McGraw Creates Profit-Sharing Program for Agents

McGraw Communications Inc., a New York-based CLEC, has laid out a profit-sharing program that may be unrivaled since its just for agents.

Industry mergers and bankruptcies over the past few years have left agents feeling insecure and with less-than-favorable contracts, and McGraws three owners wanted to reverse the tides. We went into it to truly fill a void, says John Cunningham, president of McGraw, who notes the profit-sharing program primarily targets master agents. It gives them a place to land.

The program is designed to help agents increase their company valuations (see table below). It allows them to set pricing, take advantage of cobranding, transition to reseller, if they like, and own 50 percent of the equity of their customer bases.

In setting up the profit-sharing deal, McGraw made sure everything is transparent to agencies. They will know their compensation, how much their customers are paying and McGraws costs for the services sold, minus a 6 percent administrative fee. Agent participants also will make money on services they typically have not, says Cunningham, citing FCC and paper bill charges as well as directory assistance as items that now are considered part of the total billings.

Once an agent has $500,000 billed-monthly revenue with McGraw, the agent assumes 50 percent ownership of that customer base. If McGraw sells that base or merges with another company, agents in the profit-sharing program receive 50 percent of the net proceeds associated with that base. Were giving agents a lot of control to manage their business and it takes away a lot of uncertainty, Cunningham says.

Another benefit is that as McGraws underlying costs go down, agents can earn more money or pass on the savings to their customers since they control their rate plans.

The profit-sharing setup also helps agents as they transition to resellers, by allowing them to operate under their own brands prior to actually becoming resellers.

As of press time, McGraw had five agencies participating in the profit-sharing program.

Increase Your Company Value
  Agent Business Valuation Profit-Sharing Partner Business Valuation
Monthly Billing $1,000,000 $1,000,000
Less Fees $800,000 n/a
20% Commission $160,000 n/a
Monthly Profit Share n/a $230,000
Present Market Valuation 1.5X annual commissions
= $1,920,000 (1.5)
70% of annual billings
= $12,000,000 (.7)
Company Value $2,880,000 $8,400,000 (50%)
= $4,200,000

Source: McGraw Communications Inc.


McGraw Communications Inc.

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