Mitch Russo is a software industry pioneer who in 1985 founded Timeslips Corp, which he in turn sold to Sage Plc when he became the company’s COO of U.S. operations. While at Timeslips and Sage, he created the largest networks of certified consultants in the software industry. After leaving Sage, he helped Intuit Corp create their own Certified Quickbooks Accountant Network. Moving back to Boston, he became a member of the 128 corridor VC community, first as an advisor to startups, and then as the CEO of the largest online furniture shopping site early in 2000, FurnitureFan.com.
Mitch has also been the CEO of Tony Robbins and Chet Holmes Business Breakthroughs, Inc. While there, he built a coaching, consulting, and training business of 12 employees and 300 virtual staff that grew to $25M in revenues and was administered from a single room. Mitch is also the author of the Amazon #1 Best Seller, The Invisible Organization and is currently focused on helping CEOs building independent “tribes” of certified consultants and agents.
Finally, Mitch is an immensely talented photographer who specializes in outdoor compositions of unearthly beauty. The picture at the top of this piece is not CGI nor stolen from a game. It’s an outdoor still from his Iceland slide show. Click here to see more samples of Mitch’s work. These are good for your soul.
How do you manage agent payouts? And what are the recommended rates?
First, when paying your agents, you have to be very mindful of tax laws. I recommend not certifying individuals whose are independent contractors; they should be a federal corporation with a tax number ID. Otherwise you and they run the risk of constantly being audited. You should always be paying a company as you build up your vendor network.
As for rates, let me first set the stage. Let’s assume a SaaS subscription that costs $100 a month, $1.2K per year. I’ll also assume you have some basic metrics in hand, such as your LTV, MRR and ARR. Let’s also remember that the leads you pass off to your agents consist mainly of potential sales we couldn’t close. And the agent has paid for their certification, so your cost of sales is $0.
It’s also important to be able to offer your agents a business opportunity to earn a six-figure salary, at least $100K. They’re going to need to work hard to earn that money, but it must be achievable. Also, all these figures assume the agent is currently certified. Once an agent’s certification lapses, all payment cease immediately.
With these proviso established, let’s begin. In the last article, we discussed payment scenarios. So, in the case of a model where you’re paying an upfront bonus and a recurring revenue stream, I’d recommend a one-time upfront payment of 18% of the deal value and a recurring payment of 6% to 12%. The upfront payment should be made between 60 to 90 days after the sale has closed in the event the client cancels the service during this period. When establishing this cutoff point, you should know your average churn rate on new sales.
The recurring revenue part would be paid out over 18 to 36 months. If the client cancels the service during that time, these payments stop, obviously. I strongly recommend that you do not attempt to clawback payments from your agents in cancellation or non-payment situations. This is self-defeating and leads to bad relations with your agent community.
In a situation where you offer no upfront payment, I recommend a recurring revenue payout that ranges between 12 to 18%. In some cases, the payout may decrease X% over time. I recommend payments be made over the same time frame as in the first case.
In situations where there is no recurring revenue paid out, simply an upfront bonus, I recommend the agent receive 100% of the first month’s payment. The payout should occur after 90 days to prevent scenarios where an agent has a friend sign up for the service, then quickly cancels the service.
There are other factors that can come into play. Are your agents paid on cross and up-sells? Do you provide overrides and bonuses to agents who are especially productive? Will there be outlier situations where you’ll need to pay out recurring revenue to your agents indefinitely?
Also, your program should not be structured so that agents can reach their basic six figure goal simply via sales. Agents are supposed to bring value added skills and expertise to their customers. A good rule of thumb is that 30% of their revenue should be generated by providing value added services.
How large should your agent channel be? How many people/organizations?
This is very dependent on several factors. I’d like to use a current client I’m working with as an example of how you might staff your agent channel. This company has a problem many would like to have—too many leads. They sell an information product and service and are generating around 10K leads per month. They don’t have a sales force in place and no agent channel. The way they respond to leads right now is via automated emails. That converts around 1.5% to 2% of their leads to sales.
They’re in the process of building their agent program and intend to disburse 5K of their leads into this channel. They calculate 20% will convert to sales. The spreadsheet model they’re building starts with our 100K in yearly revenue for the agent and builds backwards from that. Size of sale, time to close, LTV, and configuration and onboarding are all baked into their model. The size of your agent channel can and will vary widely depending on these variables. If you follow their example, you’ll arrive at a reasonable number for your agent channel.
A tip I’d like to share is once you established the type of payment model you’ll use and the payouts, test the program with your best sales people.
What is the annual churn rates on agents?
A well-run program should see a churn rate of no more than 5% to 10%. If you’re simply certifying people and not providing a business model that enables your agents to make money, it will be 100%.
Let’s examine how you monetize your agent channel. What are the components?
There are several components. They include:
- For at least the first year or two, your certification and recertification fees will be the major revenue source. They should be discounted to current holders at 30% to 50% to encourage your agents to maintain their investment in your program.
