By Mike Monocello, editor-in-chief, Business Solutions magazine
Since RSPA INSPIRE back in January, the topic of “Retail as a Service” has been top of my mind. We’ve been writing a lot about how this business model can — with some effort, admittedly – create a more stable flow of revenue and lead to a more profitable business.
In seeking advice and input on this topic from various industry leaders, Terry Zeigler, president/CEO of Datacap Systems Inc. had some excellent thoughts worth sharing. “We’ve all been talking to dealers from the perspective of how good it is for them to do rental programs because they will earn more money over the life of the merchant account than they would by selling the product outright,” he says. “So what? The dealer thinks he is okay with his current financial model as is, and he’s being asked to do something different just for fun.”
Maybe dealers will realize that this isn’t a choice about a different business model, but a choice about survival.”
He goes on to explain that, like it or not, merchants (particularly restaurants) can’t get the financing to pay the upfront load on a new POS system. And, he says, that is driving merchants to take inferior systems and business deals from folks in the bank card industry simply because they can get technology for no up-front cost. “With this in mind, maybe dealers will realize that this isn’t a choice about a different business model, but a choice about survival,” he says. “Then they will get a little more realistic about pursuing the options for implementing an ‘as a Service’ program and start pushing their vendors to help them.”
Zeigler shared another unique perspective that some older VARs might find very intriguing. “I had a discussion on this topic with one dealer that was quite interesting,” he recalls. “He made the comment that trying to get to the rental model was important to him because he has come to understand that when he wants to sell his business, he will get 4 to 6 times EBITDA [earnings before interest, taxes, depreciation, and amortization -- an accurate measure of profitability] for a company with a one-time revenue model, but 6 to 8 times EBITDA for a company that has a recurring income model. So same business, same income, but a much larger equity value when it’s time to sell.”
Thanks to Terry Zeigler for two new perspectives on this model.
What additional thoughts, considerations, pitfalls, and/or questions do you have on this topic? Feel free to comment below or hit me up via email to continue this discussion.