Guest Column | March 29, 2017

Surprising Statistics From Vantiv's POS Channel KPI Study

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By Jim Roddy

“Numbers are a critical tool for the CEO. I can see trends emerging before they become crises. That allows me to take action while things are still going well. Numbers tell you where the problems are, and how worried you should be.”

– Jack Stack, The Great Game of Business

I agree wholeheartedly with Jack, but what if you don’t have any numbers? That’s the position point of sale resellers and ISVs have been in for years because they had no “industry average” metrics to compare their KPIs (key performance indicators) against.

To rectify that, Vantiv’s PaymentsEdge Advisory Services conducted a POS Channel KPI Study in January and February. An online survey was emailed to Vantiv reseller and ISV partners plus POS-focused subscribers of Business Solutions Magazine. Through this survey, point of sale resellers and ISVs anonymously shared their 2016 results and their expectations for 2017. A total of 91 solution providers shared information, resulting in the largest POS channel KPI study ever published.

We published full statistics and analysis on my On the Edge with Jim Roddy blog on the Vantiv website, but I wanted to share some of the study’s highlights directly with Business Solutions readers.

Who Participated In The Study

When asked to describe their primary business activity, respondents said:

  • Reseller/Dealer/VAR: 61.5 percent
  • ISV/Software Developer: 30.8 percent
  • ISV/VAR Hybrid: 7.7 percent

Hospitality, retail, and grocery are the main vertical markets represented in this study:

  • Hospitality: 58.2 percent listed hospitality as their primary vertical; 73.6 percent indicated hospitality was either their primary or secondary vertical
  • Retail: 27.5 percent listed retail as their primary vertical; 56.0 percent indicated retail was either their primary or secondary vertical
  • Grocery: 4.4 percent listed grocery as their primary vertical; 31.4 percent indicated grocery was either their primary or secondary vertical

The most common company sizes were between 1 and 4 FTEs (Full-Time Equivalent employees) and 5 and 9 FTEs; 41.6 percent of survey respondents reported between 1 and 9 FTEs:

  • 0 employees; I am a one-person shop: 7.1 percent
  • 1 and 4 FTEs: 20.2 percent
  • 5 and 9: 21.4 percent
  • 10 and 14: 8.3 percent
  • 15 and 24: 9.5 percent
  • 25 and 49: 11.9 percent
  • 50 and 99: 8.3 percent
  • 100 or more: 13.1 percent

POS ISVs Outpace Resellers In Revenue Growth, Both Predict Stronger 2017

One of our initial survey questions was, “What is your estimated Year-over-Year Annual Revenue Growth Rate for 2016?” Reseller/ISV respondents answered:

  • Decline in sales: 9.3 percent
  • Flat: 28.0 percent
  • 1 to 4 percent: 20.0 percent
  • 5 to 9 percent: 10.7 percent
  • 10 to 14 percent: 8.0 percent
  • 15 to 19 percent: 9.3 percent
  • 20 to 29 percent: 1.3 percent
  • 30 to 39 percent: 4.0 percent
  • 40 percent or more: 9.3 percent

Respondents were optimistic about their 2017 sales numbers:

  • Decline in sales: 5.3 percent
  • Flat: 9.3 percent
  • 1 to 4 percent: 16.0 percent
  • 5 to 9 percent: 22.7 percent
  • 10 to 14 percent: 16.0 percent
  • 15 to 19 percent: 9.3 percent
  • 20 to 29 percent: 6.7 percent
  • 30 to 39 percent: 4.0 percent
  • 40 percent or more: 10.7 percent

Comparing 2016 and 2017, we see the number of resellers and ISVs who expect their sales to decline this year was sliced in half (9.3 percent in 2016, 5.3 percent in 2017) and the number who expected sales to remain flat was down nearly two-thirds (28.0 percent in 2016, 9.3 percent in 2017). In 2016, 37.3 percent of survey respondents saw either flat or declining sales. For 2017, just 14.6 percent predict flat or declining sales with 54.7 percent predicting sales growth between 1 and 14 percent. Just 38.7 percent of respondents experienced between 1 and 14 percent sales growth in 2016.

VARs, Developers Anticipate Slight Net Profit Margin Increases In 2017

Vantiv’s survey asked solution providers to share details about their profits. Specifically, we asked, “What is your approximate Net Profit Margin percent (includes net profits, owner bonuses, and owner fringe benefits)?” For 2016, the VAR/ISV respondents answered:

  • Loss: 5 percent
  • 0 percent: 11.7 percent
  • 1 to 4 percent: 6.7 percent
  • 5 to 9 percent: 15.0 percent
  • 10 to 14 percent: 13.3 percent
  • 15 to 19 percent: 15.0 percent
  • 20 to 24 percent: 6.7 percent
  • 25 to 29 percent: 5.0 percent
  • 30 to 39 percent: 11.7 percent
  • 40 to 49 percent: 5.0 percent
  • 50 to 59 percent: 3.3 percent
  • 60 percent or more: 1.7 percent