- Second is revenue from sales closed. Eventually, this component may generate more revenue from certification fees, but it will take several years to build to this.
- Revenue from your yearly symposium. You should charge a reasonable amount for your agents to attend and create a program that delivers great value. Advance product training, snapshots, and previews of new capabilities that will be released in the coming months. New marketing programs and tools for exclusive use by your agents. Optional tracks pay to attend tracks, such as sales training, to enhance your agents’ business skills and acumen and build a stronger agent culture.
We’ve seen situations where companies combine their user and channel events to save money. What is your opinion on this?
I’m not in favor. If you do hold these events at the same time in the same location, I recommend keeping the two groups completely separate. Your subscribers should not be attending agent training and events unless they are themselves certified.
In my experience, we’ve been able to generate mid-six figure revenues from a well thought out symposium program. And you’ll see an uplift in sales after the event.
You mentioned specials tools for agents. Can you give us an example?
Yes. A SaaS company called LinkedSelling has developed a program that focuses on using LinkedIn as a lead and marketing tool. They’ve developed a tool that highly automates the process of managing your LinkedIn profile and the system’s various services. This tool is not available to the company’s subscribers, only its agents. It helps them offer value-added services to their customers and also ties the agents more closely to the company. If they drop their certification, the agent loses access to the tool and their customer’s programs lose some of their effectiveness.
You also mentioned new marketing programs for your agent program. Do you have an example?
Yes, an “ascension” program. This is a very powerful addition to your marketing mix, but your agent channel needs to be up and running before you implement it. An ascension program consists of the following elements:
- An existing agent pays to become a mentor to other agents. I suggest when you initiate the program, you start with a beta group of your best agents.
- The mentor takes 10 new agents under their wing and tutors and manages them for a year. During this time, the mentor receives 15% of the new agents’ revenue. The new agents will pay this because they’re receiving accelerated training and day to day info on improving their skill and building their business.
- After a period of time, the new agents “graduate” from their mentorship and the 15% kickback ends. Then, upon successfully closing and supporting X number of new clients, typically three to five, they become eligible to become mentors themselves. The length of mentorship can vary, from 90 days to as long as six months and might combine with closing sales.
The above describes a basic program. There are many variations you can build upon this foundation.
Also, as with VARs, I’ve worked with agents to create co-op advertising, local event promotions, advertising, and so on. In certain markets, we’ve found radio works very well to drive agent leads. I’ve managed media buys we’d purchase five sixty-second spots a day for a month at a cost of about $5K. We’d charge local agents $500 to participate in the program. We’d arrange for the lead to dial directly into the agent’s local office, used a virtual call center to route numbers, provided scripts and tools to help them close sales, and setup autoresponders to manage leads that went directly to the agent’s website.
You’ve mentioned the agent culture. What are the elements of this culture and how do you create it?
A healthy agent culture consists of a community of people who are highly integrated into your company’s infrastructure and have a major stake in its success. In the agent programs I’ve created, I’ve focused heavily on creating a communal feeling and spirit. I emphasize creating interaction between agents, and if your SaaS system has an integrated community, it’s very important to use it as a way for your agents to stay in touch and organize themselves. I recommend creating a dedicated program manager, backed up by a senior support representative, to manage the group.
Integrated communities can be very powerful in building an agent program as they enable to you add reputation management and gamefication to certain aspects of your certification and training programs. For example, some of your agents may decide to participate in providing online support to your subscribers in an effort to keep their skills sharp, learn about new business opportunities and scenarios, prospect, and burnish their business reputations.
There are many ways to build this community spirit. Online virtual lunches where you arrange for everyone to receive a free pizza delivered, a Starbucks run, periodic meetings at local company HQs if you have them and so on.
We’ve heard of programs that create regional agent “teams” that compete against other in light online gaming contests such as quiz contests and similar events.
That’s an interesting idea. This is an area where you should be creative. But there is one danger I have to caution against. As you build your program, you’ll often be contacted by agents who will offer to do things for free. In my experience, I’ve had agents volunteer to create manuals, speak for free at different venues, work at trade shows as presenters and similar activities.
It’s very tempting to accept these offers, but it allows some members of the agent community to position themselves as “special” to the rest of community, and this creates bad blood over time. Offer to pay for these services, or provide a means for the entire community to participate if they wish. For instance, a wiki to which anyone can contribute might be a good alternative to having a single agent or group create your manuals.
A final point is that you should create a formal code of ethics for agents. I’ve provided a link to a sample document Softletter readers can download and use as a starting point to create their and ethics guide and policy for your agents.
In an upcoming article by Mitch, he’ll discuss the old 80/20 rule in software sales. This rule states that 20% of your sales force will generate 80% of your sales. While something of an overstatement, the research found in the upcoming new release of our SaaS Direct Sales Compensation Report tends to bear this observation out to a surprising extent. But what if you could create a sales force consisting entirely of 20 percenters? Mitch thinks it can be done and will discuss how.