Two Overlooked Hospitality POS Revenue Sources
Rather than take on new verticals or product lines, this VAR has targeted existing customers for payment processing and service contract upsells.
Payment Processing: Your Easiest Sell?
According to Art Julian, CEO of CBS, he didn’t always consider payment processing as a direct source of revenue. Instead, he says CBS’ philosophy was to partner with card processors, expecting a mutually beneficial relationship. Specifically, CBS recommended the card processor for processing, and the card processor recommended CBS for POS. “We were happy to get a lead or a new customer and weren’t interested in the processing revenue at the time,” says Julian. “However, there has been a recent trend in the payment processing industry where processing companies are beginning to sell POS hardware and software to better compete with POS VARs.” Julian realized that the people he was partnering with yesterday are his competition today. Therefore, CBS chose a new payment processing partner (Mercury Payment Systems, see sidebar) that didn’t compete for the VAR’s POS business. This change required CBS to become a reseller of payment processing services.
However, before the company could sell payment processing, its employees needed to be educated. “There’s a lot to understand about payment processing,” Julian admits. “We had to ensure we knew the lingo and terminology our customers would expect to hear. VARs need to show they are as — or more — educated on payment processing than the ISOs (independent sales organizations) and agents out there competing against them.” Of course, becoming a payment processing specialist wasn’t done in a week. However, Julian says the process was simple and cheap. “Mercury came to our office and provided our reps with free education,” says Julian. “In addition, we were assigned a Mercury rep who can go on sales calls with us to instantly boost our credibility and further teach our reps.” In the end, Julian says it took about three months before his reps were comfortable selling payment processing.
To see how another VAR is selling payment processing solutions, go to BSMinfo.com/jp/3716.
While Julian knew his salespeople were comfortable and able to sell payment processing, he also wanted to make sure they were eager to do so. Therefore, in an attempt to encourage its salespeople to promote payment processing, CBS has a revenue-sharing program with its sales reps. Julian explains that CBS salespeople are awarded half of the annual residual income from accounts to which they sell payment processing.
Retain Your Payment Processing Business
Once CBS’ customers are using Mercury, Julian says that CBS faces a new challenge — retaining the business. “In the payment processing industry, there are a lot of ‘snake oil’ salespeople who manipulate the numbers to indicate they are cheaper when they really aren’t,” he cautions. Indeed, Julian says restaurateurs are approached every day by processors, whether by email, mail, or through the front door. His defense, aside from the level of trust he’s gained by implementing the POS hardware and software, is multifaceted.
First, he points to a lack of support when using an independent agent. This is one of the main reasons why it makes sense for POS VARs to sell payment processing. “We noticed that if merchants have a problem with their card processing, they call their POS VAR assuming it’s a POS problem,” he explains. “If it’s a card processing problem, and the POS VAR didn’t sell the processing, the VAR isn’t authorized to engage the processor on behalf of the owner for support.” He goes on to say that the owner, who doesn’t know anything, often needs to make the troubleshooting call. However, because CBS has a relationship with Mercury, the VAR can talk to the processor directly on behalf of customers having problems. This added level of support separates the VAR from traditional processing companies. “If you make restaurateurs aware of these differences, they’re often willing to pay a little more for the support and stay loyal.”
Julian adds that another way CBS’ card processing solution differs from its competition is by providing a buffer from financial loss during down processing times. That is, Mercury has a free ‘stand-in’ service which allows merchants to accept cards even if the credit provider’s system goes down. When the system is back up and if a card is rejected for some reason, Mercury will take the loss as opposed to the merchant. According to Julian, such a benefit is of significant value to restaurateurs.
Earn Maintenance Revenue In Advance
In the VAR world, when sales are coming in, problems like a low maintenance contract adoption rate are easy to overlook. This was particularly true over the past few years for CBS, as sales were high and service revenues were a second thought. However, in 2008 the VAR recognized its customers could potentially be upsold into maintenance contracts, helping ease any downturn in sales due to the economy.
Julian says his first step was to perform an assessment to see how much each customer not on a contract spent during the prior year on service calls. CBS then prioritized the customers that spent as much or more than the cost of a contract and contacted them. The pitch was simple and effective. Assuming the customer has future service needs similar to what it had historically, it makes sense to lock in a fixed fee with a contract. “In the first month, we wound up with 15 new service contracts simply by identifying customers that previously spent a similar amount of money,” says Julian.
With new customers, CBS’ salespeople are incentivized with salary bonuses to sell a service agreement as part of the whole deal. To keep costs low for the customer, CBS recommends building the service cost into the lease payment of the whole POS deal. “It’s more appealing for customers to swallow a $30 a month increase per payment than a lump sum down the road if something needs servicing,” Julian says. “From the response we’ve seen, restaurateurs know they’re going to pay the money one way or the other.”
When the service contract is built into a lease, the annual (and in some cases, multiyear) fee is paid to the VAR in advance, giving CBS an immediate influx of revenue. In return for prepayment, CBS gives its service-contracted customers an assortment of benefits, one of which is a 25% discount on the service rate fee. CBS also is willing to sell a three-year service contract at the cost of a two-year. (Imagine two years’ worth of service revenue paid in advance.)
Nevertheless, Julian says that of all the benefits to customers, there are a couple that receive the greatest response. The first is the ability to access free loaner equipment to reduce or eliminate downtime. The second is priority service. Specifically, those customers on a maintenance contract get priority over those customers who are not. In the rare event two contracted customers call at the same time, CBS sends two separate technicians as opposed to one. In providing such benefits, CBS is required to house a small pool of spare equipment.
With the added benefits to sweeten the deal and the costs wrapped into a monthly lease payment, CBS’ customers have responded. Indeed, Julian says that prior to the initiative to promote service contracts, 30% of the VAR’s customers were on contracts, as compared to today’s 56%.
Financial gurus and industry analysts predict the economic conditions of early 2009 will continue to the end of the year. Whether right or wrong, CBS has found two simple but effective ways of earning additional dollars today, while many VARs struggle to stay in business.