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Street SmartsSM:
Sell a Lease or Free Equipment?

By Kathy Harper

With all the free POS equipment deals out there, I've wondered if leasing products might become a thing of the past. Why would anyone lease, if they can get the equipment for free?

How can the average merchant level salesperson (MLS) working the streets sell a lease when another agent is pushing free equipment? If given the choice, wouldn't the merchant choose the free option?

To gather opinions on this topic from the feet on the street, I posted the following questions on GS Online's MLS Forum:

With more ISOs offering free equipment, how does this affect agents who have not yet reached their residuals goals? Have you been able to generate enough income to meet your monthly requirements while building your residual stream? Is leasing equipment still a viable option? How do you sell a lease when your competitor offers free equipment?

In response, MLS Forum members posted the following comments:

"I represent a lease company and a free terminal company. As I see it, this is simply common sense. Marketing takes way too much time, money and effort to get your face in front of a merchant to [then] take a chance on walking away from the meeting having had nothing to offer the customer. As my mentor said 35 years ago, 'The more things you have in your basket, the better your chances of making a sale.'

"[I] 'sold' a lease deal last week and made (after all was said and done) $1,800. [I] 'sold' several free terminals and made (after all the splitting was said and done) 20 basis points on $13K monthly volume. So, (correct my math if I'm wrong) 20 bps on $13K is $26 per month to me. So, it will take (approximately) 70 months (say six years) of residual to equal the lease deal.

"Do I have general agreement that in today's marketplace, 40 bps (20 bps to me) over interchange is about all that is practical, for two reasons:

  1. To get the sale in the first place
  2. To retain the sale after the next rep walks in the door?
"To extrapolate the math: At 20 bps (average), if my goal is $20K per month in residuals, I will need $10 million of monthly volume, which equates to 833 merchants at an average volume of $12K (monthly, of course). Now, assuming that I can accumulate 833 merchants, how in the world am I going to service this group effectively?

"If I can't service them, I'll eventually lose them. It's a loop. On the basis of this, is a decent residual, say $10,000 per month a mirage?

"Now another intangible: ... In building our residuals, are we not placing our faith in the concept that when we achieve our goal, that the company paying our residuals will still be around? After all, many employees of major corporations have been laid off two years short of their pensions; many stockholders have lost their shirts, etc. Stuff happens ...

"My point ... I place a free terminal if I absolutely have to. After all, it's better than nothing, right? However, I do everything possible to 'sell' the lease, be paid upfront and be left to my own devices as to how to invest my own funds, funds that now belong to me.

" ... I've had merchants choose the lease over the free [terminal] many times, simply because they save more money that way. That's my financial take on lease versus free.

"I rue the day that 'free' appeared on the horizon, but, unlike some others, I recognize that it's not going to go away. It is a sound business model. Free is here to stay, and you're just going to have to deal with it. Make it work to your advantage when and where you can, but be fully aware of its advantages and its shortcomings." - hipoint

"Hipoint, you saved me 10 minutes of typing. You hit it on the nose. Sell the lease until you can't and then do the freebie. I never knew about residuals until I had been in this business almost two years. ... I would starve if I started today." - Debbie

"I've been talking with some other agents, and I was just curious if you guys had seen a decrease in leases since the free equipment came out? These guys I've been talking to say no, they are still leasing up a storm, but I was wondering about the rest of you." - Hedda

"As honestly as I can put this: I've seen no decrease in leasing in my little corner of the world. ... I represent a lease deal and a free deal. The vast majority of the time ... I can offer more savings with the lease deal. If I can't sell the lease, and I have to offer the free deal, most merchants are very suspicious of the whole concept of free equipment:

"1) They've never heard of such a thing and 2) They know there's no free lunch (even if there is)." - hipoint

"I don't think these free equipment programs are profitable for the agent or the ISO, but we will see in the long run. I lease, sell and rent equipment; there is no free lunch. We do give away free equipment to larger merchants, upgrading them from what they have and get a trade-in. These are profitable accounts, and it makes good business sense." - ccguy

"I did some free terminals on eBay for a while, which mostly generated merchants that couldn't even meet the minimums or just hit the $1,000 mark ... no money was made on them and a bunch have already cancelled, so any upfront money will have to be repaid.

"I've gone back to working my local area and am doing a combination of leasing and free placement. "I've been very successful with leasing the GPRS units (Way Systems and NURIT 8000) and plan on placing free terminals only in merchants doing $5K or over." - destin5440

"I was in a deal today where I got a lease over another MLS leading with his free program. As soon as [the merchant] mentioned [it], I asked if that was like free freight or free air miles, and when I was done winking and she done laughing, all she had to say was 'Can you tell me where they would be getting the money?' ... I simply explained that we also rep for a free company and that in order to pay for equipment costs ... you get the point.

"Now that being said, we just started representing the free equipment processor, and I suspect that we will use them for those people who actually believe in free freight. So although I don't lead with it, it's always nice to have the tool you need when the time comes that you need it.

"I think what really affects the new MLS is the fact that lease pricing is down, as well as purchase prices in general, when it comes down to terminals. This will continue to put a lot of pressure on the new MLS.

"The lease from today was on a T7plus, and it went for $25/48. It seems like only yesterday that no one blinked an eye at $40 or $50 for 48 months for a T7P. ... I would say that we haven't seen [fewer] leases, only leases where we are making less." - nwbc

"I think people pay cash for terminals more often now than four or five years ago. Four or five years ago, 80% or more leased; now 80% or more buy. And lease prices are down by 40% at least. Terminals for $39 to $49 per month for 48 months [four or five years ago are] now $19 to $29 per month." - ccguy

"If you still look at merchant services as the leasing business, you are very late for the show. If you are averaging 20 bps on your portfolio as a salesman, I would advise you to spend more time either on pricing your accounts or shopping for a better deal.

"If your funding on the lease is $1,800, the next MLS that walks in the merchant's door will steal your account by educating the merchant on your leasing techniques. Conclusion: The name of the game now is residual streams over leasing anytime because those basis points are worth more over time." - slavnyc

Thanks to everyone who responded. To expand the discussion on leasing versus free placement, I spoke with three agents who don't normally spend time on the MLS Forum.

Claude Godfrey, an agent with Business Payment Systems, said he does not offer free placement of terminals and believes he never will. He sells and leases equipment for $29.95 to $39.95 on a lease, and $450 to $750 for a new landline retail terminal.

Jerry Gibson writes for Sterling Payment Systems out of Tampa, Fla. He said he keeps the free equipment program in his bag, so to speak, but mostly leases or sells equipment. He is still able to command lease prices of $39.95 and up for most of his leases. He sells new equipment for $599 to $899.

Jonathan Kramer works for United Bank Card Inc. (UBC) Although fairly new to the industry (14 months), he has taken a different path and markets mainly to established businesses, which often do not need equipment.

He said when he does need to place a terminal, he uses UBC's free terminal placement program or downloads an existing terminal.

All the feedback I received indicates that leasing is not only not dead, but perhaps even thriving.

Some respondents mentioned that the pricing an MLS can command for either the lease or the sale has dropped over the years. However, MLSs can still make a good living from $29.95 leases and also by marking up equipment when selling it.

As MLS Forum member "hipoint" mentioned, lease money is yours to keep. You don't have to worry about it like you might worry about your residuals.

When deciding whether to go with an equipment lease or free equipment program, or both, always consider what's best for your merchants and your business. Until next time ...

Kathy Harper of Griffin, Ga. is an MLS and President of NAOPP. E-mail her at or call her at 770-843-3399.yes

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