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A Thing Six

Sales and Sales Management at the Average Acquirer 

By Marc Abbey, Paul Grill, and Ian McGaffic of First Annapolis Consulting

Editor-In-Chief’s Note: We hope that you found a number of items in the February “Feet on the Street” GSQ issue that were of value to you and your organization. Just in case we left some stone unturned, we thought that our readers would find the following article from First Annapolis Consulting a great addition to the non-bank acquirer story.

O f all the merchants that signed up a new acquirer in 1994, 33% signed up with a top ten acquirer. By 1998, that same figure rose to 56%. Why are merchants migrating towards the large acquirers? No doubt, the competitive pricing, robust products, and improved service offered by many large acquirers make it difficult for small acquirers to remain in the game. It is sales and sales management that ultimately determines who will win the battle for the new merchants. Create an effective, properly compensated, and motivated sales force, and you will get more than your fair share of the new merchants.

In this environment, how has the average acquirer responded, and what are the sales, compensation, and management tactics they have deployed? First Annapolis recently completed a research project which includes interviews with over twenty bank and non-bank acquirers that account for over a third of the industry by sales volume. A clear pattern emerged underscoring the basic competitive situation throughout the industry.

Everyone is chasing the same prize. The average acquirer targets, . . . well, . . . the same merchant markets that everyone else targets. The main target market for over 90% of the sales organizations we talked to was general, storefront retail and two thirds of these organizations also targeted restaurants. By contrast, niche markets had significantly less competition with, for example, fewer than 20% of the sales organizations reporting any specialization in petroleum retailing.

Old Faithful—direct personal selling—is the dominant tactic. Acquirers were near universal in their reliance and emphasis on direct selling, although over half (nearly 65%) reported branch referrals rather than cold calling as their dominant mode. Only 45% of the acquirers described telemarketing support as a key initiative and even fewer, about one in five, reported using agent banks as referral sources.

And when you’re done selling . . . acquirers utilize sales staff in servicing strategies. There are wide-ranging opinions regarding the appropriate mix of sales and service for the sales force, with some managers philosophically wanting sales staff focused solely on selling and others wanting the sales force to have a vested interest in retention. The average acquirer asks its sales staff both to manage terminal deployment issues and to provide relationship management for the merchant on an ongoing basis, but only by a narrow margin. Some 65% of the acquirers opted for high touch, in-person terminal deployment administered by the sales staff while the remainder opted for cheap (if impersonal) drop shipment, depot approaches. Fully 53% of the acquirers asked their sales staff to manage the merchants post sale, with the remainder utilizing specialized, mostly phone based, relationship management units. Clearly, both of these strategies were correlated to the size and geographic dispersion of the acquirer with smaller acquirers utilizing the high touch, sales-force-intensive approaches.

The larger they come, the harder they fall. Not surprisingly, the large sales forces are distinctly more difficult to manage. The sales forces at acquirers with volume greater than $5 billion annually reported four times the sales force attrition of the acquirers with volume less than $1 billion. Certainly, these attrition rates will have been influenced by the operational conversions, portfolio acquisitions, bank mergers, and other disrupting events that the large acquirers have disproportionately experienced in recent years. Nevertheless, the large acquirers experienced these higher levels of sales staff turnover despite average total compensation levels nearly double those of the small acquirers, underscoring the difficulty of managing a large, geographically dispersed sales force.

A kinder, gentler compensation strategy. Not all that long ago, the most common sales force compensation strategy was a highly levered (read: 100% commission) approach, which though perhaps attractive to the veteran, made it hard to make ends meet for the newcomer. In our research, nearly 70% of acquirers have migrated to a mixture of salary and commission for their sales staff, and average compensation ranging from $60,000 to $70,000 was roughly split between salary and commission. In addition, acquirers reported a wide range of other benefits from paid vacations to stock options, but the champion fringe benefit was the 401(k), present at over 80% of the acquirers we interviewed.

These market conditions have a number of strategic implications for most acquirers.

1) Specialize. In today’s environment, asking your sales staff to be generalists is probably putting your sales organization on a long-term trajectory of decline. To borrow a phrase, “The time for the Renaissance man was the Renaissance” or more clearly stated, “Specialists win.” The storefront, general retail segment is arguably over-served. With increased competition and mounting competitive hurdles for all but the large players, the specialized sales force looks to have the advantage.

2) Achieve Product Parity and Re-Train. The Tranz 330 was originally introduced in 1987. Even the T7P runs the risk of being leap frogged by the new generation of products from VeriFone, Hypercom, and others. With the parity in sales tactics evident in the market, and with the prevalence of direct, personal selling, your sales force simply cannot afford not to be current on product. If your sales force does not understand the Omni 3200, as an example, you are sending them into the Feet on the Street battle without all the ammunition they will need to be productive.

3) Pick a System Consistent with Your Values and Culture. There is no nirvana in sales management. You can spend two years developing a commission system and it will take a good salesperson five minutes to spot the holes. Despite the diversity of tactics acquirers described to us in our interviews and clear differences in certain outcomes (such as employee turnover), it was execution that had the biggest impact on performance. For example, even for acquirers similarly situated with similar tactics, throughput and cost effectiveness measures differed a great deal. What worked for one did not work for another, and simply having rich financial incentives in place for your sales staff is not enough to ensure appropriate outcomes.

We are fortunate to be in business during an era our successors will consider a golden age, the largest and longest business expansion in the history of money. Despite this luck, we operate in a tough business that is going to get tougher before it gets easier. And all roads to success in this business are paved with sound sales management.

Paul Grill is a Senior Consultant responsible for Internet strategy at First Annapolis. Ian McGaffic is First Annapolis’ Senior Analyst. Marc Abbey is responsible for the Acquiring and Business-to-Business practice areas at First Annapolis.

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