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The Green Sheet Online Edition

November 09, 2009 • Issue 09:11:01

Start with ripples, not waves

By Jeff Fortney
Clearent LLC

Often newer merchant level salespeople (MLS) will say, "I am concentrating on bigger merchants; my time is too valuable otherwise." But after they gain experience, the same MLSs will say, "I'll sign everyone and anyone, the smaller the better."

As they gain experience, wise MLSs change their minds and adapt their expectations. Sadly, many others don't have this epiphany before it's too late, and they don't survive in the business. But there is a way to avoid this: Start with the same mindset as experienced MLSs. All that is required is a different approach to value.

In the payments world, it is all too common to consider the value of merchants as solely the revenue earned on their processing and ancillary services. Yet, is that a true measure of a merchant's worth? Is that all a merchant brings of value to the relationship?

Experienced MLSs know that a merchant's true value is not just gauged in terms of revenue. A merchant's true value can be likened to the ripples of a pebble as it drops into a pond. No matter the size of the rock, ripples form and expand.

If you visualize the rock as a merchant added to your portfolio, these ripples can represent the ongoing benefit found by the original signing of the merchant. These range from residual income to referral value.


In fact, r-i-p-p-l-e-s can be used to convey why experienced MLSs willingly seek out small to medium-sized merchants, as follows:

R= Referrals
I= Income
P= Performance
P= Portfolio Protection
L= Loyalty
E= Ease
S= Security

  • Referrals add value to every merchant. Experienced MLSs know that small to medium- sized merchants are more willing than larger merchants to share information with friends and neighbors.

    One small merchant can result in 15 new merchants by providing referrals. And 15 average-sized merchants are better for your portfolio than one large merchant of equal size for many reasons, including that they will generate a much higher rate of return.

  • Income isn't always the residuals earned. It is also the return on your time. In essence, a smaller merchant makes you a better percentage return than a large merchant who requires a greater time commitment to sign.

    Smaller merchants also offer added cross-selling opportunities, meaning more income sources from the same merchant.

  • Performance is a measurement of how well the small to mid-sized merchant adds to your long-term revenue and portfolio value. Small merchants don't survive if they stay small. As such, they tend to grow in size, and grow in earnings to you. Their performance is not static; you can expect it to grow over time.

  • Portfolio protection can be demonstrated when one small merchant leaves your fold versus the loss you experience when one large merchant defects. The impact of the loss of a small merchant is not significant compared to the loss of one large merchant. Therefore, the more small merchants you have, the less impact attrition has on your wallet.

    There is also the impact on revenue. The loss of a small merchant may hurt, but it may only account for 1 to 2 percent of your portfolio. Losing a very large merchant can result in a loss of 30 to 40 percent of your portfolio, a much more painful situation than the former.

  • Loyalty is greater with small to medium-sized merchants. In almost all cases, they choose to sign with someone based on more than simple math. Emotions are involved. They also have a personal stake in the decision; a wrong decision impacts them monetarily.

    This simple statement can not often be made about large merchants. Decisions are not made with emotions in most cases because the decision makers are employees, not stake holders. Loyalty protects your portfolio and protects your revenue.

  • Ease defines the sales process. A small to mid-sized merchant has, on average, a one-week sales cycle. The larger merchant may take up to nine months. Getting a no in a week is acceptable; a no in nine months could shut down your business.

    It's simple math. Signing a merchant a week who processes $10,000 a month will result in 36 signed merchants over that nine month period for $3,600,000 in processing. Your return on that merchant base would be higher than what you would receive on one merchant processing the same amount.

  • Security is found when your portfolio is growing, with limited attrition, and a mix of merchants that can withstand a downturn in any market segment. One large merchant can put all these in jeopardy. Using all the above steps can ease that concern.

Using the r-i-p-p-l-e-s approach is not saying that signing a large merchant is a bad thing. It isn't. Instead, by following this approach, the large merchant will be a better fit to your overall portfolio and will not dominate it. Try it. Who knows? The ripples may make you buy a bigger boat. end of article

Jeff Fortney is Director of Business Development with Clearent LLC. He has more than 12 years' experience in the payments industry. Contact him at jeff@clearent.com or 972-618-7340.

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