Guest Analysis: The Strategic Implications of Reduced Sales Force Productivity

BROOKE YBARRA & MARC ABBEY

Growth in the acquiring industry has become elusive for some as the market has matured and become more competitive, putting great pressure on acquirers’ growth strategies. Of course, sales performance is a critical variable in the growth equation, and for better than a decade, sales productivity rates have been declining. In particular, productivity in field sales organizations has showed a marked decline over the past ten years.

Different sales organizations use different metrics to measure the productivity of their sales representatives, ranging from stick count (e.g. the number of new merchants a representative signs per month) to measures of revenue or sales volume a sales person generates. To isolate a single, simple metric, the number of new merchants per month for an outside or “field” sales person has fallen from an average around 14 merchants per month in the late 1990s to around 6 per month over the last few years.

Part of the reason for the reduction in productivity lies in the increased competitive intensity in acquiring. Whatever the next several years bring, the past six or eight years have not brought greater consolidation across the industry. There are just as many acquirers and quasi-acquirers now as previously, and the top ten acquirers account for roughly the same share as eight years ago. All of the large acquirers and most of the mid-sized acquirers have developed national channels. Same store growth rates have fallen dramatically since the golden age of the 1990s. There is simply a greater emphasis and investment in sales organizations in the current industry and a correspondingly greater number of sales people chasing their pieces of the pie of merchants making a buying decision.

However, there has also been a transformation in sales channels since the early 2000s. In the decade ending 2010, telesales increased from on the order of 5% of the new accounts signed in the acquiring business to 40%. Telesales are often the primary channel signing trade association referrals. Corporate referral arrangements like Costco/Elavon or Sam’s Club/First Data are commonly driven through telesales organizations. Search engine optimization and on-line marketing are most frequently telesales based. Significantly, referrals sourced through strategic distribution relationships with independent software vendors (ISVs) and value added resellers (VARs) are typically worked through telesales. So, in addition to general increases in competitive intensity, the rise in telesales has certainly been a causal factor in the decline in field sales productivity, though, truth be told, productivity rates in telesales have fallen over time, too.

Finally, self-enrollment processes at acquirers like Square, NAB, CapOne and many others have taken share from other channels. (There is some overlap if not full overlap between merchants signed through self-enrollment and the merchants field sales reps target.)

Acquirers have responded to declining sales productivity by deploying field sales organizations differently now than in the past, aiming sales people at larger, higher value targets. The average merchant size for field sales organizations (which admittedly would be impacted both by the compounding effect of same store growth and by acquirer target marketing) has increased by over 30% from the early 2000s in our tracking, offsetting a big piece but not all of the stick count decline over the same period. Nevertheless, the sales productivity trends are troubling for acquirers.

The decline in field sales force productivity is alarming not only because of its growth implications but also because it is a key factor in increasing acquisition costs in acquiring, even in residual-oriented sales organizations. Combined with elevated attrition and corresponding shorter average merchant lives, rising acquisition costs are taking a bite out of merchant lifetime values across the industry.

If an acquirer could only do one thing to improve the performance of its field sales organization, it would be to add good lead sources to the mix. As acquirers recognize the importance of high quality lead sources, competition for them has become increasingly intense, and business development processes to find and sign lead sources have taken a heightened significance.

Acquirers today face an increasingly competitive environment, and as a consequence we see a trend toward decreased sales productivity, increased acquisition costs, and stagnated growth. The most successful acquirers will combat these trends by taking a critical look at their sales strategies, in particular channel mix, business development capabilities, and lead source development. By renewing their focus on these core inputs to a sales strategy, acquirers can make deliberate decisions about how they want to compete in today’s industry.
[team id=”1425″]