This will be our last, and longest, post of 2017.
Many readers are under the impression that we hate the channel. That is not the case. This argument really needs to be broken into two parts to discuss intelligently. These components are:
- Business model, and
The people who argue that we hate the channel under the business model case interpret our rhetoric as a line of thinking that believes the channel should not exist. That is, in brick and mortar’s future there’s solely a solution provider/manufacturer and a customer. There are no intermediaries.
While there is a speckle of truth in our position along this premise, we’re mostly in the execution camp. This line of thinking is one that acknowledges the value of the channel but only if executed properly. The fact is that too few dealers – and we’re on record saying it’s ~95% of them – add any value. Here’s a great litmus test to prove it to yourself.
Email 100 dealers. Of those, maybe 10 will reply.
Of the captive 10, ask them why machine learning is important.
How many do you think will propose a coherent answer?
The truth of the matter is that most dealers have not bothered to educate themselves on the important trends impacting their own livelihood. Do you think healthcare professionals ignored Obamacare and the ramifications on their own businesses? Did Apple ignore Google’s entry into the smartphone market?
Of course not.
We think the future market looks like the graphic below; large merchants will consistently trade their dollars for time, whereas smaller merchants are more interested in the lowest price possible. Therefore, dealers who care to pay attention will need to focus on the larger, more stable merchants who can appreciate (and afford) their value. Smaller merchants have limited budgets and will not be able to pay for many, if any, value added services or products offered by the channel.
We’d propose thinking about merchant budgets in line with the following graphic. As POS prices drop due to declines in hardware and software costs, merchants are spending less money. However, merchants still have the same amount of money available to purchase something. It’s the channel’s job to figure out what that something is. The difference (where numbers 1, 2, and 3 are) between the horizontal dashed line and the green bar, which represents revenue from POS, is the something we’re talking about.
So if there are those in the channel who are interested in being relevant, we’re going to lay out a game plan.
We will, however, be skipping some basics, because if you don’t have them figured out it’s already too late:
- Remote monitoring software. You must be able to do remote diagnostics and remotely access accounts.
- Recurring revenue. Recurring revenue businesses get a 5x multiple. Upfront revenue can get things started – and companies like Heartland and Beyond help their agents with this – but you need to reach recurring revenue ASAP.
- Payments. For better or worse POS dealers need to be earning payment residuals.
- Customer Relationship Marketing (CRM). You need a way to market to customers in an organized and automated fashion.
- Ticketing system. You need a system to create and organize support tickets. Dropping the ball will piss merchants off.
- Website and online portal. This can host information for customers or your internal teams.
With this out of the way, let’s talk about the only purpose for the channel:
Being a VAR – A VALUE ADDED RESELLER.
If you do not add value, you have no reason to exist.
So how does a reseller become VAR?
Think of it like this. What does a VAR do that nobody else can?
Sell POS hardware? Nope – a merchant can buy hardware on Amazon.
Sell POS software? Nope – a merchant can call any number of POS companies directly for POS software.
Lay cable? Nope – any service technician can do that.
Sell payments? Nope – anyone can sell payments.
A VAR does things that nobody else can do. They add value that nobody else can add.
A VAR must be a problem solver.
The only way to solve a merchant’s problems is to understand their business. This means knowing how they operate and their strengths and weaknesses. Knowing where the business needs assistance and helping them locate, procure, and roll-out solutions to fix these shortcomings.
Jim Roddy has done an excellent job identifying some recurring revenue solutions. But pushing a solution where there might not be a problem is what a salesman does. It is NOT what a VAR does.
A VAR offers advice, experience, and uses their listening skills to solve merchant problems. They do not sell solutions. We repeat:
A VAR does not sell solutions: they solve problems.
Too many dealers have viewed the merchant relationship as transactional. That is not a working model going forward because merchants now have many other options thanks to the internet’s disruption of the distribution channel. VARs must now be regularly engaged with their merchants if they want to avoid replacement from the direct sales and support of POS companies.
How do they do this? We have some answers.
Would it surprise you to learn that 70% of merchants don’t even use their POS the right way? That, in effect, the merchant is paying for the value of the POS but only using it like a cash register? Would you buy a car and walk to work in a rainstorm?
The first opportunity is ensuring the POS is both set up and used the right way. Don’t give us the, “Oh, we already do this and it’s called ‘Programming, Installation and Training’.”
No you don’t.
