Part of my responsibilities here at Innovative put me in charge of making sure we make sound business decisions when it comes to negotiating our agreements with carriers and suppliers. I always try to have the strongest language possible that protects us and our partners’ revenue streams from the carriers. Here are just a few of the critical points to make sure we protect our residual income stream when negotiating a new or existing agreement with a carrier.
We try to negotiate our residual percentage around maintaining a total book of business rather than a new annual commitment each year. If the carrier’s product becomes unsellable, our commissions are in jeopardy. We see this example becoming more common as the CLEC’s are dying out.
I always try to negotiate the carrier into paying on billing for the life of every customer we bring to them, regardless of whether the agreement is terminated for cause or convenience. Some carriers will agree to this and some will not. We have used any leverage possible to push the carrier into agreeing to these terms, including shutting down new sales if we are negotiating an existing agreement.
Termination defines what happens if the agreement is cancelled. If we don’t have an Evergreen Clause built into our agreement then there are usually two scenarios:
1. Termination for Convenience. This happens when a partner or master agent has not violated the contract, but the carrier wishes to terminate the agreement. A couple topics to consider under this scenario:
- What happens to commissions if a carrier terminates for convenience?
- Do they continue to pay commissions? If so for how long?
My take is a carrier should pay for the life of a customer’s billing on their products and services if they terminate for convenience. If the carrier won’t agree to this, most of them will agree to a revenue tail of 2-5 years after termination for convenience. If they won’t agree at minimum to paying a revenue tail, we won’t sign the agreement.
2. Termination for Cause: Material Breach. This happens when a master agent or sub-agent partner commits a material breach of the agreement that is not cured.
- We try not to let the carrier have language that states, “Partner may not violate or breach any material provision or clause of this agreement.” This type of language is very broad and gives the carrier too many scenarios they could use to try to cut our agreement and our commissions. A carrier should have 5-10 points that are considered a material breach. If we have this language, it builds more protection into the agreement.
- Usually we are able to get the carrier to define what constitutes a material breach, and make them agree to a minimum cure period of 30 days. The cure period is critical because it allows us to remedy the breach and re-instate our agreement/commissions.
Many carriers have a difficult time understanding why I negotiate channel agreements as hard as I do. I always tell them the contract is worth zero at the present time, but in 10 years, the contract could be worth millions of dollars to our company and our partners.
I will always negotiate the agreement as if Innovative had a $10 million book of business with that carrier from day one. I consistently remind myself that the relationship between a carrier and master agent is supposed to be a partnership for both sides to grow revenue and profit. If a carrier refuses to work with us on contract language it is probably not a going to be a good partnership anyway. At Innovative, protecting our partners’ revenue streams will always be one of our highest priorities.