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We often wring our hands about the frighteningly high levels of merchant churn in the payments industry, with most ISOs/acquirers seeing annual churn rates between 20 and 30 percent. While it is indeed upsetting to find your hard-won merchants have found happiness in the arms of another processor (or have “involuntarily” churned due to a failed automatic billing/payment setup), there’s a more sinister secret in the merchant services industry that few people want to talk about: the high rates of churn due to merchants going out of business.
The latest report from the U.S. Small Business Association’s Office of Advocacy is full of encouraging statistics to buoy the spirits of small business owners: according to the SBA’s definition, small businesses comprise 99.9 percent of all firms (including a staggering 98 percent of high-tech firms), providing two thirds of U.S. jobs created and roughly half of all private sector employment.
However, some worrying realities are also familiar to all local merchants, and should be on the mind of every merchant level salesperson: starting a small business is still very risky.
Although four out of five businesses started in 2016 survived until 2017, numbers from the Bureau of Labor Statistics’ Business Employment Dynamics show that a third of new businesses fail in their second year, only half last through their fifth year, and two thirds don’t survive 10 years.
Think about that for a minute: based on these stats, fully one half of the new-business accounts you sign this year will be out of business before their fifth year is out, not to mention those that you lose to processor churn.
I’ve found that over 30 percent of all merchant attrition is “out-of-business” attrition. Previously, I considered this to be uncontrollable churn – something an acquirer should not spend time worrying about. Today, I think about the problem a bit differently.
Reliable, reasonably priced processing is now table stakes for any MLS wanting to sell effectively. As I’ve written before (“Five-step plan for cross selling to merchants,” The Green Sheet, Oct. 23, 2017, issue 17:10:02) it’s vital that MLSs stop pitching low processing rates and move into a consultative role with their merchants.
Today, many sophisticated products and tools are available to ISOs and acquirers to help small businesses survive and grow. Unfortunately, most business owners are so busy they are simply uninformed about the latest technologies available to them. MLSs are ideally placed to provide technology solutions that can relieve the merchants’ deepest concerns.
So what are your merchants actually worried about? Womply recently surveyed small businesses and asked them to share their top business goals. Overwhelmingly (over 82 percent), they told us that their number one business goal was growing revenue.
When it comes to the thought-provoking “would you rather have more time or more money” question, nearly eight in 10 merchants said that earning 20 percent more money would have a greater impact on their life than saving 10 hours of work per week.
So examine your portfolio, identify merchants that have flat or declining sales volume over the past last year, and research options you can provide that can increase their revenue, including proven reputation management, CRM and email marketing services. Whatever options you choose, make sure you fully educate yourself on the ins and outs, and present a solution that helps your merchants grow their businesses, not just another time-sucking, “value added” flash in the pan.
I use the term “solution” intentionally, in the truest form of the word. You should be solving their revenue problem. For local merchants struggling in an increasingly difficult marketplace, you might be the one person who can save their business – and their livelihood.
If you help your merchants grow their revenue, there’s a much greater chance they will still be in business – and in your portfolio – 5, 10, or 20 years from now.
Barry Davis is vice president of business development at Womply, the top software partner to the payments industry and the top provider of front office software to small businesses (www.womply.com/about/our-customers). For more tips or resources, reach out to the Womply team at email@example.com.