Fees vs. Commissions: The Double-Dipping Debate

One of the growing debates within the channel is whether telecom agents should charge for pre-sale and post-sale support such as needs assessments, telecom management, help desk and the like. The issue has arisen as more partners take on consultative roles, moving past their transactional roots. The shift means many agents are spending more time and effort helping customers, although few seem to be charging for that extra help. The dominant argument against charging is that residual commissions from carriers cover such support; making clients pay would amount to double-dipping, say the unconvinced. But proponents say commissions only compensate for a transaction, not a partners expertise; charging forces clients to evaluate how much they rely on their agents and assigns true value to those relationships.

Channel Partners readers seem to lean toward the latter view. In early May, Channel Partners conducted an informal online poll (see chart, “Should Agents Charge?”). As of May 31, two-thirds (69 percent) agreed that partners need to charge for their expertise. A third (31 percent) said partners should not add fees for supporting clients. Among those in the minority view, the most said carrier commissions pay for the support agents should provide but some said customers will not pay for advice and support.

But times have changed. No longer are agents earning the huge commissions they once did; as prices for network services have come down, so, too, have agents’ commissions. Plus, technological advances and service delivery changes (e.g., managed and cloud services) are causing agents to venture into new territory certainly past the carrier demarc and into the customer’s IT and communications environment where the complexity of unified communications, multivendor solutions and bring your own device reign. The challenges agents face today weren’t here a decade ago.

These are reasons proponents cited for charging their customers for the support-related services they now must provide, regardless of also being paid carrier commissions.

But there is a larger argument to be made: Channel partners shortchange themselves when not charging for the work they do. The fact that a provider pays residually doesnt change the fact that its a payment for a transaction,” said Dan Vidal, managing director of Telecom Advisors, which has charged most, although not all, clients for support for two years. Its not holistic to only provide service to that specific piece of their telecom world.” The ideal would be to oversee the clients entire communications life cycle admittedly, an ideal not easily achieved.

Interestingly, none of the agents interviewed by Channel Partners said they should not charge. Who would be very against it?” said Mark Brown, a principal at Portfolio Communications, a self-described transactional agency that so far has not charged for support. If theres money to be made, most agents will embrace the idea, he said. However, he added, I do think agents tend to give away value … to try to close a sale quickly.” Brown recently did this and is now considering charging for his professional services.  

In May, Brown met an executive of a logistics company. The firm was moving and needed help with its communications setup. On the spot, the executive asked Brown to do some consulting. The expected outcome, of course, was that Portfolio would land the job. But things didnt go as planned. Once the executive declared Brown involved in the process, the logistics companys head of IT said he already was working with a partner and they were too far into the deal to turn around. Portfolio lost out. I ended up doing probably three hours of work” for nothing, Brown said. Sure, the logistics company may send Brown a referral lead but if he had had a statement of work on hand for the executive to sign, he would at least have made some money and secured his place as a subject matter expert. After he told his story, Brown paused in a moment of self-reflection. Then, he said, I need to stop doing this. Im doing too many things for free, and thats not good for me or my existing customers.”

So what has kept agents such as Brown from charging their customers? Some sources say the answer comes down to fear of clients reactions, and then not knowing how, when or where to start charging.

Of course, there still are some agents unconvinced that they need to charge customers for support, all of the time. Steve Roy, owner of TelecomBuyer, is one of those partners and he prefers to serve as a knowledge broker, rather than managed services provider, for his clients. We are a small but effective agency and we like the personal relationship with our customer,” Roy said. We get enough in residuals that doing some of the support services, or most, is not hugely time consuming for us.” Still, Roy leaves the door open. He will charge for support when no commission check will come of the service involved. Examples include when a customer requests a move/add/change or wants help deciding which PBX to buy. Thats when he imposes a one-time professional services fee. I have not yet drunk the Kool-Aid that you have to become an MSP to survive, when we can easily add support services,” Roy said.

How to Have the Conversation

For agents ready to charge for support, its important to learn from those who have made the leap themselves. Lets start with the hardest example: talking about charging for support with the client youve helped for years, for free. This is absolutely the most difficult scenario and scariest for channel partners,” said Vidal. Ive gone through a few of these. None are the same and none are easy. But you just have to do it.”

Use the following advice to create an approach that works best for you.

