Finding Profitability in a Competitive Market By Aaron Nasseh

There is no question that the merchant services industry has become more competitive with each passing year, and consequently there has been noticeable margin compression in our industry. Unfortunately, many sales professionals are struggling with this fact, and have been unable to adapt to the changing market. However, this doesn't have to be the case, because there are still very lucrative opportunities available in the merchant services industry.

Before I suggest some solutions that may enhance the profitability of your business, lets review some of the reasons that got us here:

Price War- I think I can safely assume that most of us are guilty of having a pricing focused sales approach, and when it's being done industry wide it will inevitably lead to lower margins and higher attrition. Furthermore, while we were busy undercutting each other's pricing, merchants quickly learned the game and further increased the speed of the margin compression by actively soliciting lower bids and demanding better pricing.

Free Terminals- As if selling on price alone wasn't bad enough, we decided to sweeten the offering and offer merchants a Free terminal as well. Of course, nothing is free, so this only increased our cost of acquisition while lowering our margins. Sure, this may have seemed like a good solution as it enabled agents to sign up more accounts, but it definitely had a direct negative impact industry wide on margins and attrition.

High Upfront Bonuses- Upfront bonuses have played a much larger role in lowering margins then most people think. The high upfront bonuses invited countless untrained sales agents into our industry, who were only interested in the quick buck provided by upfront bonuses. This further drove profitability down because the sales agents did not have the necessary sales skills nor the incentive to negotiate favorable terms with the merchants, instead they lowered the pricing as much as necessary to close the deal, and receive the upfront bonus. And of course, this cycle continued when another agent visited the same merchant and cut their pricing even further.

Lack of Sales Training- As the industry became more and more competitive, and free terminals and upfront bonuses dominated the industry, many smaller ISOs changed their business model from quality sales agents, to recruiting and deploying as many bodies out on the field as possible. They started recruiting inexperienced agents into the industry who were lured in by the prospect of high upfront bonuses and free terminals, and lets face it, when pricing is not an issue and you're able to give the merchant a free terminal, and you can place them on a month to month agreement, then there really isn't much selling taking place. So, more and more sales agents without any real training or understanding of how to build a valuable portfolio flooded the market and drove the prices down.

There are certainly other reasons that have contributed to lower margins in our industry, such as regulations and costs, however, this article is more focused towards the selling aspect as it relates to smaller agents and ISOs, and while every ISO has been effected by the lower margins, it is the smaller ISOs that have suffered the most. In fact, this market has enabled the larger ISOs to participate in very favorable acquisitions of the smaller ISOs.

Now that we have reviewed some of the concerns, here are a few suggestions:

What do you Offer that is Different? If you don't know the answer to this question then you're in trouble, and hopefully your answer is not that you offer the lowest pricing! If your goal is to improve your margins and lower your attrition then you need to stop selling on price, and start focusing on value added benefits to your customers. Something has to differentiate you from the other 5 sales people that have visited that same merchant in the past week. Whether you're going to offer them a POS or technology solution that will help improve the efficiently of their business, or financing solutions to help them grow their business, or marketing solutions, or a list of other services that are available to a merchant but you're simply not marketing them, you need to provide a real value to the merchants.

Train your Agents to Sell- Start focusing on training your agents to sell, and provide them with the necessary tools to be successful before sending them out on the field. You can't send an untrained sales agent into the field and expect them to perform like seasoned professional, that's just wishful thinking. Sales is a skill that must be learned, and unfortunately most smaller ISOs don't take the time to train their agents. If you think training your agents is expensive, I can assure that the cost of training is a fraction of the money that they are leaving on the table due to the lack of sales training. Train your agents to sell, and reward them for their performance. In today's market there are countless opportunities to sell or lease POS systems, business and consumer financing and many more solutions that merchants could benefit from.

Focus on a Niche Market- Sometimes the best way to create a well trained sales team is to build a specialized team who target a specific market, and make them expert sales professionals in that market. Not only will this help you to develop a better sales team, but soon enough you will make a name for yourself in that market. Learn about the best technological solutions available in your specific niche so that your team may present those value-added services to the customers. If you train your team to focus on solutions that will help their customers make more money, then saving them money becomes a non-issue.

Aaron Nasseh is the founder and Chief Executive Officer at Finical Inc. His extensive sales and management experience includes having previously served as the General Manager of CardPayment Solutions and Vice President of Sales at iPayment Inc.