Magazine Article | January 14, 2014

Low Margins, High Volume: The New POS Sales Model

Matt Pillar

By Matt Pillar, senior executive editor, Innovative Retail Technologies

New POS resellers might not know the rush that came with big-time hardware deals, but what they don’t know isn’t hurting them.

There’s a big advantage to being a relative newcomer to the POS hardware and software channel. If you’ve been in business less than a decade, you never knew the halcyon days. You’ve only read and heard about the era of big margins on $6,000 per-station hardware, software, and add-on peripheral deals. Unlike your veteran competition, you’re not still suffering the shakes from profit margin withdrawal.

Take Brian Harrison, for example. Ten years ago, he launched POS Touch Solutions, a small Harbortouch POS dealership serving independent retailers, restaurants, and salons in the greater NYC area. Since that day, he’s never walked out of a sales call riding the high of a fat sale, with fat margins, replete with an equally fat up-front paycheck.

To Harrison, that business model isn’t dead. It simply never existed.

On the other hand, Harrison has never known the worry of making his own massive investment in inventory and staff. His four-man crew joined him in small increments, and the all-in-one POS solutions he resells for Harbortouch are sourced asneeded and sold without credit restrictions for as little as $4 per station, per day.

Dealers — especially those of you who sell to independents — welcome to the new channel reality. POS Touch Solutions is your competition now. They’re small, they’re agile, they’re overhead-free, and they’re practically giving away the POS goods. Part VAR, part MSP (managed services provider), POS Touch Solutions is leveraging vendor services, network-based automation, and proactive monitoring technologies to stay nimble and preserve profits on the slimmest of sales margins. And their sales are growing very quickly.

Make A Living Off “Hardened Hardware”? Hardly.
Harrison may have never experienced the euphoria of a massive, high-margin hardware sale, but it wasn’t for lack of trying. Before the great recession turned the lending industry on its ear, that kind of old-school sale was exactly what he was after; find a customer in need of POS, secure a good lease option at a decent rate, set it up, and run with it. He found enough success selling POS stations to primarily single-lane, independent retailers to keep his business alive, and even growing. He hired some tech and sales help. Then the bottom fell out. “Suddenly, credit scores mattered. The banks quit lending to small businesses. Securing a lease for anyone with less than spotless credit was a real project,” Harrison says.

As we know, finding spotless credit among hard-knock independent retailers and restaurateurs is as likely as finding a hundred dollar bill in a fortune cookie. Harrison had to make a change. That’s when he discovered Harbortouch. “Post- 2008, the credit crunch made the cost of POS a deal breaker for many small businesses. The Harbortouch business model eliminates the credit criteria, easing the cost burden associated with getting a POS system for our customers,” he says. By its very design, the model seeks to minimize the emphasis on hardware costs.

Remember when expensive POS hardware was sold on the value of its retail-hardened construction and design? Years ago, Wincor-Nixdorf sought to make the point by dropping one of its POS units in a clear acrylic vat full of mystery liquid at an NRF show. As the vendor’s associates happily conducted transactions for curious onlookers using the submerged machine, any soft drink and grease-slinging restaurateur seeking to protect their POS investment couldn’t help but be impressed.

On the contrary, today, Harbortouch markets its hardware as a giveaway. The dollars-per-day subscription buys the retailer its software as a service. And it’s on that, not the hardware, that Harrison has honed his sales pitch.

Where There’s A Cash Register, There’s An Opportunity
Harrison says the first qualifier in his sales process doesn’t require a conversation with a business owner, nor does it require a credit check. Visual confirmation that a business is transacting on a cash register or early-generation PC-based POS system is enough to move that business into the POS Touch Solutions sales funnel. “When we see a cash register, we launch into a conversation about information and automation,” he says. “When we can demonstrate how automation enables POS information to improve business efficiencies, we can move a business owner further along the path to a sale.” POS Touch Solutions positions the POS sale not as the purchase of a computer and software, but as a subscription to data, reporting, and control that benefits the business. “There’s a massive market of business owners that can tell you how much cash entered their drawer today, but they have no idea what they sold, what was lost or stolen, or how much to reorder,” says Harrison.Subscribe to Business Solutions magazine

Once they’ve been enlightened, those business owners are typically interested, albeit skeptical of the price tag attached to such shiny new hardware and the insight it provides. “The economy has yet to fully recover, and small businesses still have questionable bottom lines. Even though we’ve minimized the up-front expense, it’s still an expense,” says Harrison. As such, his potential customers question it. They grill him on the payback. Many of them are second- and third-generation family business owners. They’ve done without sophisticated POS systems for years, so they question why they would need it now, at any price. “We’ll ask them how many pairs of pants they’ve sold in the past 30 days. Usually, they can’t tell us. So we show them that with the push of a button, they can see how many sold and how many should be left on the shelf,” says Harrison. Another button tells them how many to reorder and when. Another one forecasts how many they’ll sell next quarter. Small business owners know better than large ones that inventory is money. Many simply have yet to realize that sales and ordering don’t have to be a guessing game.

When Hardware Is “Free,” Volume Matters More
In the New York/New Jersey market, the density of independently owned retail and hospitality businesses in the core 60-square-mile area served by Harrison’s business is higher than anywhere else in the country. Here, the seek-and-destroythe- cash-register approach can still manifest itself in a very full sales funnel. Maintaining that volume, says Harrison, is another key to his success. It also requires yet another change to the traditional service-oriented business model.

Harrison says that when he launched his company, it went heavy on providing tech service using internal resources. “This was a differentiator for us. There were plenty of resellers that would drop a POS system at the retailer’s door and be on their way, leaving setup and maintenance to the user. We chose to capitalize on that,” he says. For a little more money, POS Touch Solutions would set up customer systems, program their menus, train their associates, and offer ongoing on-site service. But, as system margins fell and higher sales volume became prerequisite to staying in business, something had to give. More resources had to be dedicated to sales, fewer to service. “We had to change our service model to make it more efficient without degrading the quality of service our customers receive,” says Harrison. The company achieved this in part by relying more on its vendor partners’ service offerings and in part by leveraging remote, network-based monitoring and service tools. When the company launched, most service calls were handled either internally or by an expensive third party. The current 80/20 balance of service responsibility falls heavy on the vendor side. “Some of our customers still need a face, so we step in when it’s necessary,” says Harrison. “Our vendor and remote service offerings are far more cost-effective than attempting to handle tech support internally or hiring a third party.”

Remote tech deployment and support has also proven good for new business and geographic expansion. “The thing I’m most excited about right now is the move from being a local, ‘around-thetown’ POS guy to serving customers from coast to coast,” says Harrison. “With remote tools, I can look at the business, have a conversation with its principals, and have them up and running right away, without my physical presence. We can sell and service anyone, from anywhere.”

That’s huge for a lean company like POS Touch Solutions. Fewer truck rolls equal the preservation of profit in highvolume, independent POS sales. Remote diagnostic and issue resolution capabilities increase the volume of customer touches the company can make in a workday. Tech support aside, Harrison’s ability to log in to a customer’s system remotely and provide instruction on the features of the software simultaneously adds customer value and saves money for the dealer.

Harrison admits that low-cost hardware and creative, subscription- based financing help get POS Touch Solutions in the door, but he stresses that savings alone doesn’t close deals. Software functionality does. “The automation and accessibility of information are the keys to keeping our customers competitive in retail,” says Harrison. Turns out they’re Harrison’s keys to success in the POS channel as well.