Finance
Integrating Portfolios

The Key to Long Term Wealth
By Harold Montgomery

   Selling merchant services is a tough business it takes endless hours of difficult selling against fierce competition to an increasingly demanding customer base. Each merchant contract is hard earned and well deserved. Given that it takes a huge effort to capture a merchant's business just for the basics the terminal and credit card processing then how do you maximize the value of that merchant once you have them in your customer base?
   The average merchant contract takes two to three visits to close. If each visit lasts an hour, that's three hours of face time, not counting transportation and support time, to close a single deal. What's your time worth? I would say at least $100 per hour. So there is $300 worth of your time (minimum) sunk into a merchant processing contract. Given the competitive state of pricing today, that merchant will probably generate $30 per month in residuals on average for a 10 month payback on your time alone. Notice that each hour spent selling generated $10 per month in residuals. Depending on what you think you can sell those residuals for later, (15x monthly flow would be a good measuring point), then you would have generated $150 in wealth in that one hour's time. Any product or service which does not reach this standard should be cut from your repertoire.
   What if that residual could be increased to $40, $50, or even $60 per month with a modest increase in the amount of selling time? That would cut the payback time by up to 50%, increasing your profits on that merchant over time. If it takes three hours to get the credit card processing contract, how much longer would it take to get the debit, check guarantee or gift and loyalty contract as well? Perhaps another hour, total? Between these three services, you should be able to increase your residual from that one merchant contract by the same amount as the credit card residual by spending one more hour with the merchant. That means for an additional one hour investment, you get up to $30 per month more in residuals. At 15x, that's a total of $450 in additional wealth created in one more hour of selling time. That's a very effective use of your time.
   If you are running an ISO with 10 sales people on the street, take all those numbers up a step, and you will see some real wealth being created through sales of additional products and services.
   I know it's not always as easy as just spending another hour with the merchant. The onus is on you to learn the other services thoroughly and make sure you are constantly selling value to the merchant at all times. Training and product support for the add-ons becomes crucially important. But if you don't try, you won't get the extra profits hiding in each merchant contract. Perhaps the merchant would only take one of the three add-ons, but look at the yield per hour spent selling, and you will see a good investment there.
   My company buys residual portfolios as part of our growth strategy. Ninety percent of the merchant portfolios we buy are not penetrated with debit, check guarantee or gift and loyalty. To be sure, some of these services do not appeal to all merchant types, but in a healthy portfolio, at least 35%-50% of the merchant base should have debit and check guarantee. We would rather purchase a portfolio with a deep penetration of add-on services since we know the merchants have been well taken care of. Further, they are less apt to be stolen by a competitor who has all the services under one roof. But despite this compelling math, most ISO's do not go back for the additional sale and the wealth it creates. They are leaving money lots of it on the table.
   When we acquire a portfolio, we conduct an inventory of the merchant base, cataloging pricing, the terminal type and configuration, services the merchant has, and other factors. Once we have the inventory completed, we have a complete road map for our sales team to follow. We can pursue a coherent sales approach based on our deep knowledge of the merchant and his business.
   Often, we hear ISO's say that they try to sell merchants add-on services but the merchant was not interested in them. Perhaps that was true at the time of the original sale, but what about months later?
   Perhaps the complexion of the merchant's business has changed since a salesman was last there, and we can find a service(s) which fits a changing needs definition. Check guarantee in particular tends to be a sale which is very dependent on the merchant's recent experiences with checks. I have heard it said many times "I don't get bad checks," which may be right. Today. What about next week, or next month or even next year? The merchant's customer base may shift, economic conditions may change, or a theft ring may move through the area all leading the merchant to reevaluate his need for check guarantee services. If you did not sell him the services at some time, guess who will?
   Debit, too, is another product which requires some education. Debit is cheap to process for many transaction sizes. Merchants need to be shown the value proposition for debit to make them comfortable with the additional equipment and training. How many merchants know that it's cheaper to accept debit than cash? A careful approach to this product can yield increased profits for the patient ISO.
   Gift and loyalty is another add-on that has rich benefits for certain merchants (upscale restaurants are a great example), but which also needs some education and encouragement in the market. Merchants often buy G&L; services and cards, and ask "Now what do I do?" A road map for successful marketing follow through is a necessity to support G&L; services, but the rewards are there for you and the merchant.
   Calpian's approach of up selling existing merchants on new services yields an increase in merchant residuals of up to 100%, making the investment of time and resources well worth while. It also adds significant wealth to the ultimate sale value of our merchant portfolio.
   It's a good investment to add new additional services to your sales pitch. Go back over your existing portfolio with new services and products from time to time to make sure that you are maximizing the value of the customers you already have and the wealth that their relationships represent to you personally. Your future wealth could benefit from it tremendously!