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Table of Contents

Lead Story

Creating a place for checks at the electronic payments table

Patti Murphy
The Takoma Group

News

Industry Update

ATM ISOs threatened by MasterCard's new fee structure

Visa rattles payments with CyberSource acquisition

ETA honors top leaders

Selling Prepaid

Prepaid in brief

Government streamlines payments with plastic

Prepaid and next-gen payments

Views

The next generation of the check

Ed McLaughlin
RemoteDepositCapture.com

Education

Street SmartsSM:
Referral strategies: What really works?

Ken Musante
Eureka Payments LLC

Two steps toward plentiful referrals

Jeff Fortney
Clearent LLC

Digging into PCI - Part 11:
Regularly test security systems and processes

Tim Cranny
Panoptic Security Inc.

The professional MLS protocol

Jeffrey Shavitz
Charge Card Systems Inc.

Sales and marketing: Allies, not foes

Peggy Bekavac Olson
Strategic Marketing

Company Profile

First Data Corp.

New Products

Radically agnostic

ROAMpay
Company: ROAM Data Inc.

Inspiration

Get on track with a business mentor

Departments

Forum

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

May 10, 2010  •  Issue 10:05:01

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Street SmartsSM

Referral strategies: What really works?

By Ken Musante

As ISOs and merchant level salespeople (MLSs), we must provide value to our customers or they will leave us for lower prices or better service. If instead of a tangential relationship with our customers we are referred by a trusted source, we have a much greater chance of maintaining those customers.

A 2006 Aite Group LLC study reported that merchants selected they met in the following ways:

Five percent of merchants studied do not recall or do not know how they came to select their current processors.

This study brings to light that 28 percent of merchants obtained accounts via direct trade association or accountant referrals, and an additional 30 percent were referred or sold by the merchant's bank, a friend or a vendor.

Only 15 percent of merchants established their processing relationship as a result of a sales call. And a mere 2 percent purchased processing as a result of a mailer.

Postcards, fliers and 'human billboards'

Given the results of this study, is advertising a poor use of resources? Should we be diverting our advertising dollars to referral partners or employees? To gain insight, I posted the following on GS Online's MLS Forum:

Sandwich boards to attract the hoards
Newsprint ads for the latest fads
Internet banners for ball-peen hammers
Merchants come and some will stay
But when interchange rises will they wash away?

Is advertising an efficient and profitable way to generate new clients? Which forms are most effective? Regardless of the relative effectiveness of advertising, how do we gain new referral partners, and is that a better use for our advertising dollars? Or is hiring more sales staff the most effective way to gain new merchants?

In addition to taking some pretty good shots for my rhyming, I got some good feedback. Ccguy left the following: "Best advertising is flyers. Hand out a good flyer, postcard and letter. Something that gets the message out and gives the merchant a call to action."

The Dustman agreed. His team has a very methodical, face-to-face approach. They seek out areas that have sufficient size to cold call, then physically canvas the area and leave cards and flyers behind. Upon completion of the "blitz," they repeat the process two more times. By the third pass they have enough merchants in the area to generate sufficient referrals.

They have enough experience doing this to know they will capture 10 percent of the market they are pursuing. The Dustman calls his staff "human billboards" selling not just merchant services but all the services his company offers.

In fact, merchant services is not the primary or lead product. So his advertising expense is his staff. I suspect many MLSs work this same way.

I've found postcards to be effective. But for them to be successful, you have to follow up with a call. I like postcards because the prospect does not even have to open the letter to get the message. Like any direct mail, however, finding the prospect list is difficult or costly.

Coach Bob argued that, because some sales folks employ an application fee and/or a lease, they are then able to employ a direct-to-merchant sales approach that may require two or three visits to close.

This enables a higher payout upfront to fund using a two- or three-visit close. I do, however, believe in using canvassers to get leads.

Niche marketing

As far as advertising and rate of return in our business, we have done it all over the years: postcard, newspaper, penny saver, flyer et cetera. There was a time when some of these were profitable.

My belief is that in a major market these have become ineffective due to the amount of agents walking into retail locations or calling merchants every day. Why pick up a phone and make a call from an ad when someone is standing in front of you?

Ccguy pointed out that some new merchants in Florida see 20 to 50 postcards promising unbelievable rates, free terminals and free vacations or cruises. But it is hard to believe that blatantly misleading postcards or advertisements could lead a prospect to call. Free computer? Free vacation? Obviously, ISOs cannot fulfill such expectations. So could such offers really be worth it?