You have no idea if employees are sharing logins, if revenue centers are being used correctly, nor do you know about 50 other things that really matter. 95% of the channel misses these clues because they’re not a VAR. They’re focused on a transactional piece of revenue and they’re trying to get out of the merchant’s doors as quickly as possible.
Why does it matter if the merchant is using the POS the right way? For starters, if they see that their POS is capable of more things they’re more likely to associate POS with higher value. But most importantly it’s because improper use of a POS generates bad data. And with bad data the business cannot improve. Under the crap in, crap out creed of data scientists, bad data leaves little room for improvement. Let’s use a simple example to prove the point.
You have a goal to run a faster mile. To do that you need to time yourself and run more. What if you don’t consistently run more, and what if you don’t even time yourself when you do run? The lack of data makes it impossible to measure your performance and improve.
If merchants feed you the line that they’re too busy to have employees use their own logins, ask them if they’re too busy to catch thieves, increase sales by 5%+, and increase profits by 20% (all of these are the upsides of a proper POS setup, which we can happily prove). If they say yes, leave immediately because this merchant will be bankrupt in the next year.
If they’re open to the idea of setting up the POS to be used the right way – which, by the way, a VAR will charge for – here are the areas that must be in great shape.
Business Location Address Ensure the business’s correct address is recorded in the POS.
Cost of Goods Sold (COGS) If the business is using the POS for inventory, ensure the COGS data is accurate. For beverages, this should be easy. If COGS beverage data is not in the POS, convince the merchants to enter this information.
Covers & Guests For POS systems that capture covers and guest counts, ensure that employees are accurately entering this value on their checks.
Customer Profiles If the merchant is using the POS to collect customer information for loyalty or deliveries, ensure that they are appropriately entering as much customer information as possible.
Discounts Ensure discounts in the POS are clearly labeled in plain English. Reprogram any abbreviations to be understandable to an outsider.
Employee Logins Ensure employees are not sharing logins, and that employees are clocking in and out with their own unique login IDs in the POS. If employees are assigned to work shifts at certain revenue centers, ensure they are clocking in and out of those centers to demarcate where their shifts are occurring. For example, make sure bartender is clocking in and out of the bar revenue center and not the patio.
Employee Meal Comps If employees are taking meal comps in the POS for themselves, ensure that the comp is programmed to be clearly different than a comp given to a customer.
Employee Pay Rates Ensure the payment details for employees are accurately reflected in the POS. If there are overtime rates, ensure those rates are accurately assessed based on state and local laws.
Employment Periods Ensure that employee start and end dates are captured in the POS.
Employee Roles Ensure employee positions are affixed to each employee and that the role is obvious to an outsider. If there are role abbreviations, write out the full role in the POS instead.
Employee Shifts Ensure each shift has a unique name and that the shift’s starting and ending hours are accurately recorded in the POS. If shifts are programmed in shorthand, reprogram the shift to be understandable to an outsider.
Hours of Operation Ensure the business is accurately recording the start and end times of a business day for each day of week in the POS.
Item Specificity Ensure each item has a unique code in the POS. For example, don’t let employees record a “drink” sale if it’s possible to specify that the drink is an iced tea. Make sure employees are as specific with items as possible. Reprogram the POS menus as needed.
Marketing Calendars Where possible, ask merchant to produce a list of historical marketing events with the days and times the events ran and include any POS items tied to the marketing event was.
Menu Programming Ensure there are clear relationships in menu hierarchy for menu items. Think of a proper relationship as Food > Appetizers > Wings. Where possible, ensure every menu item has an appropriate hierarchal category.
Modifiers Ensure modifiers for items are clearly explicable in the POS. If there are abbreviated modifiers, reprogram them into plain English so they are understandable to an outsider.
Revenue Centers For locations with multiple revenue centers (i.e. bar, patio, drive through, carry out), ensure that revenue centers are properly coded and unique. Make sure employees tag tickets to appropriate revenue centers. Eliminate unused revenue centers from POS.
Once the POS is properly established, it’s time to move to the second opportunity: making sure the merchant gets and continues getting the most out of their POS system. The entire purpose of setting up the POS system was to develop clean data that the merchant can now use to improve their business.
The data must be audited. Remember, a VAR does not sell solutions: they solve problems. A VAR fixed the merchant’s problem of producing clean data under the premise that a merchant would get more value by using the POS the right way. Now we must see what value that clean data can provide. The way we do this is by auditing the data. WhatsBusy software examines POS data and determines opportunities for merchant improvement. Here’s an example of a weekly audit report.
