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Table of Contents

Lead Story

Payments technology twists, turns, surprises

News

Industry Update

Fed puts payments in crosshairs

SEAA's welcome return to New Orleans

It's curtains for AmEx key fobs

Visa IPO largest in U.S. history

Interchange fuels ACH interest

Features

GS Advisory Board:
Payments experts weigh in on Visa's IPO - Part II

Advanced functions and the future

Tracy Kitten
ATMmarketplace.com

Views

Tick tock: Time to comply with PCI

Biff Matthews
CardWare International

Education

Street SmartsSM:
A passion to share

Jason Felts
Advanced Merchant Services

SAQ sun sets on smaller merchants

Michael Petitti
Trustwave

Make a plan to avoid failure

Jeff Fortney
Clearant LLC

Pinpointing compliance issues

David Mertz
Compliance Security Partners LLC

The pinch of PIN debit

Ken Musante
Humboldt Merchant Services

Search for talent made easier

Curt Hensley
CSH Consulting Inc.

Company Profile

Greystone Business Resources Corp.

New Products

Online friend in fraud fight

CompliancePal
Company: Compliance Coach Inc.

Customer care for the little guys

StreetSmart
InfoStreet Inc.

Inspiration

Destination: Sanity

Miscellaneous

POScript

Departments

Forum

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

April 14, 2008  •  Issue 08:04:01

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Make a plan to avoid failure

By Jeff Fortney

Why do some merchants fail? The downfalls typically fit into one of three categories: lack of business, too much business (causing inability to complete orders) or expense mismanagement.

Sadly, merchant level salespeople (MLSs) also fail. This can occur as a result of the same issues merchants have, but under circumstances unique to MLSs.

My goal is to help you, as ISOs and MLSs, understand why and how these fiascos occur. By knowing what can cause points of failure, you can dramatically increase your opportunity for triumph.

There are three primary causes of failure:

Getting stuck

The inabilty to launch is simply the lack of planning when a business is getting started. For MLSs, this usually means they are not signing enough merchants or they're not retaining the merchants signed. Without focus on both the initial merchant signing and merchant retention, MLSs won't have successful businesses.

Signing merchants can be difficult. It takes a planned and well-coordinated effort. It also requires a documented sales plan that MLSs should review, adjust and execute every day.

The sales plan must include repeatable steps clearly defined with measurable goals, and it should incorporate retention efforts.

Steps can be as simple as making follow-up visits to new merchants. Make calls to confirm if merchants have received their welcome kits and are successfully processing. As simple as this sounds, it's a step that many competitors will miss and one that an MLS will need to make to establish a stronger relationship, new sales and even generate referrals.

Before MLSs start to sell, it's crucial that they have a clear understanding of their potential earnings as well as their partner costs. MLSs who aren't realistic about earnings potential or fail to closely examine their fee schedules may be setting unrealistic financial expectations and, by doing so, are setting their business plans and themselves up for failure.

The next step is to ensure that before a contract is signed, MLSs have a full understanding of any costs that may occur throughout the life of a given merchant's business. They also must understand what generates fees and which costs can be passed on to each merchant.

If MLSs don't fully understand their partner fees, they will either miss payments or won't recognize them as expenses.

The result is a price quoted that either doesn't cover expenses, or significantly impacts the revenue expected from the relationship. All too often this situation isn't discovered until the first residual report - too late to correct for existing merchants.

Even if MLSs fully comprehend all costs, their income can fall extremely short of expectations. To accurately project their target income, MLSs must understand the marketplace, the competition, the going rates in the market and the average merchant size.

For example, you can't make an earnings projection per merchant based on $200 per month when the average merchant will generate (at best) $75 per month.

By fully understanding all of the factors, you can make realistic projections and design a sales plan that will enable you to successfully reach and even exceed your goals.

Fading out

At this point, I've discussed creating and working on an effective plan. However, there is yet one more bridge to cross in creating long-term business success: overcoming the plateau effect.

This condition is rampant and can ultimately affect all MLSs in the business. It cannot be avoided. The symptoms are subtle, but the impact arises at the worst possible moment - the brink of business success.

The plateau effect consists of two parts: the market plateau and the portfolio plateau.

The primary symptom of the market plateau is a continued slowdown of new merchant signings, even though an MLS's efforts have continued at the same pace. Those suffering this effect are approaching a "max-out" of the marketplace. MLSs find they are calling on the same potential merchants and boarding no new accounts.

Unless an MLS's geographic market can expand (which adds cost due to the increased distance to the potential client), there are three ways to cure the market plateau dilemma.

First, add value to existing merchant services such as gift cards or check services. Second, add new products or enhancements to your sales toolbox. Third, target a new merchant demographic such as medical professionals. These enhancements will allow for a new approach to the market and will unlock new opportunities.

The portfolio plateau occurs when the time necessary to retain merchants exceeds 50 percent of the MLS's total time. Even in the best portfolios, merchant attrition, which is characteristic of portfolio plateau, happens.

But since it means a significant loss of merchants and related revenue, it is something that needs to be planned for and actively monitored.

Although this effect cannot be avoided, its onset can be delayed if, as part of their business plans, MLSs monitor their time spent selling (as well as their attrition rate) from the very first day they are in the business.

Also, MLSs should start using retention tools from the point when merchants are first signed. They should not wait until a merchant comtemplates leaving or seeks a relationship with a competing ISO or MLS. These tools will help reduce the time necessary for retention efforts and will delay the onset of the plateau effect.

The only cure to the portfolio plateau is to reduce the size of the portfolio, outsource retention efforts or hire staff that will assist in the management of existing merchant needs.

The last option is a good choice for continued business growth. By delaying the onset of the portfolio plateau, the portfolio can be built to a sufficient size that makes adding staff a financially viable option.

ISOs and MLSs who recognize and understand these causes of failure and, based on that knowledge, plan and execute accordingly, will reap the most rewards. Their rewards will be financial security and the knowledge that they are doing the very best job possible to support and truly partner with their clients every day.

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.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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