What is a Partner Worth?
04/30/2007 08:14
By Peter Radizeski, RAD-INFO
I have often had a vacillating relationship with carriers. Mainly because while they like to call us "partners,” it is not usually the case.
We are inexpensive tools for their sales department. When you have sold millions of dollars of billing for a company, you would think there would be a level of respect. (And I don't mean at the agent facing manager level; I mean higher up the organizational chart at the associate vice president level and above.)
In many cases, more than 25 percent of revenue comes from the channel. Why wouldn't you make that easier? It's easy money since you only pay commission on positive result. No lease, no furniture, no utilities, no salaries, no benefits, no pension, no HR hassles. Just commission on services sold. (Even then you make it tough to collect, which further undermines your casual use of the "partner" word.)
What is the acquisition cost for an agent? There is the training, but it is so rudimentary that the value is questionable. Why not engage the channel?
Really. The Agents want to earn commission; help them. Really.
At the Channel Partners Conference & Expo, four vice president's were questioned about their channel views. Did they take anything away? It's not the Golden Age anymore. In fact, many agents left for real estate or pharma over the last couple of years. It's not fun any more. It is hard to get quotes and hard to get paid. If you made it easier - you would gain loyalty. Right now, agents usually sell for many carriers. Verizon Business wanted an exclusive, so did the former BellSouth, but to ask for that commitment - what are you committing?
Everyday I find evidence telco is broken. It explains why Cbeyond was able to do so well. Vonage didn't get 2.2 million customers because telco was doing it right; you know what I am saying? Cable is going to take 40 percent of the telephony market - no doubt. Carriers need help to slow that loss. The channel can help (or maybe cable will hire some agents!) But that needs to be a top down decision - and it needs to be backed up ... daily.
And telling me I can't mention your company's name in print is no way to have a relationship.
Peter Radizeski is president of RAD-INFO. He can be reached at
peter@rad-info.net
.
User Comments !
While it is true that the initial acquisition cost for bringing on an Agent is lower than hiring a direct sales person, it is naive to think that the the long-term carrying costs are lower to the carrier to have an Agent. At an industry standard 15%-20% per month commission, (many carriers pay as high as 30%) over 12-months, the cost for Agents is lower. However, where your argument goes south is that unless the Agent continues to sell new business every month, which a direct sale rep would be required to do, after 2 years, the costs breakeven. With the evergreen clauses that have been demanded by Agents, payment goes on for 3-4-5 years and longer. $10k per month in new sales, would generate $18-$24k in commission annually. After 5 years, that business would have cost the carrier $90,000-$120,000!! Where's the great deal for the carrier in that? While still worth doing, and the revenue is appreciated, it's nothing for the Agent to beat his breast about how great he is for the carrier! It becomes economically unfeasable for a carrier to continue to pay an Agent forever on old business unless the Agent continues to sell new business.
Agents are demanding higher and higher commission from carriers, in order for the privilage, to the carrier, of having the Agent sell for them. This, in an environment where carrier costs have increased and margins have become thinner and thinner for the carrier. Agents don't seem to take that into account.
Agents demand that carriers provide them with the highest possible commisssion and then go out and use thier other relationships, with other carriers, to help drive the cost down. Which makes paying that high commission even less profitable! It's a vicious circle that needs to change.
How? By Agents taking into account the real business problems facing the Carriers, such as rising costs, bad debt, customer service costs etc., and by being willing to show loyalty to the carrier by selling their products as exclusively as possible when the product fits the customers' needs. Most importantly however is STOP SELLING BASED SOLEY ON PRICE! Use your selling skills and customer relationships to sell not only yourself, but the benefits you and your carrier combined bring to the table. THAT'S why carriers are willing to pay you high commissions in the first place!
We're in this together. We want the revenue, you want the commisssion but the relationship has to be win-win or the Agent channel my well end up eating itself out of the industry.
Posted by: Steve Barnett | May 04 2007 14:00:46
What carriers pay out 30% or evergreen contracts? A couple years ago sure, but now, not so much.
Your logic falls on 2 points, Steve: pricing and long term cost.
On pricing: Two points:
(1) It isn't just the agent selling on price. It's the whole industry!
(2) You can't say it is the Agent's fault that the margins are low -- we don't set the price, the carrier does!
It isn't just Agents selling on price - Everyone in this business sells on price! How do you differentiate between an Integrated T1? How did the carriers position UNE-P? "Save some money!" You tell me what the difference is between ITC, PAETEC and TWTC Integrated T1's?? I have NO idea. It's all ILEC copper and no value add other than calling area and long distance buckets.
You think those internal sales people are so great, why is more than 20% of new business coming from the Channel?
On long term costs: Evergreen doesn't affect the bottom line of the carrier.
On day 1 until day 1000, it is the same profit margin. The agent gets his share; the carrier gets their share. (Unless you are using Enron math).
