Posted: 10/1999
Contracting with Carriers vs. Master Agents
By Keith S. Ferris
Agents of all revenue volume and experience levels are frequently confronted with the choice between contracts made directly with a carrier/reseller, or those through a master agent. Carriers and/or resellers may bring to the table equity sharing, direct access to the source for increased process control and problem solving. Master agents, on the other hand, often offer subagents equal or stronger commissions, "softer" contracts and more product choices. There are many issues to consider as you, the agent, select which of these two supplier types will meet your needs.
Contracts
Contracts are not only the starting point, but also the defining point of your career as an independent agent. Whether the contract is direct with a carrier or with a master agent, you need to examine the substance of the agreement closely: Is it one-sided, rigidly worded or overly demanding? How open to negotiation is the supplier?
If your aim is to negotiate for improved end-user rates, then you should know that for switched customers this can be hard to come by, and most carriers will have fixed rate scales and/or tariffs. However, there are a few instances where better rates may be possible to secure from carriers and master agents who negotiate for you, including affinity programs, competitive bid situations, win-back opportunities, occasions where you assume bad debt liabilities, and overall huge volume opportunities on switched or dedicated access contracts.
Typically, both carrier and master agent contracts ask an agent not to "lie, cheat or steal." Often, carrier contracts will define the carrier-agent relationship more narrowly, including stiff penalties for breach of contract. Master agents' contracts, on the other hand, are generally "softer," allowing you some flexibility in how you conduct and secure business. In many cases, the master agent assumes much of the responsibility and liability, or whenever possible has negotiated some of the barbs out of its contracts with its carriers. Note that stronger agents, in volume or sheer persistence, generally will get the best contracts.
In addition, most contracts tie commissions to sales volumes. While commission percentages offered by carriers and master agents are generally comparable, achieving those percentages may require a different commitment. For example, to achieve high commission levels under a carrier contract, you must commit to sell significant volumes (e.g., $100,000 to $1 million per month). Having already achieved their volume commitments to their carriers, master agents typically require less pledged revenue from their subagents.
Certainly it should be noted that the reason a master agent may pay equivalent commissions to that of a carrier is because they make more generally based on their volume levels. If you want the highest commissions possible and can deliver on the volume over a six-month or one-year ramp-up period, then a carrier-direct contract may make sense, especially if you can attain master agent status on your own. At the same time, such a commitment may limit your freedom to work with multiple sources, depending on how easily you're able to reach the required volume levels.
Another question you should ask concerns the viability and stability of the contract. Which way is your contract more likely to survive--direct or via master agent? Which way are you more likely to get paid? The variables that influence these questions are numerous. To start, ask yourself how much control the carrier or master agent has over its own destiny. An appealing presentation today does not guarantee that any one company will make it tomorrow. Also ask what irons these companies have in the fire, or what niche they control that has long-term revenue potential.
The size of the company is not an automatic determinant for stability. Even the largest carriers and master agents have been known to cancel their agent contracts, or alter them in a way that fundamentally changes the business relationship. Ask yourself, and the prospective service provider, just how important your business will be to them.
One final comment on contracts: Ask yourself how you feel about the company based on the way it (or its lawyers) presents itself in its contract. Does the contract make you feel that the company is interested in your success (and in its own)?
Options and Choices
If a contract impedes your chances to control and secure whatever competing options the future unveils, and diminishes the kinds of choices you will have in your product mix, then rethink. Understand that by locking yourself into one contract, you may limit your flexibility in product offerings, as well as your earning potential. An added benefit to having multiple providers is that you become more of a consultant and less of a salesperson, toward which customers likely will be more receptive.
To achieve this breadth of product, you can negotiate multiple contracts with various carriers and/or master agents. To do so may be time- and energy-consuming, but it will give you the opportunity to close more business. Keep in mind, however, the more contacts you have, the more difficult it will be to achieve the volume needed to secure adequate commissions from each provider.
As an alternative to signing a number of contracts with various suppliers, you can sign a contract with one or two master agents that already represent multiple carrier services.
Comfort Level and Control
Like the customer, you need to consider which alternative will provide the best representation and needs fulfillment. The trade-off for you in making this decision is much the same as for the end customer. Are you more comfortable dealing with a carrier directly or having an independent third-party relationship?
If, as an agent, you're struggling with the concept of putting your business through a master agent, you need to ensure that the master agent you are considering can answer all the same objections you might receive from your own retail customers considering buying from you, a middleman.
In addition, be sure to do your homework. Check out their record--both on paper (financials, principals, products, marketing materials) and word-of-mouth. Most carriers and master agents will have a history known to a number of other agents in the industry. Ask around.
Also consider how much control you have over your own destiny via direct access to the carrier or dealing through a middleman. As an agent, you want to solve problems quickly and get answers immediately. It seems fair to assume that being able to work directly with the carrier should provide the greatest ability to influence change and get things done more efficiently. In some cases, this is true. Some carriers have good agent support; some don't.
Support ultimately is a function of the underlying quality of the company and the commitment level it has made to support its agents. Many master agents, for example, have established a rapport with the supplier and developed "fast lanes" to problem solving with carriers. While in most cases, subagents are by definition a step away from the source, some carriers will offer direct support to a master agent's subagents.
In some cases, a master agent may be one person. On the other hand, not all carriers devote a team of people to the agent channel. To ascertain a provider's commitment level, find out how many administrative people it has to support its agent base. Also, ask how many agents/accounts each is expected to work. Then, calculate the ratio of agents/accounts per person to see if it seems reasonable.
Understand also that some larger carriers prefer not to contract with smaller agents because it is more difficult for them to support hundreds of small agents. Instead, they prefer to contract with larger agents or master agencies.
Follow Your Instincts
Although choosing a supplier is a business transaction, instincts must play into the decision. Do you feel alignment with and mutual respect for your service provider? Does the provider understand the circumstance of the independent sales representative? Does the provider appreciate your contribution to its success? Does the provider empathize with your position and task?
Agents would do well to remember that they work for the customer and the supplier. Similarly, suppliers would do well to remember that agents are their customers.
When considering some of the agent recruiting offers common today, be reminded of the old adage that is more than appropriate to this industry: Be wary of anything that looks too good to be true; it probably is.
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Keith S. Ferris is president, CEO and founder of FerrisCom., Salisbury, Mass., a master agency/dealer selling wireline and wireless products for more than 10 years. He can be reached at kferris@ferriscom.com. |
