Agent Commissions: Are You Selling Yourself Short?

When I started cyLogistics (News - Alert) Inc. a long time ago, it was started as a representative company. We built national distribution and national reseller sales channels for companies in the U.S. We worked with many companies from Europe, Australia, China, etc.

We would sign five-year contracts or contracts that auto-renewed after the initial three years. There was a no termination without cause clause. We did it this way because we earned our money as commission on the sales we generated.

As you know, there is a long lead time to getting channel sales started. Depending upon the product, the sales cycle may vary in the amount of time, but the product or technology being introduced will have to go through the following steps:

• Agent training;
• Marketing development;
• Product launch;
• Customer introduction;
• Customer evaluation;
• Customer negotiation;
• Customer purchase;
• Customer marketing;
• Customer sales; and
• Customer repurchase.

The payback starts three months to a year-and-a-half after the sales cycle has started. If you are getting paid a monthly retainer, this may minimize your exposure, but does not eliminate all of the costs and time you and your firm are investing.

One nice thing about the five-year agreement is it helps you weed out the serious vendors from those that are just trying to take advantage of you. Any effort to enter the U.S. market must be made with long-term intentions. If it is not long term, you are not interested. You need vendor commitment and buy-in. I have provided a chart that I used to demonstrate why the five-year contract was required.

It takes two to three quarters to get sales started in the channel. In the meantime you’re going through the following sequence: contacting the prospect, getting the prospect interested, going through an evaluation period and signing the agreements. You do not start making money back until the second or third year. A retainer helps, but you are still out the money, time and energy until well into the contract.

The numbers used in the chart were put together to provide an example. You would want to put in the numbers that reflect your actual investment per product based on the individual product.

If the product does not move, you will let the vendor out of the contract early. You do not need to waste your time or theirs. If it does start moving, you do not want them to hire a direct sales force right away and leave you after you have made the investment. If they do, then they need to buy out the contract. You negotiate this based on how successful you were and where you think the product sales/commissions will be by the end of the five years and into the future.

In order for this program to work, product quality is the most important product attribute. If the quality is not there, your sales efforts will be futile and you will never recover your investment. It is imperative that you listen to the customer feedback and pass it back to the vendor for corrective action.

So how does this apply to VoIP sales?

If you are considering the sale of VoIP telephony, make sure you chose the right partner. Why sell for a company that is not committed to long-term partnering. If the provider is only going to pay for the initial sale, or they are only willing to provide commissions for a year, or commissions are decreased after each year, the provider is only looking out for themselves and not allowing you to recover the investment you have made.

If you want to be successful, let the people selling for you be successful. IT

Don Witt is president of cyLogistics (www.cylogistics.com).

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