to pay the agents shortly after these sales. In deference to the original switch based resellers though, they did deserve their millions because without their original investment of their own retirement nest egg, the industry would not exist as it is today. Of course many of the bruised and battered master agents quickly learned the profit margin lessons of making agent accounts house accounts and followed suit with their own subagents who had no ability to put up a fight. Less well known of the original master agents is the RBOC master agents. In the early 90's the RBOCs must have known that the "second deregulation" of 1996 was really coming because they started spending marketing money like it could never end. Many a master agent made their first million selling the RBOC created "Custom 800" service. In 1994, when 800 service became deregulated, the RBOCs saw what they must have thought was a way to control every 800 number in the country by becoming the "RESPORG" of every 800 number possible. The RBOCs would pay over $300 per 800 number sold by RBOC agents even if the 800 number never generated a dime in usage. The "Custom 800" gold rush lasted about two years until the RBOCs finally figured out that they'd spent millions of dollars becoming the RESPOG of thousands of 800 numbers that generated next to zero usage. Prior to 1996 the jury was out on telecom master agency actually being a "real business for grown ups" in that a lot of telecom network usage was being generated by a lot of agents and master agents but no one master agency seemed to have "completely arrived". That all changed in 1996 when cataclysmic events happened almost simultaneously - local telecom became deregulated and the Internet went commercial. Amazingly, investors both large and small blindly opened their wallets and the golden era of telecom had a four year run likely never be matched again. The Internet made any new telecom company seem like a real telecom company and made every new telecom company seem like it was your neighbor. Suddenly everyone with a hundred dollars to invest could get in on the ground floor of the next AT&T or Microsoft. It was almost impossible for the new companies to spend the money faster than it was coming in. The smart master agencies, the ones founded in the mid-nineties that still exist today, invested as much of the short windfall as possible in infrastructure, technology and goodwill such that when the surplus dried up they had a company that could succeed without the need for lots of pricey human labor.
4. The Current State of Master Agency
Today, telecom master agency seems to be about half way through fully assuming control of telecom services distribution in the small business arena. Since the telecom bust of 2000, most larger telecom network service providers have all but abandoned attempts to service the small business market with outside salespeople in favor of accessing the market through telemarketing (usually through agents), Internet partnerships like Yahoo or master agents. The majority of successful master agents today have a large enough base of customers to sustain themselves but face an unrelenting struggle to maintain an appropriate volume of new orders to their vendors every month. The eternal cash cow of master agency, domestic voice long distance has long been slaughtered. Today's successful master agencies are retiring their new monthly business quotas on local service (CLEC & UNE-P), conference services and managed data network services. Service providers still selling voice long distance focus on enhanced services, international calling and high volume call centers. While most of today's master agents have used technology to process orders as efficiently as possible, the ongoing challenge for master agents today is how to utilize technology to acquire new customer accounts as efficiently as possible - a "Catch-22" situation in that the same technology that solves the one problem creates another. The whole idea behind sales agency is that "it takes a human to sell a human". Unfortunately, humans are both a businesses greatest asset as well as their most expensive liability. To balance having just enough humans on staff to sell to highly qualified human prospects, today's successful agents are mastering technology to deliver only the most qualified human subagent prospects to live human agent managers. Long gone are the days when a carrier or a master agent could afford an unlimited number of agent managers to beat the bushes for agents or sell hardware distributors on the benefits of selling network services. In addition to using technology to screen and deliver only the most qualified subagent prospects, master agents are exploring the use of technology to sell and deliver telecom services to end-users that are more commodity-like such as audio conferencing and point-to-point data services.
5. The Future of Master Agency
The successful master agents of the future (the "future" as in starting this afternoon) will be distributors of not just telecom but any business service, specifically, communication technology services to a small or medium sized business. The sort of services that agents will specialize in distributing will be those that can be delivered using the ASP (application services provider) model where the end user subscribes to a userID and password and then accesses technology that helps the small business owner more effectively run his or her own business. Examples of business communication technology services being sold today using this ASP model include web conferencing, 800 service, personal VoIP, email marketing, direct mail and pay-per-click. The role of the master agent will be to discover service providers with these emerging technologies and help them develop distribution channels that are subagent & end-user friendly. The role of subagents in the future will be to show end-users how they can employ emerging communication services technologies to more cost efficiently manage their businesses own communication requirements. Subagents will become communication technology partners in showing their clients how to employ emerging communication services up and down the client's product or service distribution chain from efficiently marketing key messages to targeted prospects to following up with repeat customers and organizing "just-in-time" delivery from suppliers to the customers. The heyday of the "box vendors" (voice and network hardware distributors like Cisco and others who think "their box is the customer's solution") is fast drawing to a close. Box vendors who don't get out of their own box need to look no further than Lucent so see what the future holds for them unless they figure out how to stop selling boxes and start selling solutions. Small businesses don't succeed or fail because of the choice of a network router or PBX - small businesses fail or succeed because their ability to acquire high margin customers in a marketplace with low barriers to entry. Sell a small business a way to target high margin customers and even if the solution is delivered via a box they won't ask you how much the box costs or try to shop the box out on the Internet. Readers of this report who want to position themselves as successful master agents of the future need to focus on two things. First they need to create the marketing messages that are effective on the end users as is discussed in the previous paragraph in that the marketing message must use a particular business solution as bait. For instance, develop an Internet ad leading to a website that captures a small business owner's imagination and contact information in exchange for the headline, "How To Only Spend Marketing Dollars On High Margin Prospects". The second thing the successful master agent has to do is "franchise" the marketing messages to attract and enable skilled subagents to close the actual customer accounts because in the end it still takes a human to sell an human a business solution.
