Revenue Assurance: How Does An Agent Maximize Revenue?

By Bill Power

Whatever your other reasons for becoming a telecom agent, making money is at the top of the list. The recurring, or residual, revenue it generates is attractive. How you build and maintain that revenue stream is dependent on a number of factors, including business model, sales ramp, sales volume and realization, commission rates, customer churn rates and errors.

A quick way to estimate how much gross revenue you will make as a telecom agent this year, over the next two years even the next five years is to use the Telecom Agency Cash Flow Calculator.

Ramp Period. Because the telecom agency business is based on recurring revenue it takes a while to build up a base, so its important to understand how long it takes to get paid on accounts (see chart: When Do You Get Paid?). Depending on the product sold, it can take 45 days or even more for an order to be accepted and provisioned. Billing takes place the first of the following month, usually for a partial months service. Some agent contracts are paid on billing, which would occur at the end of the billing month, so around 90 to 120 days after the sale. Other agent contracts are paid on receipt, which adds 30 days. In general, count on three to five months before the commissions begin to be paid. If you are new to selling telecom services, you should add two to three months to gear up (e.g., secure contracts, complete training, begin prospecting) before placing your first orders.

Because of the long ramp time, you will need to have other income or savings equivalent to five to eight months of living and business expenses in order to ensure a successful startup.

One tactic to speed time to revenue is to look for or negotiate upfront payments. Often commissions can be split between a one-time bonus (usually equivalent to one months billings) and the residual. If you negotiate such a split, the more you take upfront, the longer it will take to realize your residual revenue goals.

Revenue Goals. Once the residuals start flowing, they grow quickly with additional sales. You need to set goals for how much money you want to make annually, and from there determine how much you need to sell on a monthly basis to reach that goal.

To illustrate this, lets assume that you earn 12 percent commission and 50 percent of the first months billing as a bonus.  To make the model more realistic, lets assume 90 percent of your sales are realized (provisioned and billed) and your customer attrition is a half a percent per month.

If you sold $2,000 per month, your gross revenue would be $20,000 in year one, but $130,000 in year five (see chart: How Much Do You Have to Sell?). If you sold $5,000 per month, the gross revenue would be $51,000 in year one, but $325,000 in year five. And, if you sold $8,000 per month, the gross revenue would be $82,000 but $520,000 in year five.

This model shows how even a modest level of sales achievable by a one-man entity can grow into a half a million dollar business in a short time. Keep in mind, however, that these are gross revenue numbers, which dont take into account cost of sales and other expenses.

Realization and Churn. In addition to expenses, realization and churn can have a huge impact on revenue. Using the same assumptions from the model above, lets adjust the realization and churn percentages and see how that impacts revenue over a five-year period (see chart, How Do Realization and Churn Impact Revenue?). At 90 percent realization and a 0.5 percent churn, you would have earned $962,000 in gross revenue over the five years. However, lower the realization to 80 percent and up the churn to 1 percent, and the gross revenue declines to $811,000. Reducing it yet again to 70 percent realization and 2 percent monthly churn, it falls to $641,000.

Business Models. Understanding the impact of realization and churn on revenue can be helpful to choosing your approach to the agency business. There are two fundamental approaches: One, I call the Spaghetti” approach because its a sales-centric model that focuses on throwing things against the wall and seeing what sticks. The other is the Foundation” approach because it focuses on sales and non-sales tasks, particularly around customer care and revenue assurance.

The pros of a sales-only model are that you dont have to worry about anything but sales, its low cost and your attentions are focused. The cons are that the cash flow is unpredictable, customers are less loyal and they churn. You also may end up with a bad reputation with customers and carriers.

In my opinion, this model is not sustainable for the long haul, but its very often how most telecom agents get started. Eventually, they realize that money is leaking when orders are not provisioned and billed or when customers churn and they often decide to shift to a more balanced model either dividing time between sales and service or hiring people to focus on service tasks.

A useful exercise in determining whether or not to make this step is to figure out how much you would have to sell just to maintain your desired revenue level given a certain percentage of attrition. As an example, you would have to sell $2,000 per month to maintain a $100,000 base that has a 2 percent monthly churn rate. For some (say a one-man shop with a $10,000 to $15,000 monthly residual), this may be preferable, but as the base grows, it usually becomes less attractive.

Obviously, the pros of the Foundation approach are that it plugs the revenue leaks, builds customer loyalty and leads to referrals. The cons are that its expensive, difficult and distracts from sales. New agents should not underestimate the time, energy and resources required to make sure carriers are servicing your accounts properly.  

Revenue Assurance. Making sure you are getting paid on accounts sold is critical to maintaining your revenue stream. In practice, this means tracking commissions. This is not a simple process. You will be flooded with data from carriers or master agents, so you need to managed this with a spreadsheet or database program. Its tempting to take commission checks and put then in the bank, but there are mistakes all the time and very rarely are they in your favor. These mistakes include not being paid, your accounts tagged to another agent, not being paid on all services, not being paid bonuses, etc.

There are three phases to this revenue-assurance process:

When you find an error, you need to dispute it with the provider under the terms of your contract. Typically, this involves filing a dispute, documenting it and monitoring it until its resolved. This process takes at least one commission cycle to complete. If it is a significant amount, you may need to request immediate payment, otherwise, your make-up commissions are paid in the following month. This is time-consuming effort, but a critical one, since it involves bottom-line revenue.

Bill Power is CEO of the

Agent Alliance
, a consortium of master agencies, direct sales teams and individual agents. The Alliance was formed in the late 1990s and brings value to its shareholders by leveraging its collective distribution power, providing peer-to-peer benchmarking, sharing industry knowledge and through the consolidation of internal resources. Power previously was president and co-founder of ARG, a founding member of the Agent Alliance and a full-service telecom agency based in Washington, D.C. He sold his interest in ARG in early 2010.