By Stu Rosenbaum
More than 10 years ago, through a series of comical ads, I warned our industry about the doom that would result from providing free terminals. These ads had titles such as "Real Pros Never Use the 'F' Word" (Free), "Don't be Freekin Nuts" and "Depressed, Suffering from ED" (Economic Dysfunction)." I had fun writing the ads, but had serious concerns about the fate of an industry where competitors routinely cannibalized each other's client bases.
When industries become fully commoditized, essentially almost every sale is about price, the euphemism "race to zero" supplants the applicable real term "death spiral," and only a handful of players remain viable. Giving away terminals was a flawed marketing plan lacking uniqueness: anyone could do it, and just about everyone did.
Some ISOs continued to lease equipment, but their sales presentations were constructed to confound merchants into believing they were getting a better deal. So, many in our business either actually handed free terminals to merchants and ate the cost (which turned out to be much greater than the price of the terminal) or sacrificed integrity to make things look free where they weren't.
Today, ISOs and sales representatives have, in the main, become poachers, swapping accounts with each other by dropping price. And ISOs now must pay ever-increasing amounts to the sales channel through higher signing bonuses and greater revenue-share percentages, while also constantly lowering price schedules.
Is there an antidote to this madness? There is. A handful of tech innovators, business process implementers and companies with underwriting leniency have created more viable business models that have reclaimed some of the margins lost by traditional ISOs. These innovative companies cater to a different kind of clientele, or cater to different needs that are not subject to price sensitivity.
Shame on many of us for letting our industry get to this point. I'm not a fortuneteller, shaman or guru, but I did predict a number of the difficulties the industry faces today. I can point out some obvious flaws that many companies are experiencing because I've experienced them myself. It comes down to basics, and in this case, it comes down to salesmanship, the lost art replaced by a robotic need to give more stuff away.
ISOs have superb resources at their fingertips and rarely capitalize on them. The greatest of these is a massive client base. Today, the antidote to a race to the bottom is to redefine the term "merchant services," expanding the definition to include value-added products and services that help businesses grow. Growth in your clients' sales equates to growth in your processing portfolio. You all know now it's not enough to be just a payment service provider. Many of us are exploring how to sell value-added products and services, but very few have made significant inroads with this.
And, what are the other resources? The customer service teams, risk teams and, most definitely, sales teams – even if made up of a seemingly lazy bunch of independent contractors who only sell price. What's been occurring in the industry also affects sales reps, as they have to work harder for the same relative income.
Many ISOs have included cash advances and loans in their offerings; others have expertly transitioned into providing POS solutions. It's therefore proven that ISOs can expand their offerings. They can change. The best value-added products or services are ones that have near-universal application to all businesses.
Many such products are Internet and online marketing tools. Imagine demonstrating that 62 percent of a prospect's online presence is incorrect – meaning it contains a wrong address, wrong phone, wrong anything – and telling the client you have the tools to fix this cheaply and efficiently. With a 100 percent correct online presence, a company's search engine results are likely to increase, resulting in more traffic and income. Next, what if a struggling business, with a one star online rating, learned that your company has a proven method to quickly help raise that rating to four or five stars? How would that impact the business? How would the ability to offer an economical solution to handle this impact an ISO's business? If the solution delivers, how would that enhance client loyalty to the ISO that offered it?
I have trained thousands of sales reps. One thing I focused on was teaching them simple methods of relaying concepts to prospects, a simple sales formula. Most salespeople don't do complicated. One of the methods I employed in teaching salespeople to present value-added products was the Customer Lifetime Value method. If you could get one new client a month from this product or service, what's the potential lifetime value of that client? The calculation is simply average sale times number of visits a year, times the number of years the business expects to keep the customer.
Armed with this lifetime value method, salespeople have a simple tool to show that the value of a product or service to a business far outweighs the investment amount (I say investment amount because it pays a return as opposed to being a cost).
As the Chief Executive Officer of an ISO, I've had some sales reps or managers express concern over selling too many products or services; they felt presentations would take too long and they'd overwhelm prospects by explaining and selling yet another service and another product. They were right, but only because the selling method they'd envisioned was a bit backwards. The answer was always to offer a package: bundle the services – like when I moved to my new home, Comcast offered me a bundle of Internet, phone, TV and security. I didn't want the security, so I asked them to take it out, and what was left was a three-product bundle.
Long before discovering the payment processing industry, I was a finance and insurance (F and I) manager at a car dealer. I averaged about $400 of gross profit per vehicle we sold. I was proud of that because it was greater than my predecessor. One day, a vendor came in to see if I would sell her product. I considered it but told her I already had too many things to sell, and I was taking too long selling each product or service. Turns out she was a former F and I manager and had been very successful at it. She said, "You should offer it as a package," then gave me a couple of examples.
I immediately employed the package selling method, offering a bundle of car alarm, extended warranty, paint and fabric protection, and life and disability insurance. At the end of the presentation, I offered one amount, which was just a small bump to the monthly payment. My numbers soared and, thereafter, averaged more than $1,100 per vehicle. The dealer was overjoyed.
The point is every ISO can bundle value-added products and services and gain real market penetration, additional earnings and longer-term clients by employing a package selling solution. Now there's a method to how to specifically do this in the payments industry that I can't write in this article. It takes some demonstration. There is also a highly effective way to train sales reps, even if they are independents.
Everyone wants to make more money. If you provide sales reps with a simple solution and the tools to succeed, and especially show them how these products and sales methods will also greatly increase their closing ability for new merchant processing (a major perk for ISOs, too), these sales reps will take a few minutes to learn and employ the strategies.
Inherent in the sales techniques is a method that enables ISOs to lock up "merchant account futures." Those who employ these techniques will win big. What are merchant account futures? A large pool of new processing accounts that commit in writing to converting to the ISO's service once their current contract runs out.
Instead of losing in the race to zero, be a winner in the race to hero by helping small businesses grow new customers and income, and earning much more business and income while doing so.
Stu Rosenbaum was co-founder and Chief Executive Officer of US Merchant Systems for 23 years, until the company's recent transaction with EVO Payments. Rosenbaum was also co-founder and co-creator of IntelliPAY (payment gateway) and Convenient Payments (specialty payment SaaS platform). He's the author of the popular fictional sales book, The World's First Salesman and is currently the co-founder and Chief Strategy Officer of Prodigio LLC, a company specializing in connecting value-added product vendors with payment processors and implementing training and strategies for ISO sales growth with these products and packages. Contact him at firstname.lastname@example.org.
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