The Compensation Cycle

Consolidation impacts partners in a variety of ways – the foremost being compensation. Alan Sandler, founder and managing partner at Sandler Partners, described a cycle that other experts agreed reflect what is happening in UCaaS and what might happen in other technologies. In that cycle, entrants flood a vendor landscape offering lucrative sales incentives and commissions to partners in order to gain market share. But ultimately, the larger players gobble up the smaller players, leaving a much less crowded field. Then compensation comes back to normal, or even comes crashing down.

“As consolidation occurs, companies get swallowed up and layoffs occur. You start to see the large SPIFFs go away. You even see commissions starting to drop. That means there’s less money in the marketplace, and the TSD is put in a weaker position to negotiate better agreements and commissions,” said Sandler, adding that partners will need to look to their TSD partners to negotiate strong contracts.

JS Group CEO Janet Schijns said when private equity or venture capital conducts M&A, they’re eyeing a 4.7-5.3x return on their money. 

“One of the easiest ways to do that is to reduce residual compensation,” she said.

Schijns advised that partners look at what accretive services they can add in the event their vendors reduce compensation. 

“If you don’t, when they make that merge, your cash flow could immediately go down,” she said.