In Part 1: Why Reselling Business VoIP is for Suckers, we talked about how I got played for a Reseller Sucker, and some questions you should ask yourself and your provider partners to determine if you also suffer from “Reseller Sucker Syndrome”.
In this installment, we will talk about how companies get trapped as a Reseller Sucker, why traditional alternatives are costly and difficult, and a new “Third Way” that can help you create a future where your destiny is your own.
Previously, we revealed the naked truth about Business VoIP reselling:
Lesson #1: IF YOU DON’T OWN THE END USER, YOU ARE A SUCKER.
The typical reseller arrangement is highly asymmetric and dysfunctional. The reseller’s good will and hard work facilitated the customer relationship. The end user and provider both hold the reseller responsible for maintaining the business relationship. And finally, the reseller’s reputation suffers the most if the relationship sours. And yet, there is simply no denying that if you do not own the customer, you have very little control over the most important aspects of making the relationship a successful one for your customer, let alone a profitable one for you.
Why do so many accept this as their lot? How did this situation come to be? It clearly falls far short of what we should expect for our hard work.
In my opinion there are three principal reasons why this status quo in the telecom sales channel has prevailed for so long:
1) It is a very lucrative business.
Telecom was one of the first industries to recognize the power of recurring revenue, and it has been a gravy train ever since. Flawed as the system is, successful resellers can make a lot of money, so they accept things as they are.
2) Networks are expensive.
While deploying a VoIP network requires a fraction of the capital needed to build a traditional TDM network, it remains an expensive and complicated endeavor – well beyond the means of most resellers.
3) Taxes and Regulations.
Telecom is highly regulated and heavily taxed. Setting up an operating telco is not, and will never be, a simple matter of hanging out a shingle. There are serious consequences for those who try to operate outside the rules, and the rules can be very complicated.
The typical revenue split to the reseller is somewhere in the range of 10-25%. I won’t quarrel with the fairness of the split, the industry has had plenty of time to arrive at that. But even if we assume that the reseller’s commission is fair, pricing transparency and lack of control over end user discounting typically put the reseller at the mercy of the provider and it certainly reduces his ability to bundle services attractively or otherwise deal creatively with the customer. This is a key consideration: If you own the customer, you decide what your margins need to be on a given deal. You decide how to structure the deal around the customer’s budgets and schedules. You decide when it’s appropriate to give a little in the short term to build the relationship for the long term.
Have you already recognize the value in owning the end user? You have probably contemplated or maybe even attempted providing Business VoIP services yourself. There are a number of reputable vendors and Open Source projects that can provide the core network technology to provide VoIP service and even Hosted PBX. The expense and complexity associated with this effort will vary depending on the level of functionality, number of customers and degree of reliability desired, but the financial commitment required to build, maintain, and manage a commercial quality Business VoIP network has proven to be beyond the means of most resellers. Of course, a savvy aspiring provider would also have to ask himself honestly if he can realistically achieve the reliability and functionality required to successfully compete with the established providers. The bar is high.
A number of enterprising DIY providers have decided to take the leap and set up shop as a service provider. Because they usually serve a relatively small number of customers, and because the cost and complexity of establishing and maintaining compliance is high, the vast majority of these providers operate “under the radar” of tax and regulatory authorities. Many mistakenly believe that because they pay taxes directly to their underlying carriers that they are not required to file and report with the FCC and state authorities. They are mistaken, and the fines associated with non-compliance or non-payment can be millions of dollars. Of course, ignorance is not an excuse. Is it worth it to put your entire enterprise at risk? Most non-compliant providers would be compliant if it wasn’t so darn difficult. Having someone on your staff that has the knowledge and expertise to keep you legal is just not a realistic option for most small businesses.
So, we see that while selling business telecom is a profitable business, the typical reseller is stuck between two unpalatable options: On the one hand, suffer with “Reseller Sucker Syndrome” (a rock). On the other hand, make the sizable investment and commitment required to build out a network become an FCC licensed and registered service provider (a hard place).
Would you be interested if I told you there is a “Third Way”? FracTEL is now offering the industry’s first true turnkey service provider program, a solution that makes owning the customer easier and less expensive than it has ever been before – with no compromises. Let FracTEL help you seize control of your destiny as a reseller.
Visit FracTEL at Channel Partners 2017 (Booth#363), April 10-13 in Las Vegas or call us at (855)FRACTEL to learn more, and get the cure for “Reseller Sucker Syndrome”!