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No Way Master Agencies Should Require Quotas
By Bill Leutzinger
At the end of last year, Curt Allen of X4 Solutions had a great discussion going on his LinkedIn page, and I thought it was a great idea for a blog, as people seem to be on both sides of the fence.
Basically, the discussion thread boils down to this: Should a master agent require its partners, agents and VARs to meet a quota each year? Anyone who knows me already knows that my response is a resounding "NO." There are masters out there that I don't even consider working with due to their yearly quotas and their refusal to build in a ramped commission plan.
Before we get started with the meat of this blog, I want everyone to understand a thought that keeps going through my head. Every master agent out there runs around talking about “partnerships," and how they are not successful unless their subs are successful. Please keep that in mind as you read on. Are master agents a true business partner or simply a business transaction? If we are truly in a partnership shouldn’t success and failure be shared? Don’t they make a cut on what we sell for the lifetime of the customer? Why would anyone ever get cut or commissions dropped if they are still making money? The masters need to decide if they really want to be partners and share in the good and the bad. I don’t think it can work both ways.
My main reasoning for not signing with a master that requires a quota, or they stop paying, is simple. For my business, it is critical to have money come in from at least eight different sources each month. I call it “The Octopus Effect." I wrote a detailed blog on the subject years ago, but here is the short version. If my business has money coming in from at least eight different companies and one of them ends up not paying (see below for examples), my company is not put into a cash-flow crunch; however, if I have sourced all of my business through just one master and something happens to delay a payment, it immediately puts both my company and our different subs in jeopardy that month.
The reasons for not getting paid are many. Maybe one of your larger customers left and you got hit with a big chargeback. Maybe you didn’t hit your quota for the year and the master quit paying you. Maybe the carrier paid the master late. Many things can happen, and if you, the agent, have all your eggs in one basket, then you have put your company in jeopardy. At a minimum you have put yourself in a position that requires unnecessary extra work to make sure you keep your subs happy and can pay all of your bills.
Curt mentioned in his post, “We always thought a great reason to choose a master is so you can pick the best provider for your customer without concern for a carrier revenue commitment ... so why would you sign a revenue commitment with a master agent? (We think we should earn your partnership, not contractually require it)." Isn't that the true spirit of a partnership? Ultimately agents are paying for a service, and the better the service, the more likely the master is going to be able to retain that "customer" (us the agent). That service is a factor of availability, accuracy and timeliness of quotes, help with sales, price and commission level. If an agent is held to a quota, how can they ensure that the master will be incented to provide a quality service?
Eric Solomon of Windstream came back with this response, “On the other hand, if a master agency does not set themselves up properly with their partner community and the only value that they add is that they give no commitment to their sales partners, they may find that their own carrier commitments suffer and commissions will then suffer. That same master agency (that adds no value) may find that the only group that gives them business is the one that is not focused in the same direction (i.e. the person that found out that they can make a commission off of their brother's manufacturing firm's Internet bill)."
On the other hand, if a master does not have the scale to make carrier commitments irrelevant, they have either taken on too many carriers or cannot deliver a key value component of using a master … assured carrier commissions. Also, any master worth their salt has negotiated terms that make any negative changes to their commission structure a “going forward" proposition. (i.e. Their existing base is locked at the commissions agreed to at the time of sale.) Again, these should be where the master earns its money. Ultimately, if the master had the scale to hit its targets with carriers and has negotiated terms that protect against a look back, Eric’s point is moot. Simply put, a deal you sold with a master last year is no less profitable today than it was when you sold it, so if a master is a “true partner," why would they cut your comp because either your business changed, or equally likely, they have done a poor job of giving the agent a compelling reason to place more business with them? … we are partners … we win together and we lose together.
I deal with some master agencies that have no commitment and some that have a tiered system. For example, for every $10,000 of new business that I bring in, I get another 5-10 percent of what they make from the carrier. While I think this can be an excellent model, it makes me think before giving them my business. I might make a few points less putting it through the second model, but I am building it up to the point where I will make more in the long run. Or, I can take the instant gratification and just put it through the master that pays me more and has no commitment. But I have to take into account my Octopus Effect and make sure everything is pretty equal between all eight monthly checks.
I think it all boils down to this: No matter which way you go, make sure you have a rock-solid evergreen in the contract. For example, with one of my masters that uses the scaling commission model, I have an evergreen that states, no matter what, they always have to give me 70 percent of what they get. I am up past that point with them right now, but I know that no matter what (other than a breach of contract), they are going to pay me on my business at least 70 percent for the lifetime of all of my contracts.
I am anxious to hear what everyone out there thinks. In my opinion, I wish all masters would follow X4 and have no commit, be a true partner, provide the highest quality services, truly helping the agent in the sales cycle, pay what is pretty much the best in the industry and provide a very solid evergreen. I have heard too many stories about an agent signing a contract with a commitment and then having the quality of support fall off a cliff after a few initial sales, leaving the agent with only two options — deal with the poor service and continue to send business to that master OR quit sending business to the master and lose commission on the initial deals.
Bill Leutzinger is president of Chicago-based TelecomMedic , an agency providing voice, data and video services to business customers. He is a past member of the Channel Partners Conference & Expo Advisory Board.