6. The Pros and Cons of Being a Subagent Under a Master Agent
Back in the days when "touchy-feely" exercises were all the rage in management and team building training, a standard exercise in "trust" was for a subject to stand up straight and then to simply lean backwards into a fall "trusting" that the other members of the "team" would reach out and keep the subject from cracking their head open on the floor. Becoming a subagent under a master agent pretty much involves the same amount of trust.
In short, the pros include: A. Immediate access to services and solutions to sell to end-users It's pretty difficult to quote or sell a prospect or customer a new service if you don't have a contract with any suppliers for that new service. Because of the 80/20 rule (80 percent of prospects who say they're interested in a new service only buy 20% of the time - if that), it's generally a waste of time to contract with a carrier to pitch an unproven new service to prospects or customers. Even experienced agents with direct carrier contracts have subagent agreements as a way to access low volume services that are not an agent's primary line. If demand for a new service accessed through a master agent takes off, subagents can still generally do as well negotiating higher commissions through a master agent as they can with a carrier direct.
B. Higher commissions and lower quotas than available directly from carriers It's a given, carriers pay more money to master agents because master agents are more profitable to deal with than new agents. The lower commissions carriers offer new agents are specifically designed by the carriers to drive new agents into the arms of the master agents. It allows everyone to focus on what they do best - carriers focus on serving master agents, master agents focus on serving subagents and subagents focus on serving end-users.
C. Friendlier, smarter & more supportive staff Sure in high school we were all attracted to the idea of dating a cheerleader or a star athlete but we all ended up marrying someone who was friendlier, smarter and more emotionally supportive than that person who was completely uninterested in us. Same thing with master agents and carriers. While carriers may seem to spend the big bucks at trade shows and on glitzy magazine ads, it's mostly in an effort to support their industry image on behalf of their productive master agents and to help their master agent's recruiting efforts at the same trade shows. And if a new agent can even find a carrier agent manager to get on the phone, the new agent will soon learn that the agent manager assigned to speak to the new agent may have less experience in the industry than the agent manager working for the master agent. Because master agents generally have more options and more money they can generally attract and maintain the best agent managers available in the industry.
D. Sales and marketing training and support Carriers excel at the creation and delivery of network service but master agents excel at marketing and selling network service. Agents looking for training on how to sell need look no further than those doing the selling. And who would you rather have servicing your support needs, someone who understands the needs of master agents or someone that understands and cares about the needs of subagents.
E. Better order & service issue tracking This pro alone is the one reason the industries most successful subagents place all their orders through master agents. Out of necessity because of the high volume of orders sent to multiple carriers, master agents have had to create cutting edge order & service issue tracking software to track the status of every order in their service provider's systems. Most master agent's order tracking software directly interfaces with the service provider's various information modules. In many cases, the master agent has access to information that the service provider's own customer support personnel can't access.
The cons include: A. No recognition by carrier A serious con to be sure. Even if they were interested, carriers have no legal authority to contact or communicate with a master agent's subagents. If a master agent stops paying a subagent that is of no interest to the carrier. Carrier agent managers are bonded molecularly to the master agents that help the agent manager keep his or her job. Even if the agent manager suspected a hint of truth in a subagent's claim, the agent manager would side with the master agent out of self preservation. Whiney subagents are a dime a dozen while productive master agents (even ones that are "mean" to their subagents) are worth their weight in mortgage payments.
7. The Pros and Cons of Being a Master Agent
There exists a special place in heaven for entrepreneurs who achieve the position of successful master agent as it requires the insight of a prophet, the patience of a saint, the nerves of an explosives handler and the luck of a lottery winner. Many begin the journey but few survive the first day.
