This article is the first in a series that explores select operational issues faced by off-grid solar PAYG companies. Given the nascent stage of the sector, the goal of this series is to highlight critical issues and encourage companies and other actors to continue to identify and surface best practices for how to deal with these challenges.
The off-grid PAYG solar sector has grown significantly over the last few years. A critical component of a PAYG company’s business model is to build out and appropriately compensate, monitor and support its agent networks. In the same way that PAYG agents have been critical for expanding access to finance, many also attribute PAYG agents with the exponential uptake of solar in peri-urban and rural areas in developing markets. However, high attrition rates throughout agent networks in the sector are slowing the potential growth of PAYG companies and negatively impacting customer experience. So what are some of the key factors behind agents leaving their jobs?
A Little Context: Evolving Skillsets
When the first wave of PAYG products hit the market, sales staff was engaged in cash-based one-off transactions, obtaining a commission for each product that they sold. However, while PAYG technology has enabled the rapid deployment of new units (over 700,000 in just 5 years), it has also forced agents to develop an additional set of skills. Agents can no longer focus on one big sale. Instead, they now have to engage in a longer, more sophisticated sales process that includes non-traditional direct sales tasks such as tracking repayments and reminding customers with outstanding payments (some of whom may be their neighbors) to repay every month. This development has forced PAYG companies to rethink the type of employment contract and compensation package that they offer to agents, the robustness of their recruiting processes and how to build the right skillsets in their agents in a cost-effective way. Unfortunately, it seems that companies have not yet figured out how to best manage their agent networks, and the high turnover among agents is becoming a big risk to growth and sustainability of the sector.
Key Factors Behind a Company’s Agent Network
A set of critical operational questions is at the center of managing agent networks,including:
(i) how should companies allocate their agents to the market?
(ii) how should companies compensate their salesforce?
(iii) how should firms support and monitor the performance of their agents?
1. The Agent to Market Conundrum: Who Goes Where?
Companies need to decide how to appropriately allocate their agents to the right market. For some firms, finding the optimal balance between market expansion plans and the size of an agent’s individual portfolio might seem like walking a tightrope. For instance, if a company allocates many agents to an area with a low population density or low potential addressable market, it may achieve its sales targets in that area rapidly, but at the expense of a limited sales record for each individual agent. If those agents are working on commission, cannibalization among their own group might occur – or worse, agents become easy targets for competing companies that are trying to hire an already-trained workforce by offering marginally better working conditions. The opposite scenario is far from optimal either. If a company assigns few agents for a large densely populated market, agents may be pleased by lack of competition for potential commissions, but expansion rates for the company are likely to be lower.
2. Agent Compensation Structure, or How to Catch Two Fish with One Net
The structure of an agent’s compensation is a key part in the sales equation, but companies are still searching for the right balance between awarding for customer acquisition and customer retention. For example, front-ending an agent’s compensation may encourage the agent to sell a product but not to monitor repayment, a critical activity that many PAYG companies assign to agents. One way that firms are trying to address this imbalance is by allocating a percentage of customer repayments towards their agents’ compensation – with long-term agent engagement still rather low, this strategy might need additional thinking. For instance, while this approach may provide incentives for agents to collect payments, the absolute value of such payments may be too low to encourage the agent to incur in additional collection activities (which have a cost to the agent).
Another question that firms are looking to answer is: to what extent should companies shift to a model where agents earn a fixed salary? Some firms offer this as a reward to productive agents –aka. if they keep sales above a specific threshold for a certain amount of months, they get a fixed salary going forward plus benefits. Others only offer fixed salary to senior sales people, who have some role to play in recruiting and managing teams of agents. It’s indeed a big question – how should PAYG firms compensate their sales force? To a certain degree, a pure commission model is aligned nicely. In other words, you earn if you sell. But on the other hand, it causes massive volatility in cash flow for the agent as there are big ups and downs throughout the year, which a fixed salary would help fix. In fact, some studies suggest that the total sales costs are lower for companies with agents on a fixed payroll because they devote much less resources to recruitment/training tasks (2.9% of total sales) than companies operating under a commission model (11.6% of total sales).
3. Unstable Agent Performance: Seasonal or Motivational Factors?
Dealing with cyclical fluctuations in sales is a general challenge for last-mile distribution companies, including PAYG companies. Many companies are reporting significant month-to-month variations in the sales performance of their agent network. And while the cause behind those fluctuations is not always clear to them, the outcome is crystal clear: If an agent is unable to sell during a particular part of the year, they become more likely to switch to another economic activity in search of marginally better benefits. For instance, during January/February in Tanzania, solar sales are significantly down because customers have spent a lot of money on Christmas presents in December and school fees in early January. In down months, agents tend to switch back to other things that they can more predictably earn money on – selling airtime scratch cards, trading, seasonal labor, etc. As the companies and the industry mature, it will be easier to draw conclusions around the various triggers that might cause this. By improving internal data collection and management, companies could derive insights around the causal effects of these issues much quicker and develop products that allow their agents to manage these down cycles.
Lessons can be learned from other sectors that have dealt with similar challenges in the past. The experience of mobile money operators, for instance, can provide insights around how to effectively create and manage distributed agent networks. These companies keep their agents engaged by providing a variety of different product offerings and compensation schemes, including loyalty benefits. Mobile money operators also look to support the performance of their sales force by providing agents with loans and other income shaping solutions, not only to expand their business but also to help them maintain a consistent income level – partially addressing the seasonality in sales that off-grid solar PAYG companies are currently experiencing.
It would be beneficial to the off-grid solar PAYG community at large to keep looking for good practices to keep agents engaged and reduce high agent turn-over. The recently released KPI Framework offers harmonized language on financial performance and portfolio health. In the same way, operational performance indicators with corresponding data collection and analytics solutions could offer immense benefits to companies. For instance, harmonized definitions and KPIs on breakeven point per agent (to address agent performance issues), the number of agents per potential customers (to find their optimal agent to market allocation), and the median agent profit (to better understand how to structure their agent compensation schemes) would be a great start.
In the next article, we will tackle another key operational concern among off-grid solar PAYG companies: customer payment frictions.
Authors: Anna Lerner, Energy and ICT Specialist; Jacob Winiecki, Off-Grid Energy and Digital Finance Specialist; Juan Andres Turner, Energy Finance Specialist.