Toast Phasing Out Channel Sales… But The Channel Was Toast’s Top Sales Performer

We’ve been told that Toast has eliminated their channel model in favor of direct distribution. Toast’s legal team refused comment on the matter, but the move makes sense: Toast has access to limitless capital relative to other POS companies and can squeeze much better numbers out of W2s than they can from resellers who are often complacent making a few sales a year. Sure, quotas can theoretically separate out the wheat, but we know Toast’s resellers struggled with quotas to the point where some were giving systems away below cost to meet sales numbers.

Part of that is because Toast was significantly discounting POS systems and services with their balance sheet to win the processing business (roughly aggregated to the tune of $4M per month if you’re looking for firmer numbers), but the bigger part is that 99% of resellers have no idea how to run a modern business built around marketing funnels, SDRs, AEs, CS, and conversion metrics. Many of the Micros and Aloha resellers, who were often viewed as the best resellers in the POS industry, were glorified order-takers as the mothership built a large enough brand that merchants called in looking for a particular system.

When those dealers had to go out and solicit new business? Forget it: they couldn’t learn new technology fast enough and simply couldn’t compete with professional sales organization funded by venture capital.

That’s not to say that Toast didn’t teach these dealers a ton more than their counterparts, and that these former Toast dealers are probably head and shoulders above their peers at this point, but an old dog can only learn so many new tricks. So if Toast is dumping their channel it’s understandable. With capital as cheap as it is channel models only make sense as 1) referral agents, where the referrer could earn generously 10% of ACV in a one-time spiff, or 2) when the company has stopped growing at a sufficient pace that any growth is good growth – i.e. post IPO.

But the channel was Toast’s top sales performer. “Wait, but you just said channels didn’t perform?”

Oh, we didn’t mean Toast’s channel, but the channel of POS competition.

In a business that had been heavily channel for a long time, Toast, among other cloud POS companies, rewrote the rules that justified a relatively expensive direct sales models (i.e. make a lot of money on payments to subsidize the costs of distribution and support). In doing so, Toast made it apparent how bad the channel model really was (not all channel but 95%+ of dealers, and this is not hyperbole). All a Toast sales rep had to do was point out the obvious:

• Does your dealer know the problems in your business?
• How has your dealer helped you solve these problems?
• Has your dealer evolved to meet market demands with the growth in omni-channel and customer data?
• Name one thing your dealer has done recently that drastically improved your business

If you get the merchant thinking about it long enough they come to realize that their dealer does very little, and the POS they’re using is antiquated and hasn’t produced a modern, useful update in decades. The conclusion accordingly becomes clear:

“Yea, my existing POS is old and stale, and my dealer should have been giving me a new POS to deal with the change in market conditions. And if they didn’t give me suggestions for a new POS, they should at least have offered guidance and solutions to solve other problems I have… but they don’t. In fact, now that I think about it, I only see them when I have a problem, and it takes several calls to get them to pay attention.”

Think about all the money Toast has poured into innovation and it’s not hard for the merchant to come to the conclusion that Toast will keep innovating while their existing provider twiddles their thumbs.

Toast’s top sales performer was the channel, just not Toast’s channel. Toast only needed to show up and announce that they weren’t Aloha or Micros and merchants swooned. Yes, the bar is that low. NCR did it to themselves by significantly underinvesting over the past 11 years, but Micros often put a channel between themselves and the customer which made diffusion of value hard to track – i.e. when Micros built a new feature, how many dealers bothered to learn it, and then sold that value to the merchant?

Very few.

There are legions of people willing to work more than 20 hours a week who enjoy learning new things and creating value. That’s not 95% of the reseller channel. Cheap capital has made it clear just how bad most resellers are.

That you guys thought it wouldn’t eventually catch up to you is laughable.

But we’ll give you some help.

In 2016 Toast was averaging about 4 deals per rep per month. In early 2020 that reached around 6 deals per month. The average CAC (customer acquisition cost) is $10,000, and the payback period varies substantially. However, the average Toast merchant is paying over $8,000 per year.

That’s a LOT of money for a POS, and we’d bet the merchant probably thinks they’re only paying $1,000 a year for that Toast system. But there’s a silver lining: it means that there’s likely a lot of meat on a Toast deal for someone who’s willing to work. Can you sell a POS and support it for $5,000 a year without gouging the merchant on payments? Can you then bring forward true value-add solutions for another $3,000 a year and provide demonstrable ROI by serving as a business advisor?

If you’re not willing to put in the work to remain relevant then that’s all she wrote.