Is that Commission Pass Through Killing Your Business?

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Is that Commission Pass Through Killing Your Business?

Master Agencies are under the same pressure as the carriers: pricing depression is making it tough to hit quota. More and more deals are needed each year.

That typically means that more agents are needed each year to bring in those deals. Unfortunately, the channel is aging. Many are nearing retirement. And about one-third of the VAR crowd pivoted to other tech business models (like coding).

Master agencies have a habit of doing 100% pass through of commission between themselves. That worked when the carriers were paying an override for hitting bronze, silver or gold level (as in the BellSouth program). Then the masters were running off of the override.

Today, we have MDF and co-marketing funds, but mostly these are used to finance road shows and events. These events are for recruiting and vendor awareness, but also face time, training and fun. But there are more and more of them. And carriers have a set budget for marketing dollars. That budget runs out fast!

Those MDF monies are NOT used to float the business.

Let's do the math on a pass through. It takes at least an hour to collect commission from one carrier. That person is making, say, $16 per hour, which is $24 per hour after taxes and benefits, etc. It costs about $2 to cut a check to the other agency. So a 100% pass through is actually costing your business $26! And that is despite the size of the deal.

If it is a cable deal (ARPU of $350) or a OTT VoIP deal (ARPU of $400), the commission is $35 and $100, respectively because commission rates for VoIP are higher. Even if you keep 5%, that is $17 and $20 respectively. You still lose on a 95% pass through.

There are a number of pass through deals. So many that it is hard to track who the underlying contract resides with.

That is also a lot of W-9 IRS forms to track!

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