The Green Sheet Online Edition

June 26, 2017 • Issue 17:06:02

Street Smarts^SM

Finding profitability in a competitive market

By Aaron Nasseh
Finical Inc.

There is no question that the merchant services industry has become more competitive with each passing year. Noticeable margin compression has occurred as a result. Unfortunately, many sales professionals are struggling with this and have been unable to adapt to the changing market. However, this doesn't have to be the case, because very lucrative opportunities are still available in the merchant services industry.

How we got here

Before I suggest solutions that may enhance the profitability of your business, I'll review some of the reasons that got us here:

• Price war: I believe most of us have been guilty of having a pricing-focused sales approach. When this occurs industry-wide it inevitably leads to lower margins and higher attrition. Furthermore, while we were busy undercutting each other's prices, merchants learned the game and further increased the speed of margin compression by actively soliciting lower bids and demanding better pricing.
• Free terminals: As if selling on price alone weren't bad enough, we sweetened the pot by offering merchants free terminals as well. Of course, nothing is free, so this only increased our cost of acquisition while lowering our margins. This may have seemed like a good solution as it enabled agents to sign up more accounts, but it had a direct negative impact industry wide on margins and attrition.
• High upfront bonuses: Upfront bonuses have played a much larger role in lowering margins than most people think. High upfront bonuses invited countless untrained sales agents into our industry, who were only interested in the quick buck provided by upfront bonuses.

  This further drove profitability down because the agents had neither the necessary sales skills nor the incentive to negotiate favorable terms with merchants. Instead, they lowered pricing as much as necessary to close deals and receive upfront bonuses. This cycle continued when the next agent visited the same merchant and cut pricing even further.

• Lack of sales training: As the industry became increasingly competitive and free terminals and upfront bonuses dominated the industry, many smaller ISOs changed their business model from quality sales agents, to recruiting and deploying as many bodies in the field as possible.

  They started recruiting inexperienced agents who were lured in by the prospect of high upfront bonuses and free terminals, and when pricing is not an issue and you're able to give merchants free terminals, and you can place them on a month-to-month agreement, then there really isn't much selling taking place. More and more sales agents without real training or understanding of how to build a valuable portfolio flooded the market and drove prices down.

Other factors have also contributed to lower margins in our industry, including regulations and costs; however, this article is focused on selling as it relates to smaller agents and ISOs, and while every ISO has been affected by lower margins, it is the smaller ISOs that have suffered the most. In fact, this market has enabled the larger ISOs to participate in very favorable acquisitions of the smaller ISOs.

What we can do

Now that I've reviewed some of the concerns, here are a few suggestions:

• Ask yourself what you offer that is different: If you don't know this, you're in trouble. Hopefully, your answer is not that you offer the lowest pricing. If your goal is to improve your margins and lower your attrition, stop selling on price, and start focusing on value-added benefits for your customers. Something has to differentiate you from the other five salespeople that have visited your prospects in the past week.

  Whether you're going to offer them a POS or technology solution that will help improve their efficiency, financing solutions to help them grow their businesses, marketing solutions, or a list of other services that are available to a merchant but you're simply not marketing them, you need to provide a real value to the merchants.

• Train your agents to sell: Focus on training your agents to sell and provide them with the necessary tools to succeed before sending them into the field. You can't send untrained sales agents into the field and expect them to perform like seasoned professionals; that's just wishful thinking. Sales is a skill that must be learned.

  Unfortunately, most smaller ISOs don't take the time to train their agents. If you think training is expensive, I can assure you that the cost of training is a fraction of the money untrained agents are leaving on the table. Train your agents to sell, and reward them for their performance. In today's market, there are countless opportunities to sell or lease POS systems, business and consumer financing and many more solutions that merchants could benefit from.

• Focus on a niche market: Sometimes the best way to create a well-trained sales force is to build a specialized team that targets a specific market and becomes expert sales professionals in that market. Not only will this help you to develop a better sales team, but soon enough you will also make a name for yourself in that market. Learn about the best technological solutions available in your specific niche so that your team may present those value-added services to the customers. If you train your team to focus on solutions that will help their customers make more money, then saving them money on processing becomes a non-issue.

Aaron Nasseh is the founder and Chief Executive Officer at Finical Inc. His extensive sales and management experience includes having previously served as the General Manager of CardPayment Solutions and Vice President of Sales at iPayment Inc. He may be reached at anasseh@finicalinc.com or at 818-330-4055.

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