Script No. 1

1. Fall back on the great relationship you and the client have maintained over the years, explaining that your business model has changed.
2. Propose to provide a contract, complete with service-level agreements and other stipulations, where you are paid for support. You may have enough people on staff to provision this support yourself, or you may outsource to the growing number of companies within the indirect channel that offer this service and pay residual commission to agents. Its totally open for them to accept or reject it,” Vidal said. Explain that to do your job right, and fully, the best-practices approach is to offer full life cycle telecom management.
3. Many customers, who have had to change their business models in recent years, will understand and agree at this point.
4. For those who do not, present another option. First, make sure the client understands that the services they want (and used to get) for free no longer are included with the typical transactional sale. The customer can opt for full management of their telecom environment or choose a lite” version where you help them on a case-by-case system, charging by the hour, for example. The good news is, with preparation and insightful explanation to the client, matters should turn out all right. Ive never lost a client by going to them with this,” Vidal said. Ive had plenty of clients say, Were not going to do the management thing … but we understand and respect what youre saying and understand what were getting.” At that point, many of those customers call on Vidal for support outside of the transaction on a retainer basis.

Script No. 2

1. Ask the customer if they would like help in front of every communications service they use.
2. Next, ask if the client is willing to pay for support.
3. If the answer is no, hold fast to your boundaries and let the customer know youll no longer support them for free. Say something like, Fair enough, the alternative is, theres an 800 number on the bill and the carrier will be happy to support you,” said Laura Bernstein, president of CRA Telecom, which offers support services for agents customers.
4. If the customer is interested, have marketing materials ready to show why your proposal is a limo ride vs. a cab ride. If you farm out support to a third party, know their strengths. If you work with CRA, for instance, you will be able to assure your clients that CRA responds to emails within 15 minutes. We take responsibility for the problem, regardless,” Bernstein said. At that point, you and your customer may continue focusing on core business while CRA handles troubleshooting.

How to Charge for Support

• Monthly flat fee. If you provide the support in-house, have SLAs and other top-level, high-value commitments in place. If you outsource support, your third party should handle those details and likely also bill your customer; you will earn a residual cut.
• Consulting fees. Take Advanced Technology Consulting Inc. (ATC) as an example. The company primarily sells circuits and business phone systems. However, over the past three years, ATC has added consulting, for a fee, to its business model as more end users deploy hosted VoIP and UC. Thats because sales have become strategic, rather than transactional, said Dave Goodwin, co-founder and CEO of ATC. As a result, his company found it necessary to charge, both up front and during the deployment phase. ATCs consulting fees tend to be based on a project work order that includes the price per hour and the number of hours the job will take. Customers then know how much theyll be spending, and for what. But, they must pay for Phase 1, where everything happens for ATC to generate its proposal, before work begins. Phase 2 covers implementation and site visits. Again, customers must pay before the work begins but ATC reduces its hourly rate on Phase 2 because it will be compensated by suppliers. Goodwin said ATC breaks its consulting structure into two pieces since budgets can get cut or executives change their minds. Its important to be paid up front so you earn money on whatever work you do.
• Retainer. Have an agreed-upon hourly rate with your customer so that when they ask you to handle occasional support items, there are no surprises. Telecom Advisors Vidal also offers a block of, say, 20 hours that customers can buy and use as needed on retainer. As they use certain services above and beyond what carrier transactions are, Ill bill them for time and material,” he added.

BENEFITS OF CHARGING

Charging for support yields multiple positive results, sources say. Here are some of those outcomes:

• Charging increases value. We are doing the same work, but its more valuable because we are charging for it,” said Goodwin. Vidal agreed. It immediately separates me from the pack of folks just trying to make transactional sales,” he said.
• Charging leads to new, and bigger, business. As a result of placing a higher value on his expertise and time, Goodwin said larger companies are working with ATC, deal sizes are growing and leads are increasing.
• Charging forces customers to act. Goodwin said clients paying for pre-sales work want to see return on their investment. When they arent paying for a partner to help them, their interest in moving toward a sale is not as urgent.
• Similarly, Goodwin said charging decreases time to close and improves close ratios.
• Charging up front or ongoing improves cash flow and enables cost centers to become profit centers.

Charging works. At ATC, for example, 25 percent of 2011s revenue came from consulting. This year, Goodwin expects consulting fees to comprise a third of his companys revenue. Over at Telecom Advisors, charging has resulted in more than 20 percent revenue growth each year, Vidal said. Agents who charge have the competitive edge, he said. My model has not lost to theirs once. Im not saying my model is better than theirs, Im saying this model is the future, especially with eroding commission margins and services driving down to almost free. … This is a big, healthy portion of what a channel partners business might look like.”

With reporting from Khali Henderson