When Oracle purchased Micros POS in mid 2014 there was a pretty drastic shakeup. In the years leading up to the sale, Oracle had asked Micros to reconsider its channel strategy and consolidate its distribution channels. (Sans Oracle request, there’s a natural cycle to this behavior as we’ve termed the dealer yo yo.)
Oracle’s reasoning for consolidation was two-fold. One, eliminating the channel would make it easier to ship products and procure customer feedback. Two, Oracle could only increase its revenue with deals that were millions of dollars; the Micros channel serviced the independent restaurant market and those accounts were not going to spend millions on its products.
As many Micros dealers would tell you, given its strategy, Oracle effectively fired its independent restaurant customers.
Did some of their customers deserve it? Probably. But Oracle made a categorical judgement call and the result has been the implosion of the Micros channel.
We mention this story to highlight something that needs to be discussed. Oracle had corporate goals. To reach those goals they made the decision that they could not continue to support a certain type of customer. Was Oracle’s approach unforgiving and brash? Perhaps. But there’s a lesson in here.
Many POS companies (and their respective channels) support customers at all costs; they ignore revenue and profitability metrics in order to onboard another customer. It’s time someone asks them to reflect on this practice and answer hard questions.
Why? Why do you need to support another customer? What goal are you satiating?
Because here’s the truth: some customers should not be supported.
Some customers should be fired.
Businesses exist to earn a return. You can only do that if you earn enough revenue to turn a profit. Some businesses become distracted with the revenue number and chase it all costs, without being mindful that all revenue is not created equal. In fact some revenue is downright bad.
What are we talking about?
We’re talking about revenue that comes from customers who are such a pain to support that they aren’t financially worth it. Not only will these customers never pay you enough revenue to have profitable unit economics for their account, they’ll also prevent you from earning more revenue elsewhere.
Here’s a great, real-world example.
Many POS resellers are not going to earn a living selling cloud POS: the revenue share is too small to matter. If you have 10,000 accounts paying you $10/mo, maybe you can survive, but it would take a reseller many years to get there. For proof, Toast doesn’t even have 10,000 merchants and they’ve raised over $130M.
Many parties in the POS business rely on a handful of upsells or cross-sells to make their money. Payments. Support. Online ordering. Etc, etc. So to some extent POS is now a loss leader.
Well what happens when you place a POS with a customer who is so cost-conscious that they only buy the POS from you because it’s the lowest cost option they could find? Do you think this customer is suddenly going to change their ways and give you money hand over fist on a number of other products?
Of course not.
It’s the same flaw we see in the business models of some POS companies: break even on the POS, but all the profit will come from “apps”. Not only do merchants not do self-discovery, but the merchant buying a POS on price is a really small merchant… like a husband-wife team working a lemonade stand in the mall.
We’d go so far as to say that merchants earning less than $500,000 a year in gross revenue are simply too small to have a POS reseller: they aren’t going to spend money on anything other than their (very lightweight!) POS system and payments (which they must accept to be relevant to customers). One could even extend this line of thinking to acknowledge that cloud POS has done wonders to modernize the small merchant but it has not materially increased the market opportunity for POS dealers and third party products.
A cloud merchant is simply too frugal/small to pay for the value of a VAR and its various tools.
If you want to see just how troublesome these small merchants can be look at Square. Square is struggling to find a profitable model given that their small merchants are highly unprofitable to serve. These micro merchants have high levels of churn and are not buying any of Square’s additional software (marketing, etc.) where their chance for margin lies.
But the problems don’t just stop there.
The small merchant, in addition to not buying other products from you, is going to take up all of your time. “The squeaky wheel gets the grease,” could not hit closer to home in this instance. The small merchant is going to make bad decision after bad decision. Maybe they’re using Groupon and are now massively underwater (shocker!). Maybe they’ve signed up for delivery or online ordering and are paying such hefty commission fees they’re losing tons of money (another surprise!). Or perhaps they’ve chosen a POS that is so voracious with their payments contract that the merchant has no hope of staying solvent (this shouldn’t catch any of our readers off guard).
Now you’re spending more time helping the customer who’s not only never going to pay you for other services, but he’s also taking up so much of your time that you’re ignoring your other customers. So by chasing “revenue at all costs” you’ve gotten upside down on your business goals. Yes, you may have earned a bit of short term revenue by onboarding that merchant, but you’re losing revenue and profit by keeping them around.
Fire your bad customers.
The lesson for readers should be to focus on larger merchants who will pay for value. Some POS companies are chasing smaller merchants because they’re sodomizing them on processing rates (leading to merchant insolvency, which is ironic for entities portraying themselves as pro-merchant) but the more successful POS companies with established channels have focused on larger, more reliable merchants.
Do not undersell your value and experience. If you provide something useful, customers will pay for it. Too bad 95% of dealers can’t figure it out.
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