Compensation: How Is an Agent Paid? December 2009

By Cara Sievers

For an agent, the conventional boss/employee relationship and the regular paycheck fall by the wayside to make room for more sophisticated, and sometimes complicated, monetary arrangements.

So, just how many ways does cash flow within an agent’s relationships? Here’s a rundown of some of the common compensation models:

Basics

Commissions. The lifeblood for any agency, commissions usually are based on a percentage of a customer’s billing. They can be either one-time or recurring commissions (residuals) as dictated by the agreement. Commission programs often are structured in tiers, offering increased commission percentages as the agent’s revenue volume increases. In many cases, growth goals are mandated and if not met, commissions will be reduced. Depending on the carrier, commissions may vary by product or whether it’s a new account or a renewal. And, in some cases, commission percentages can vary by the degree of support responsibility the agent takes on. With most carriers, the commission plan is subject to change based on the market, the health of the carrier and channel strategy.

Wholesale Rate. Unlike resellers selling hardware, agents don’t usually buy at a discount and sell at a markup. That’s because in the carrier world, it would require them to meet regulatory requirements of a telephone company and to rebill for complex services. However, a few service providers allow agents to ride their tariffs and outsource the billing, eliminating these responsibilities. Other service providers enable agents to set their own pricing (and commissions) based on a wholesale-like buy rate. These options are best exercised by more experienced agents.

Variations

Residual Commissions. Residual commissions, also called monthly recurring commissions (MRCs), are paid to the agent as a percentage of the customer’s billings on a monthly basis usually for the term of the contract. Evergreen contract provisions between the provider and agent can extend the MRC for the life of the customer.

Fixed MRC. This residual-based commission model is predominant in wireline service sales. The carrier pays the agent a fixed percentage (typically ranging from 5 to 20 percent) of the customer’s monthly billings during the term of the customer’s agreement. The MRC might stay the same or be lowered for renewals, depending on the carrier.

Referral Commission. When the agent is involved only in the introduction of the customer and provider and then doesn’t manage the relationship beyond that, the agent is paid for the referral. This model is simply a one-time payment. It varies by vendor. One example is a one-time payment equivalent to the customer’s first month’s billings.

Upfront Commission. Some providers pay a fixed amount per sale usually based on a percentage of the total contract value. The agent usually is not allowed in the renewal due to the front-end payment; but if the agent is involved, the renewal has a lower payout due to the fact the carrier considers the customer already acquired. This transactional model is very common with wireless service providers.

Upfront + MRC. Sometimes a carrier or service provider will offer a front-loaded commission based on projected spend/services, and then a lower MRC. The concept behind this model is to create an upfront incentive for new sales and customer acquisition. However, carriers typically lower the MRC on any renewals and, therefore, the overall compensation to the agent is lower. This might be a more difficult model for an agent to excel with because of discontinued communication with the customer.

Extras

Incentive Compensation. Most providers will offer performance-based incentives, such as the chance to win car or trip or membership in a “President’s Club” that might come with additional cash or gift rewards.

Non-monetary Compensation. Agents may be offered other perks or benefits as compensation. For instance, an agent might receive compensation in kind, such as free office space or reduced rent. Other soft forms of compensation include training, marketing materials, tech support, sales support, lead-generation assistance, etc.

Bonuses, Promotions and Spiffs. Many providers offer promotional spiffs or bonuses on certain sales. These payouts can be in the form of money or gifts, and usually last a pre-determined time period. Spiffs can be a great way for a new agent to get a jump-start on earnings.

Gotchas

Bad Debt. Agents working on commissions are not responsible for bad debt. However, if an agent is paid commission based on billing and the revenue is not collected, the paid commissions must be repaid to the carrier.

Errors. Commission errors are commonplace, but many providers have provisions in their contracts that such errors must be found and reported within certain period of time or amounts due are forfeited. This includes spiffs that were not applied appropriately. So, it’s important to audit commission statements on a routine basis.

Effects of Termination. Sometimes, vendor agreements will dictate that if an agent contract is terminated for any reason, the commission stream ends within a finite period of time, usually 12 to 24 months. Even without clear breach or default on the agent’s part, the agent can lose MRCs for the life of the customer.

Loss. Depending on the contract, agents may be required to meet sales quotas in order to maintain a high commission percentage or, in some cases, to maintain commissions at all.

Ramp. New agents are unlikely to make significant commissions for at least six months after they begin selling. This is not only because it takes some time to build a book of business that will generate significant revenue, but also because it takes a while — often several months — for orders to be processed, provisioned and billed.

PHONE+ would like to thank the following for contributing to this article: Dany Bouchedid, CEO, COLOTRAQ; Jon Sullberg, principal consultant, Data-Tel Communications LLC; Bill Taylor, CEO, Corporate Ladders; Tim Wise, president, Advocate Networks.

Looking for more information on getting started in the telephony business? This article is from the PHONE+ Fact Book 2010 Edition. This compilation of advice, tutorials, glossaries and best practices from the editors of PHONE+ and other contributors provides basic information on becoming an agent, getting started and building business. To download your free copy, click here.