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Computing the Clouds Impact on Agent Commissions


By Ben Bronston

Cloud services not only bring changes to the end-users who utilize them in their businesses, but also to those who sell them, including service providers and their indirect sales agents. One area where these changes will be felt is in the agreements between agents and their suppliers and, more specifically, the commissions from selling these services.

Fixed Commissions. Under the traditional model of carrier-agent agreements, agents could expect to receive a residual commission based on the charges stemming from each end-users usage of the service. This meant that the amount an agent was receiving in commission from a particular customer account could vary substantially on a monthly basis. In addition to this, an agent who managed to negotiate an evergreen clause” into their contract with the service provider would be able to receive commissions for the life of the customer account even after the agent agreement terminated.

Usage-based services, however, have been on the steep decline over the past several years and have given way to flat-rated services. The growth of cloud-based communications may very well signal the end for these usage-based fees and their associated commissions once and for all. The result is that agents are left with relatively fixed and predictable commissions based on flat monthly recurring charges rather than variable ones. The positive side of this for agents is that it eliminates much of the uncertainty linked to commissions based on customer usage, which may change substantially from month to month. Thus now the agent can plan better knowing the exact amount of money he/she will be receiving each month. The negative side of this change is that agents who relied on consistently high usage accounts for most of their income may now suffer a major loss if the rate of usage of the service no longer matters.

Term Lengths. Customer utilization of cloud-based services and their flat rates potentially are leading to a new area of conflict between service providers and agents. Since agents will be better able to calculate their flow of commission income, they will likely be more motivated to sign customers up for longer term contracts in order lock in their commissions for the future. Moreover, evergreen clauses are more important to agents than ever because of the commoditization of communications services. With an evergreen clause the agent can rest comfortably with the knowledge that the amount of money he/she will be receiving will continue regardless of whether the agreement with the carrier has been terminated.

From the service providers perspective, having agents sign customers to long-term contracts can be a double-edged sword. On one hand, service providers dont want to be stuck with commission liability for a long term. On the other hand, long-term contracts can help ensure predictable top-line revenue for the service provider.    

Renewals Policies. Another area of contention between the service providers and the agents is likely to arise in the area of renewal of the customers contract for the services. As cloud services continue to grow, providers will be able to offer more service alternatives to their customers. The position of some service providers is that if a customer renews their contract and orders additional services, the service provider should not owe any commission for those newly added services to the agent who initially signed the customer. They feel that the agent was not involved in getting the customer to add new services so the agent should not get paid a commission on those new services. Service providers are looking to minimize their costs and see no point in continuing to cut checks to agents for sales the provider can thereafter make on their own. 

One large carrier is perfect example of a carrier that already has started implementing such a shift in its commission structure. Beginning in this year, the carrier switched from a residual to an acquisition-based commission structure. This means agents are paid an upfront commission at the time of the sale, but do not receive monthly commissions on the account thereafter. The carrier also has begun to distinguish between customers that had no service and those existing customers who ordered additional services sold to them. These changes seem to have come in conjunction with the carriers efforts to become only a cloud and mobility company. It is not difficult to see how other service providers may follow this path in an attempt to save money on agent commissions. 

Agents of course view this situation quite differently. They feel that they are still owed a commission from the service provider for new services even if they did not sign the customer up for those additional services. The basis for this argument is that were it not for the agent linking the customer and the carrier in the first place the carrier would not have had the customer to begin with.

Agents may view commission policy changes like the ones certain carriers have implemented latterly as a threat to their existence, but that should not be the case. While there is no doubt that cloud services are altering the economics of the telecom industry, there always will be a place for agents as long as they adapt. Just like traditional telecom services, cloud-based services must still be marketed and sold, and thats where the agent comes into play. However, it is inevitable that changes will be made to the carrier-agent agreements as cloud services become more popular. Carrier-agent agreements will have to be modified to reflect the changing reality on issues such as fixed monthly commissions, term length and renewal policies. Fixed monthly recurring commission payments will make evergreen clauses even more important to agents in this new cloud era than they were in the past. But at the same time, agents must accept that they will have to diversify their service offerings to customers in order to stay afloat with the cloud.

Ben Bronston is the principal lawyer at Ben Bronston Telecom Lawyer. He has represented agents for more than 18 years and is a regular contributor to Channel Partners. He can be reached +1 713 778 1000 or at bbronston@telecomlawyer.net. The opinions expressed in this article are the authors alone and should not be construed as legal advice.


Looking for More?

Join Ben Bronston for the session Benchmarking and Maximizing Agent Compensation” at the Fall 2011 Channel Partners Conference & Expo, Aug. 24-26 in Chicago. For more information, visit www.channelpartnersconference.com.


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