Service providers don’t see the world the same way you do. That’s why your hard earned recurring commissions get cut off, and it’s why you need to understand how a service provider thinks and behaves to protect your own.
Patrick Oborn and I purchased an old master agency years ago. This master agency specialized in online sales of residential switched long distance. Long story short, we purchased the business to keep their subagents whole because we knew many of them sold services through Telarus and became our partners. Because the acquired company operates under a different name that’s unknown in the channel, we have anonymity and get to experience what most small partners do. Occasionally we receive a termination letter from a service provider like the one I received a few weeks weeks ago notifying us our recurring commissions would be canceled.
Consequences of Cancelled Recurring Commissions
Commission cancellation can be devastating to a partner who has placed a significant amount of business through a provider. Partners are paid nothing for their efforts and work for years before they can fully replace a salary. Canceled recurring commissions can mean the partner must abandon their business because they can’t replace the canceled revenue quickly enough. Larger partners don’t face as dire a consequence, but their investment in sales will not be recouped, and they may have to lay off staff or reduce expenses in other ways.
Upon receiving the cancellation letter, I called the provider. I spoke to the executive responsible for the cancellation, and he explained they did not cancel it, just reduced it to one percent (effective cancellation). I explained to him we would challenge this, and he was unfazed. It appeared we would have to litigate to enforce the agreement.
My next call was to one of the owners of the provider. When I explained what had happened, he apologized, said the letter was an error, and the executive was only following instructions.
Why the difference in the responses?
The owner knew Patrick and I own Telarus and was hopeful they would eventually be a provider for Telarus. It was the potential of future sales that made the difference in the reaction.
Thinking Like a Provider
Sales partners view each commission as being attached to an account the provider would not have gained but for the efforts of the partner and that account funds the commission being paid each month. This is reasonable. However, this is not how a provider views commission. A channel program is judged, like any business unit, on revenue, expense, and profit. Recurring commissions are an expense to be scrutinized. Is the expense producing more revenue or can it be minimized? Channel professionals understand the partner perspective and often share it, but the channel needs funding internally and must justify their business unit to the larger organization which means minimize expense and maximize profit.
The Best Protection
Expenses are justified when those expenses produce more revenue. This is why the commission cancellation letter I received was waived with a phone call. You can receive that type of treatment, as well. Here are three ways to protect your commission listed in order of effectiveness.
Manage the customer lifecycle. One of the ways channel leaders justify the commission expense is by demonstrating sales made by partners have longer lifespans. If you manage your customer lifecycle and continue to renew and upset your customers, a provider can easily justify the ongoing commission paid to you. That expense creates more revenue for the provider, and this is the most effective way to protect commissions.
Align with a master agent. You might have a good number of sales today, but what happens when the market changes and there are no potential future sales from you to the provider? Master Agencies are required to grow revenue year-over-year, which is a protection to your commission should your business change sales patterns or, what’s more likely, the provider you sold faithfully fails to keep their offerings up with the market.
Sign favorable agreements. Every relationship starts with hugs and kisses, but when sales slow down, your commission is at risk. A strong agreement is a big help in dissuading a supplier from cutting off commission. It is not a perfect protection, though, because a provider in a period of sales decline , will weigh the cost of paying ongoing commission against the risk that you have the resources to fight for your commissions. This is exactly what happened in my example above.
After all the work you’ve done to build your business, what are you doing to protect your recurring commissions?