{"id":97,"date":"2016-10-19T15:23:57","date_gmt":"2016-10-19T15:23:57","guid":{"rendered":"http:\/\/reformingretail.com\/?p=97"},"modified":"2019-01-23T07:33:14","modified_gmt":"2019-01-23T13:33:14","slug":"this-is-the-most-brick-mortar-merchants-will-ever-pay-for-your-product","status":"publish","type":"post","link":"https:\/\/reformingretail.com\/index.php\/2016\/10\/19\/this-is-the-most-brick-mortar-merchants-will-ever-pay-for-your-product\/","title":{"rendered":"This is the Most Brick & Mortar Merchants Will Ever Pay for Your Product"},"content":{"rendered":"

As is easily fathomable, we do a lot of advisory work for startups looking to get into brick and mortar. Our first piece of advice is: don’t<\/strong>. If you want to build a large, billion-dollar business, go find another place to apply your efforts. Sure, the opportunity might look huge in brick and mortar because of the lack of basic progress, but there’s a reason progress hasn’t come.<\/p>\n

Once we get past that awkward reality, we can talk about reasonable outcomes for this sector. How fast will it grow? How large can it get? How should resources be allocated? And, will venture investors ever care?<\/p>\n

The simplest thing to understand is the business model: how will you make money? Most entrepreneurs think they can bilk the merchant. And why not? If I’m showing $XYZ in monthly value, surely the merchant will pay a fraction of that in return.<\/p>\n

But as I’ve mentioned earlier, the common-sense practices of SaaS<\/a> don’t apply in brick and mortar. This mistake is partly why founders come here disillusioned: Large # of Merchants x<\/em> Large Value Produced = Ridiculous Sized Business! If only.<\/p>\n

How much will a merchant pay for things?<\/p><\/blockquote>\n

The first consideration is if you’re Saving or Making. Merchants will always pay more for services that offer the opportunity of increased revenue. They’re often horrible at understanding the math behind such endeavors – as shown with the Groupon<\/a>\/daily deal craze – but for whatever reason this positioning strikes the right neural signals within a merchant’s brain. Can those customers be served well and turned into regulars is moot: more revenue (at whatever cost) = good.<\/p>\n

Saving a merchant something (money, time, headache, etc.) can be summed up with a phrase I heard from a very well-respected merchant services provider: “A merchant will walk over a dollar to pick up a dime.” Merchants have a finite amount they’re willing to pay for anything that is in the Saving category. There’s an asymptote in a merchant’s head that signals, “Do not pay more than $XYZ no matter how much value it creates.”<\/p>\n

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There’s also another nuance to the Saving category – merchants will pay more if it’s clear that the value is being created with insight from outside the merchant’s four walls. There’s an implicit hierarchy – for no logical reason –  that external visibility is somehow worth more. The structure from lowest to highest value looks like this:<\/p>\n