In general, respondents expect their profits to increase slightly in 2017:

  • Loss: 1.7 percent
  • 0 percent: 1.7 percent
  • 1 to 4 percent: 6.7 percent
  • 5 to 9 percent: 16.7 percent
  • 10 to 14 percent: 23.3 percent
  • 15 to 19 percent: 13.3 percent
  • 20 to 24 percent: 10.0 percent
  • 25 to 29 percent: 5.0 percent
  • 30 to 39 percent: 11.7 percent
  • 40 to 49 percent: 1.7 percent
  • 50 to 59 percent: 6.7 percent
  • 60 percent+: 1.7 percent

Comparing 2016 and 2017, it appears that most everyone who didn’t make money in 2016 (16.7 percent reported a loss or breakeven) expects to reverse that trend in 2017 (only 3.4 percent predict a loss or breakeven year). There was little movement in the other segments. The biggest change was in the 10-14 percent profit margin range – from 13.3 percent in ‘16 to 23.3 percent in ‘17.

POS Channel Continues To Embrace Recurring Revenue Model

Business Solutions has encouraged solutions providers to adopt the recurring revenue/as-a-Service business model, and it appears POS VARs and ISVs are listening. Regarding this trend, we asked, “Which of the following statements best describes your business in regards to the transition to the as-a-Service/recurring revenue business model?” Respondents said:

  • 100 percent completely transitioned; all our customers pay a monthly fee; extremely limited project work: 10.3 percent.
  • Mostly transitioned (61 to 84 percent); most of our customers pay a monthly fee; limited project work: 13.8 percent.
  • Halfway transitioned (40 to 60 percent); about half of our customers pay a monthly fee; about half of our billing is for project work: 20.7 percent.
  • Partially transitioned (16 to 39 percent); some of our customers pay a monthly fee; significant project work: 22.4 percent.
  • Barely transitioned (1 to 15 percent); very few of our customers pay a monthly fee; we do mostly project work: 20.7 percent.
  • 0 percent not transitioned; no customers pay a monthly fee; all project work: 12.1 percent.

We also asked VARs and ISVs to look ahead. “One year from now, where do you plan to be in the transition to the as-a-Service/recurring revenue business model?” Respondents said:

  • 100 percent completely transitioned: 18.9 percent
  • Mostly transitioned (61 to 84 percent): 15.5 percent
  • Halfway transitioned (40 to 60 percent): 29.3 percent
  • Partially transitioned (16 to 39 percent): 18.9 percent
  • Barely transitioned (1 to 15 percent): 8.6 percent
  • 0 percent Not transitioned: 3.5 percent
  • I have to no plans to transition to this business model: 5.2 percent

The most notable data to me was proof the POS channel has been moving with this trend and will continue to do so. For 2016, 44.8 percent of respondents are approximately halfway or more transitioned to this business model, and that number is expected to increase next year. For 2017, 63.7 percent of respondents expect to be approximately halfway or more transitioned to this business model, an increase of 18.9 percent over just one year. That’s not a quantum leap, but it’s still significant in an industry where single-digit changes can feel drastic.

There’s movement at the bottom of the as-a-Service business model pyramid, too. In 2016, 32.8 percent of resellers/ISVs told us they were either “barely transitioned” or “not transitioned” to a recurring revenue business model. For 2017, the numbers say to expect only 17.3 percent of resellers/ISVs to be in those same categories, a decline of 15.5 percent. And with just 5.2 percent of respondents saying they have no plans to transition to this business model, that means 95 percent of the POS channel plans to shift to the recurring revenue model in some form.

It wasn’t that long ago that Mercury Payment Systems (now Vantiv) took the POS channel by storm introducing POS dealers to residual income through payment processing. And I recall a 2014 RetailNOW presentation on this business model drew only one audience comment from a reseller: “This will never work.” Our channel has transitioned quite a bit since then with solution providers of all sizes fully embracing payment residuals along with adding managed services to their offering.

For additional insights from Vantiv’s POS Channel KPI Study, the three-part special report published on my blog On the Edge with Jim Roddy:

And please email me if you have thoughts or questions about our KPI study or would like to discuss these numbers in-depth. My job as a Reseller & ISV Business Advisor for Vantiv’s PaymentsEdge Advisory Services is to work with Vantiv partners to help them improve their effectiveness and implement best practices, so please reach out to me anytime if I can be of assistance.

Jim Roddy is a Reseller & ISV Business Advisor for Vantiv’s PaymentsEdge Advisory Services. He has been active in the POS channel since 1998, including 11 years as the President of Business Solutions Magazine, six years as a Retail Solutions Providers Association (RSPA) board member, and one term as RSPA Chairman of the Board. Jim is regularly requested to speak at industry conferences and he is author of the book Hire Like You Just Beat Cancer.