The Green Sheet Online Edition
October 28, 2013 • Issue 13:10:02
Are your merchant accounts valued and valuable?
Previously, in "Acquiring merchants � at what cost?" (The Green Sheet, June 13, 2011, issue 13:06:01), I discussed what it costs to acquire a merchant account � a question that, based on the feedback I received, was not being truly quantified by many ISOs and merchant level salespeople (MLSs).
I am now interested in exploring what constitutes a "valued and valuable merchant." There are many ways to define these words. Do they pertain to the monthly residual, the time it took to earn the account, the aggravation factor of merchants who place numerous customer service calls, problems in working with the agent who helped win the account, etc.? I think you get the point.
Some accounts provide zero value
As our world becomes more transparent through technology, and our prospecting and time management tools grow more efficient, the value of a merchant account can and should be determined before initiating any sales and marketing plans.
Given the competition in the merchant processing industry (you'll likely agree it feels like everyone we meet is somehow involved in the merchant processing space), why would you spend your precious time prospecting a merchant vertical niche if there were basically no margin left to earn profit and provide value for your hard work.
Some accounts are not valuable. What a novel concept � and probably antithetical to most salespeople's thinking.
(I love when I speak with professional businesspeople who understand this and know the market they want to own � it could be based on geography, industry classification, monthly sales volume, etc.)
How much can you afford?
Hundreds of metrics can be used, but ask yourself � do you really have a vision or mission statement for how you "go to market"? Many MLSs I have met and speak with daily do not. Remember, luck does not determine how to become successful in our industry.
Is every account you have in your portfolio valuable? I would say not. Thinking about the overall course of your career, I would surmise you have boarded some merchants you would just prefer to not have signed. Is that true? How much can you afford to spend on customer acquisition? What's your budget? Have you run profit and loss statements on a monthly and yearly basis to understand these economics?
Given some of the recent news of Super ISOs and ISOs going bankrupt and out-of-business, it is critical that an ISO business owner and sales partners understand what is good business for both ISOs and MLSs.
ISOs and MLSs must both benefit
Good business is good for both parties, and although MLSs always want the best split in their favor, it's virtually impossible for an ISO to pay out a 90/10 split, include a free terminal and provide an upfront bonus. I was an economics major, but even an eighth grade student can figure out that the math just doesn't work.
Many processing partners haven't answered questions to ascertain the real value of merchants in their portfolios because, if they had, they would have realized certain merchants aren't adding incremental value for their companies when it takes a certain number of months to just break even (and I would argue that on small deals at interchange-plus pricing they may never break even), regardless of the equity value.
With regard to MLS customer acquisition, how much can you afford to spend to acquire a new customer? The answer lies in understanding your lifetime customer value (LCV).
What is your profit or residual on a particular merchant? We are for-profit companies and deserve to make money. I'm shocked at how frequently I witness salespeople working so hard to write a $5,000 per month merchant at interchange plus 10 basis points. Use your time properly, and make sure you are being compensated for your efforts.
Once you know what constitutes a valued and valuable merchant and have calculated the LCV, you will not only determine what you can afford to spend on sales and marketing, but you will also be positioned to more easily identify other issues affecting your business practices.
Jeffrey Shavitz is a founder of Charge Card Systems Inc., a division of Card Connect, a nationwide leader in merchant services offering a full suite of products and 12-hour funding. Mr. Shavitz is an active member of The Green Sheet Advisory Board, a contributing writer and the First Data ISO Advisory Board. He can be reached at firstname.lastname@example.org or 800-878-4100.
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