The cons include: A. A tattoo on the forehead that says, "Kick Me!" To suggest that you're a master agent in an industry like telecom is analogous to jumping into a small pool occupied by three hungry alligators with a chicken under each arm. The alligators that eat the chickens are your fellow master agents and the service providers. The alligator that eats you are the subagents you hope to win over. New master agents mean new money. Unless you bring radical new ideas or radical new services to a pleasantly surprised subagent audience, the only thing for subagents to do with new master agents is separate them from their money before someone else does. How do they do that? By promising that if you pay them up front they'll deliver the volume you need. Sooner or later you'll fall for it and then you're sunk.
B. All work and no play Few subagents compete with one another for great end-user accounts as there's lots of great end-user accounts in the US and not enough subagents to call on them all. On the other hand, master agents get in line to curry favor with the most productive subagents.
C. Constant fear Nothing wears you down faster than the constant rush of adrenaline that comes from knowing you're only ever one step ahead of your competitors in an industry with absolutely no barriers to entry.
The pros of being a master agent include: A. Providing good jobs to people In addition to the job you provide yourself you'll be able to take comfort in the fact that you're making it possible for others to make a good living working their own hours from a home based office.
B. Fostering a competitive marketplace As sappy as it sounds, by being a good master agent that stands up for choice for the small business owner you are in fact helping to ensure that competitive telecom choices continue to be available to small business owners. Sure we could all do something more stable like sell insurance or real estate, in industries that have existed for over 100 years but the work we struggle to do today will make sure that competitive telecom is creating jobs and making additional choices available to small business owners a hundred years from now.
8. The Pros and Cons of Being a Carrier That Sells Through Master Agents
In the nineties the only phone companies that resorted to distributing through agents were the "poor ones" that couldn't afford their own multi-city outside sales "feet on the street". Today, many of the service providers still in business are the ones that dumped their expensive in-house sales employees early or embraced telecom agents as a cost effective method for customer acquisition early on.
The pros of selling through agents include: A. Instant access to end-users through properly motivated agents The key here is proper motivation. It's not the agent's fault that whatever they're spending eight hours a day selling now affords them better long or short-term margins than what you want them to sell. If they're earning $300 a deal selling DSL lines to home offices you're going to be pretty hard pressed getting them to peel a couple hours off to sell VoIP to the same audience that pays only $50 a deal. Just like advertising on Google, if you spend enough money you're going to get your fair share.
B. Agents are the world's cheapest market research If you're hiring a VP of sales who's currently out of work or recruiting account executives not making their quotas in their current jobs, do you think they're going to honestly tell you if your service offering is competitive? No. Agents may or may not tell you the whole truth up front when it comes to your service offering but it costs little or nothing to get them started and then the sudden sales (or lack thereof) will tell you everything you need to know about your service's marketability or pricing. Agents are the perfect carnivores in the business services marketplace and can smell excess commissions and too-low retail pricing a mile away. If your product is in demand, under priced or over compensated you'll know within days if not hours of releasing it to the agent market place. (Hint: If you're getting more orders than you can process, take an immediate look at your cost model. Agents and end-users know who's selling below their costs and are only too eager to exploit your oversight until the day you run out of money - at which time they'll simply switch back to their previous or another provider.)
C. Agents allow for the opportunity to experiment with new marketing messages Looking to try out a new telemarketing campaign or "feet on the street" program? Few carriers in today's economy would seriously consider staffing up their in-house resources to experiment with a new marketing campaign. Properly compensated, agents offer service providers immediate access to sales resources that can hone an experimental marketing message
D. Agents are consistent You almost never have to guess how an agent will react to any given market condition. They will always choose that which is easiest to sell to their customers or make their customers happy with the agent. Agents don't sell customers a three year contract when a one-year offers almost the same deal. Agents will sell lower prices with lower commissions over higher prices and higher commissions if price is the only differentiator offered.
E. Agents help customers stay put Consistently pay your agents and they'll keep their/your customers from hopping around. While agents certainly don't have the final say with their customers, they will be the first to respond to a competitive threat with the old AT&T F.U.D. (fear, uncertainty & doubt). Agents will remind their customers of the danger that lurks around every corner when switching service providers, "You don't want to go through that again even for 10% savings". In addition, agents will generally tell you exactly what it's going to take to win or keep a customer, "a one-time credit, a discount to a certain country, etc." By allowing agents to tell you exactly what you need to do to acquire an account you don't have to overpay or miss not getting an account your were on the cusp of winning.
The cons of selling through agents include: A. You have to keep paying them commissions month after month B. If someone else is paying them more to sell a similar product they'll sell it instead of yours in spite of your amazing "value proposition". C. They're merciless "cherry pickers" Price all your services to deliver margin. Don't expect agents to reward you with high margin business just because you give them a loss-leader as a door opener.
No part of TAA's Master Agency Report may be republished, copied or transmitted in any form without advance written permission from TAA. For more information call 888-822-4695 or visit www.TelecomAgent.org. TAA members may print one copy for their own personal use. Telecom Association, Inc. © 2004 TA's TelecomAgent News - Publications
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