You said: "$10k per month in new sales, would generate $18-$24k in commission annually. After 5 years, that business would have cost the carrier $90,000-$120,000!!" Well, in 5 years, that carrier has booked $600K in revenue - and had no new acquisition costs, so what's the problem?
As long as that customer stays put and pays his bill, what new costs are there?? You don't have any additional costs for the Agent. The same division of pie. What costs are added to the deal in year 3?
If the carrier books the business under water, how is that the Channel's fault?
Your email demonstrates exactly what the problem with the Channel is: No Respect. You think Agents are greedy order takers, not seasoned sales professionals. And when you treat them all that way, the good ones leave, and what's left is exactly what you thought they were. You created it.
If you think the Channel needs skills, then why don't you change the way you take on Agents and the way you Train them? I watched some training for one carrier - hours of droning on about acronym soup. Where's the value in that?
Having your VP of Marketing or some hired actor read a script or marketing material is NOT training. But then if you treated us like a Partner, instead of with the veiled contempt I catch in the undertones, we would WANT to be exclusive and sell your product to the targeted market at a margin we could all live with.
Read my last post (
http://www.phoneplusmag.com/blogs/peertopeer/?m=art&a=74h17161948.html
) about how Training could help.
Posted by: Peter Radizeski | May 07 2007 10:31:55
Peter:
I agree with your comments to Steve's email but there are several other business related issues Steve fails to recognize about what we do as agents. Our margins are also getting squeezed because we have to do more "heavy lifting" today than EVER before. Plus, we haven't been offered higher compensation to do what use to be their work. We now price our own circuits, initiate most or all of our own trouble tickets, sit on weekly carrier calls in an effort to eliminate provisioning mistakes and billing errors, have to attend MASSIVE amounts of training, pass certification tests, travel to events on our own nickel and most importantly carry a much higher debt load to pay for the labor and skills to maintain our accounts because typically speaking carriers are inadequately staffed. He also fails to apprecaite that even when we've done everything perfectly and killed it from a sales perspective we're always in danger of losing 100% of our hard earned money when they fail to execute on their own business model (bankruptcy) which ultimately impacts the channel for something that is out of our control or no fault of the agent(s) and we're generally the first to take it on the chin financially because we are considered unsecured creditors.
We all want carriers to do well financially but you are going to be hard pressed to get much sympathy from the channel. We work harder for our money than ever before to try and maintain what we have and that is why the channel is doing so well. As a group we're more flexible, professional, knowledgeable, prepared, quicker to respond to implement technology in our businesses so we can ultiamtely satisfy the customer needs.
Can the carriers make that same comment today and when all is said and done . . . can they survive without us? I certainly know the answer to the latter.
In closing, the smarter carriers/resellers today are finally beginning to truly partner with agents. They include us in their product design and rollout(s), they give us secured creditor status, they offer protection in our agreements to preserve our income, they form advisory councils to improve their program and they meet with us frequently to listen to our needs so we can both walk away with the win-win everyone talks about.
We've got a long way to go but there are several indicators and reasons today to be positive from this side of the desk.
Ted Schuman, CEO PlanetOne
Posted by: Ted Schuman, PlanetOne | May 07 2007 14:27:18
My post about the way the term Partner is misused struck a nerve in the channel, if my email is any indication. (Or maybe just all 10 of my readers :)
"You hit the nail on the head."
"When I was reading your note I felt like I was listening to my twin."
"You took a lot of words right out of my mouth."
"Thanks for being a voice in the wind. I hope your message carries to the High Places."
The Vice Presidents of Channel Ops for the telcos might want to take note.
Many of the best producers have already left for other professions. You might want to fix things before it's too late.
It's tough in telecom right now. Consolidation means less choice for the customer - and less choice for the Agent. Right now, it seems broken. Maybe the brain drains that the telcos have induced with layoffs in the thousands is finally come home to rooster. You can not quote quickly. You can't identify assets correctly. Installations are a nightmare. This hurts the telco, the Agent, and, oh, yeah, the Customer, who will likely not refer your company to anyone.
Posted by: Peter Radizeski | May 08 2007 15:32:10
This is one comment I received in reply (posted with permission):
I could not agree more with your article “What is a partner worth”, especially in the current world of mega acquisitions. You spend months negotiating a contract with a carrier and building a relationship. Then along comes the conquering carrier with a new contract that is so onerous that all you can surmise is that they want to shake with their right hand and empty your pockets with their left. If the carriers truly wanted partners all contracts would be ever green without negotiations with the only remaining discussion point of what commitment level for X payout rate. The carriers cost is variable with margins already built in to each transaction; couple that with the discussion points in your article to how low the fixed cost are to run the channel, and you would think they would truly embrace us. The carriers talk a good game and smile a lot using words like “partner” and “relationship”, but the reality of the contracts say otherwise.
Posted by: Peter Radizeski | May 10 2007 09:09:15
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