If the audit shows areas for improvement, now the VAR can offer a solution to fix these problems. These audits can be run weekly or monthly to give the VAR multiple opportunities to revisit the merchant and suggest a solution should the merchant not see the value in the first conversation.
But that’s not all the audit will do.
First, the audit will tell VARs which of their merchants are likely to churn or go bankrupt. By looking at the audit reports it’s obvious which merchants are losing lots of money. If a merchant is losing that much money they’re either going belly up or will blame their solution provider for their troubles and leave. Auditing the data continuously gives the VAR an opportunity to stay engaged with their customers and provide value so the merchant sticks around.
Second, even if the merchant uses the VAR’s recommended software solution to fix the problems, the majority of merchants – candidly 99% – will need help fully utilizing the solution – just like they need help fully utilizing their POS. The auditing reports from WhatsBusy continue to tell the VAR where the merchant is not properly using the solution, and what fixing that would mean to the business. Here’s an example.
The WhatsBusy solution tells the merchant to work Employee A on Tuesday and Thursday nights to produce more revenue. The merchant doesn’t make this change. The VAR would receive an audit report that says something to the effect of, ‘Hey, the merchant didn’t make X change we recommended. This cost the merchant $1,000 last month. Why don’t you make sure they’re making these changes going forward?‘
Now a VAR can quantify the exact value of their consulting services in fixing these problems. That’s right: through WhatsBusy’s auditing automation with machine learning, a VAR has just been able to build a consulting service that:
- Keeps the VAR engaged with the merchant, demonstrating ongoing value and lowering churn
- Quantifies the value of the VAR to the merchant in very tangible dollars and cents
- Is relevant to 99% of their customer base
The VAR will naturally receive a recurring software revenue share for the software product they recommend to fix the merchant’s problems. But an even smarter VAR will set up a subscription business for the consulting services on top of the product.
For $X per month (or year), the merchant will receive Y hours of VAR time to review their business with data science and make sure they’re getting the most out of their tools.
Once a VAR has figured this out, they can look forward to the third opportunity: helping the merchant attract more customers.
There’s a reason we list this opportunity third.
A merchant’s business is like a ship. All the operational flaws are holes in the hull. Marketing brings more people onboard the ship, but if the holes aren’t repaired the ship will just sink faster. If you doubt us, think about this example.
Your business wants to bring in more customers so you run a marketing campaign. Store traffic increases by 25%. But even before you ran the marketing campaign customer service was horrible: you could not accurately predict demand so you were constantly understaffed.
The promotion, while successful in bringing in 25% more potential customers, exposes these potential customers to your horrible customer service. These guests leave and post about their bad experience on review sites.
So by running the marketing campaign without first having your house in order, you only quickened your own death.
If the VAR has successfully led the merchant through the first two opportunities (setting up the POS properly and auditing the data to fix the merchant’s operational troubles), then they’re ready for this third opportunity.
With more POS systems sending transactional data to the cloud, the POS companies are able to share this data with partners to benchmark merchant sales trends. Companies like WhatsBusy use these data points to constantly audit merchants and identify specific merchants that need assistance. If sales trends for similar merchants are up but a particular merchant is not – and the merchant’s operations are humming along because they’re using tools to fix them – it’s time to consider running promotional campaigns.
We expect these campaigns to be prescriptive in nature and deeply embedded into the POS as early as 2019. A merchant would not even need to leave their POS interface and would see the recommended promotions, the amount they cost to run, free marketing dollars from their suppliers and distributors, and the expected ROI of the campaign before clicking to run it. And since all the sales data is passed through the POS, the POS will be able to immediately report on the efficacy of any campaigns as well.
Just like the second opportunity, merchants will need VAR services to ensure they’re using the right kinds of marketing, keeping customer contact records updated, and capturing lists of all marketing campaigns not being run on the POS.
The magnitude of this marketing opportunity is massive, though we’re saving specifics for an article early next year. Regardless, resellers have more than enough work for 2018 just focusing on the fist two opportunities.
This guide has given merchants three tangible areas that they can use to stay engaged with their customers and build better relationships. The first two are immediate opportunities that would clearly help a dealer transition to a VAR. Those were:
- Set up the POS and ensure the merchant uses it the right way, and
- Audit the POS data to fix merchant operational problems
How many dealers will actually execute any of this?
Meh, maybe 5%.
We feel bad for the merchants represented by the other 95%. Their shared experiences will do more damage to the channel than any interpretation of our writings ever could.