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A Large Reseller Abandoned Toast. Here’s What We Learned

March 27, 2018
8 min read
Postec has been a Micros reseller for over 30 years. But when Micros was purchased by Oracle in 2015, Oracle quietly abandoned its reseller channel, leaving successful resellers like Postec holding the bag.
In 2015 it wasn’t yet understood – at least in venture capital – that a POS reseller channel would struggle to produce expected investor returns. Part of that can be blamed on the low price of cloud POS, which leaves resellers with little revenue relative to the legacy systems they had grown accustomed to selling, but the bigger reason is that 95% of resellers are just horrible business people.
So Toast, fortuitously raising money at the same time Micros was exiting its channel business, picked up Rick Lamy as their VP of Sales. Rick previously helped Micros engineer its reseller network, so who better to bring on resellers than the same person who built 20+ year relationships with them? That’s why so many Micros resellers picked up Toast: Rick Lamy is a consummate professional with a sterling reputation.
Postec was no exception and publicly announced their Toast partnership in June of 2016:
Atlanta, GA, June 1, 2016– Postec Inc, a leading provider of hospitality, retail and grocery Point of Sale (POS) systems has just added another exciting option to its portfolio: Toast. What’s better than sliced bread? Possibly Toast if you are a restaurant looking for a cost effective way to maximize your resources, but want the IT and expert support of a local provider.

But if you visit Postec’s website today, you’ll notice that Toast is no longer a POS solution Postec offers – see the below screenshot.

What happened?

We reached out to Postec but never heard a reply.

It had been suggested that perhaps Toast was not producing sufficient revenue for its channel, and Toast’s direct sales efforts were cannibalizing its channel. This might explain why Toast’s resellers, lest they were substantially marking up common line items, could be heading for the doors.

As evidence of this hypothesis is the below proposal from a Toast reseller.

To understand what’s going on we need to compare a proposal for the same merchant from another cloud POS reseller.

The Toast reseller is also a Micros reseller and they appear to be inflating some costs. The Toast reseller is charging $449 for the Epson U220B printer while the other reseller is charging $292. We can buy the printer online ourselves so the Toast reseller is slapping on a steep markup. The Toast reseller’s cash drawer is also twice the price of the other reseller’s offering, though it’s possible that the cash drawers are not the same make and model. 

Next we have to look at the installation services being tendered by the Toast reseller. These were MSRP’d for $6,250 then marked down by $2,000 to $4,250. The other reseller is proffering installation services through Boomtown for $1,550 with free programming and training since they have other bolt-on solutions they can offer. Boomtown’s installation services cover cable laying and basic terminal installation at a price that is less than half of typical reseller rates. Boomtown accomplishes this in two ways.

First, it should be noted that Toast and the cloud POS system being offered by the other reseller both come preconfigured from their respective POS company; that is, these cloud POS systems can be taken out of the box and plugged in and they will work. This substantially reduces installation time.

Second, Boomtown uses 1099 contractors, not W2 employees, which eliminates overhead when contractors don’t have active work. Since the skills needed to run cable and troubleshoot technical issues are not as commercially valuable as those required to be a consultative VAR, Boomtown has unbundled needless costs for the merchant. VARs should celebrate this (and the one offering Boomtown services in this article has) because it frees up a VAR’s limited time to focus on higher-value (i.e. more profitable) tasks.

If you’re thinking that the non-Toast reseller is only able to offer lower rates on hardware and services because they’re making more money on processing, you have a point. In continuation of our hypothesis, Toast might not be sharing enough processing revenue with their resellers, thus forcing their resellers to increase prices on other items.

We have some data here as well, but you’ll see how contradictory this ultimately is.

This merchants expects to do $150,000 in monthly revenue with an average transaction size of $45 (3,333 monthly transactions).

Toast has been shown to charge a flat rate of 2.49% and $0.15 per transaction. The other cloud POS proposal has a monthly processing fee of $250, $0.15 per transaction, and interchange (which is about 1.8%).

Here are the effective processing costs.

Other Cloud POS:
$250
$0.15 per transaction * 3,333 transactions = $499.95
Interchange (estimated 1.8%) = $2,700
TOTAL ESTIMATED MONTHLY PAYMENTS: $3,449.95 

Toast: 
$0.15 per transaction * 3,333 transactions = $499.95
2.49% x $150,000 = $3,735
TOTAL ESTIMATED MONTHLY PAYMENTS: $4,234.95 
The difference between the two is $785 monthly, or $9,420 annually. Assuming Toast is splitting this payments revenue fairly with its resellers, there’s no reason for any of its resellers to mark up anything else: that’s a lot of profit.
Of course these are just stated payments prices and there’s negotiation that takes place behind the scenes. Many processors have a “match or beat” guarantee but that doesn’t mean anything when they have language like this 
If Toast’s processing costs exceed the revenue associated with the foregoing processing rates for any Merchant location, Toast shall, upon notice to Merchant, be entitled to adjust such processing rates upward so that Toast’s revenue from Merchant… matches Toast’s cost of processing; the rate of such upward adjustment to be made in Toast’s reasonable judgement.
It’s possible Toast came down on their rates for this deal but the Toast reseller wouldn’t share their quote. That strikes us as odd: if their rates were so competitive, wouldn’t they have been transparent? Toast ensured us that they don’t earn rates anywhere near their standard rates we mentioned but it’s impossible to verify without some data.
Well, then we stumbled upon a recent Toast credit card statement…
This statement appears to only leave Toast with $50 in monthly residuals.
What does it all mean?
Toast’s resellers – who appear few in number – seem to be legacy resellers who mark up ordinary line items as was acceptable under the old reseller model. Newer VARs are unbundling services to keep merchant costs low and making up the revenues on additional value adds like consulting and bolt-on softwares as we’ve already laid out as the reseller model for the future. Old resellers continue to mark up commoditized hardware and pray the merchant doesn’t search on Google.
After looking at the recent payments statement it’s possible that Toast’s resellers are being forced to mark up hardware because Toast’s payments strategy may have changed. Or maybe this payments statement is what Toast starts with and they slowly ratchet up the rates per their contract language (which is really no different than any other payments company). Or there could be some other charges we’re just not seeing.
So the conclusion that Postec left Toast because it couldn’t earn enough income may have some validity, and the following proposal from a direct Toast rep throws another wrench in the whole thing:
If you look closely Toast is heavily discounting everything, including giving the POS hardware away for free. Many of Toast’s resellers, who as we’ve shown are resellers using old tricks of marking up hardware, are obviously going to find it very difficult to compete if Toast’s direct sales force is eliminating their resellers’ go-to method of profit by giving away the hardware. (Why these resellers aren’t evolving to make money elsewhere is an entirely separate discussion and one where Toast cannot be blamed no matter how much its resellers may try.)
There’s no way Toast is mathematically inept. So what’s really going on here? Massive discounts on hardware, software, AND payments?
It’s very confusing. We’ve heard Toast will offer free hardware when merchants sign a 3-year processing agreement, and Toast surely aims to make all that hardware money back and then some by “adjusting” the processing rates as they see fit. This is one of the major downsides to SMOPP.
Granted these are only a few statements to glean insights from, so our confidence can’t be very high. Maybe Toast is trying to find faster uptake since they’re up against a very real deadline given the amount of money they’ve taken on and they’ll increase fees on payments later (which their contracts give them the rights to do).
This whole thing merits much closer scrutiny. The numbers will need to make sense eventually, for both Toast and its resellers.


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