Deepook wrote, "We have tried [a] majority of what has been said above. It seemed like there was a time and place for each one mentioned. For example, telemarketing worked great in the early 2000s.

Ever since the change in the market, the direct sales seems to be working. I still have telemarketers, but they just simply set appointments. If there is [a] niche market (in our case the MD [medical doctor] & lodging product), we advertise in their industry publications."

I like Deepook's suggestion on the niche advertising in the MD and lodging trade magazines. Niche marketing makes sense, given the desire to not waste your ad expenditure on folks who are not truly buyers in your space.

Targeting a magazine that is directed to your merchant type ensures your advertising dollars are efficiently spent, because even with the ad, you still have to pay a closer.

Slick Streetman shared some wisdom when he wrote, "I keep a small ad in the Yellow Pages. ... In this case, size does not matter. You won't get a ton of calls, but every now and then you reel in a pretty nice catch. I met with the Yellow Book sales agent a few weeks ago ... and learned that they now give you a free website with an ad package of 40 something dollars per month, so Ol' Slick will soon arrive in the 21st century and have his own website.

"One thing that urged me on to get the website is that I am joining the local chamber of commerce and their website has automatic tie-ins with members' websites. The chamber has a lunch meeting and a breakfast meeting every month and a chamber after-hours social mixer once a month, so it is a great networking opportunity.

"Also ... as a member, you can send out flyers or postcards to other members, and I've heard you get a pretty good response. Plus, if your office is in your home, it is only about $200 a year to be a member."

The common theme is that none of the advertisements are general ads. They are either paying for sales staff or targeted to very specific geographic or vertical groups.

TexasCommerce echoed this thought by writing, "Took one of our own mailer products, designed it for the merchant versus the consumer, with cash as the driver, mailed to specific vertical markets, within a defined three to six mile zone.

Merchants are calling in with inquiries about 'can I get this for my business and/or how much to get this for my business?' Warm lead created, within a very defined area, sales are closing daily."

Although few comments were made about Internet advertising, JayStuart provided some thoughts that were consistent to our niche advertising theme: "The price of AdWords [Google's online advertising service] has no relation to their effectiveness.

The price is simply a function of demand for that particular word. You are essentially bidding against others who wish to use that word.

"I've used pay-per-click in other industries and, based on my experience there, I can pretty well imagine that (in the [credit card] processing industry) one could spend major dollars with nothing to show for it at the end of the day. The conversion ratio is probably laughable. Plus, as has been mentioned, when you pull in your nets, they're full of bottom feeders."

Referral partners

For my part, although name recognition is valuable, a referral partner is a far more beneficial way to spend your advertising dollars. To effectively maintain them, you must provide them something in return. An MLS may maintain such a relationship by paying the referral partner.

Payments may be made to all kinds of entities and organizations in exchange for referrals. Certainly there are hundreds of types of companies and partners - you need only seek them out and be able to service their unique needs.

Advertising can be effective but must be narrowly focused. Mass media is both expensive and ineffective. Advertising with your referral partner, however, is extremely effective. Anything with your partner's name can drive business to you - whether or not a merchant sees the advertisement.

Advertising with your partner is like marrying the person you live with. You are publicly declaring to the world your devotion to each other. Doing so will inspire your business partner to refer you even more.

Word of mouth

I'll give Clearent the last word on the topic of advertising to attract merchants' attention: "I find advertising, honestly advertising, is not worth the money. A few years back, a large ISO sponsored the Dallas Stars.

They even ran ads during the hockey games. I asked the marketing team their response - and they said to me that the comments were mostly - who are you, and what do you do again?

"We are a B2B [business-to-business] industry. In many cases, we are seen as a very small part of the business. They don't see an ad and say, 'Hey, that's just what I need.' Better to sell using referrals, word of mouth, and shoe or ear leather than spend on ads ... unless, of course, you are endorsed by an association - and it's their trade publication. That does have value."

Look for and contribute to our next post on the MLS Forum. I am seeking ideas, so send them my way. Ken Musante is President of Eureka Payments LLC. Contact him by phone at 707-476-0573 or by e-mail at kenm@eurekapayments.com. For more information, visit www.eurekapayments.com.

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

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