Here is the latest article on making money in VoIP and how to partner/resell the products and services needed to make you wealthy in the IP communications business. John McDonald will be on my panel next week at Internet Telephony Conference & Expo that focuses on Making Money Selling VoIP. The target for this session is resellers looking for companies who have products and services worth reselling. I sincerely hope to see you there.
When Everyone Wants to Be Your ‘Partner’ … Be Careful Who You Walk Down the Aisle With (Part 2).
By John McDonald, Kayote Networks
[The second in a series of articles. Follow this link for Part 1.]
As we discussed in the first part of this series …choosing a partner is just that. You must find an Agent Program/Reseller Program or White Label solution that fits both you and your customers’ needs. I appreciate the feedback that I received on the first installment.
Once you have made the decision to choose a partner or partners there are a number of points in the contract that you will need to be aware of. Some agreements are as short as two or three pages while others seemed to have been written by a legal team bent on hiding and confusing issues important to your company. Below are the typical sections in an agreement and a short explanation as to their relevance to your partnership:
Definitions — This is very straightforward. Pay attention to any clause that says "Qualifying Usage and Fees" as this affects your commissions.
Appointment — Gives you the right to market and represent products.
Limitation on scope of authority and relationship created — Need to be careful here. Your Agent Manager may have been using the word "Partner" … this section articulates how you may market and use your relationship. This section will also let you know how you may utilize sub-agents and to how many levels of distribution. Also be aware of the following language … your "Partner" has the right with notice to amend your territory or product and if this is an Agent Agreement they clearly state that the customer is not yours.
Agent responsibilities — Outside of the normal language look carefully at statements that appear contradictory such as "Agent must maintain a direct relationship with Customer" and "If agent causes customer to switch products to another provider" and consolidate that with the section titled Limitation on Scope. This is also the part of the contract where you acknowledge your complete understanding of the rules and regulations of the FCC and your state and local regulatory authorities … that’s a joke.
Rates and tariffs —You need to agree not to quote price points not agreed to by your Partner. Get all quotes in writing — that is not standard list!
Promotional and marketing activities and materials –– Be careful here as I have known of Agents who have lost their partnership over misuse of Partner Logos. Read this carefully. Additionally, while you are negotiating this point ask to see if the Partner offers marketing incentive materials and or budget.
Order processing procedures and limitations — Your Partner has the right to reject any order, for any reason that you submit.
Activation limitations and delays — Essentially, if the order is hung up in provisioning through no apparent fault you may NOT try to lead your customer, sorry Partner customer, to a different provider.
Service authorization; letters of agency; other verification procedures — Keep accurate records!
Changes in customer service and termination of services to customers — This section allows your Partner to change rates and rate plans. You will also acknowledge that they can terminate your customer — sorry there I go again, their customer — for any reason.
Commissions — This is the fun part. In a pure white label or reseller market this is fairly straightforward. Bear in mind that you may still be held to minimum commitment for volume of sales. In the pure agent model you will be held to a minimum commitment that you will be able to ramp-up to. Additionally, if you fail to hit this commitment, in some cases, you will forfeit your future commissions … you have got to be kidding me! You will also be paid commissions on a sliding scale based on the total volume of qualifying services (see above). Be very careful of language that indicates that they can change the commission structure at anytime with a (blank) day notice. Be aware of language that can cause termination based on the percentage of bad debt.
Indemnification — Interesting section in that what it comes down to is that regardless of how messed up an order gets or disrupts a customer’s business regardless of fault … your Partner can never be held legally responsible. Nice.
Term and termination of agreement — Usually given for 1 or 2 years with automatic renewal. And by the way, after termination the customer belongs to your Partner (you did sign a non-compete!)
Insurance — Some require from 1-2 million dollars of coverage. Fairly standard.
Assignments — You cannot roll your existing base into a new company or a master agent.
Governing law — Get used to this … Delaware, not negotiable. Although you may luck out with another state of jurisdiction.
Consider: How does your Partner handle conflicts with direct sales staff? Does the Partner have "Channel Neutrality"? How would they handle up-selling an existing customer?
Once the agreement has reached the point of signing you will need to start the process of nurturing your relationship. We will address this in the next installment. We will also address some examples of companies and master agents worth reviewing.
John McDonald, VP of Sales and Marketing at Kayote Networks, has had many successful years managing third party distribution. If you are interested in presenting your agent/distribution program please email him at email@example.com with a short synopsis.