Small Streams, Big Money
The Greek philosopher Heraclitus said, “You cannot step twice into the same river. For as you are stepping in, other waters are ever flowing on to you.” The same can be said of merchant cash advance: revenue streams flow continuously from multiple distribution channels. It’s no secret that cash advances pay high commissions, but what about other revenue sources you hardly ever hear about? Some industry insiders view cash advance as an opener, a way to break the ice with a business owner who may need cash today and other products and services tomorrow.
While there are numerous ways to make money in the MCA business, I learned in interviews with industry leaders that adding residual streams is more about mindset than checklist. How willing are you to go the extra mile to truly understand a customer, and put together a sweet deal for that customer with a little help from partners and friends? Here’s some expert advice on how to turn a single cash advance event into multiple lines of reoccurring revenue.
Shoot straight and have a plan
“MCAs have always been our bread and butter,” said Chad Otar, Managing Partner at Excel Capital Management, “because they’re simple, easy, and fast. But if you really want to be successful in this business, you can’t just make calls randomly. You need to know who you’re calling, and you need to have a plan.
Niche is very important right now. We like to think outside the box to the underserved industries and seasonal businesses. For example, we call florists around Valentine’s Day and Mother’s Day; two days that can make or break the year for a small to midsize shop. We help them get the capital they need to get inventory now and pay it off quickly.”
Regardless of their needs or motivations, Otar believes most customers prefer to work with people who understand them and tell them the truth. “The most important part is qualifying them,” Otar said. “Find out as much as you can about their business, their past experiences, and their plans before you make any recommendations. When you’re ready to present the options, speak directly; tell them how it is. People respect the truth, even when it’s something they don’t want to hear. Tell them they need to have a plan for the capital – don’t just use it to pay off other debts. If they’re a serial stacker, get them on the road to recovery. We want to build sustainable partnerships with our customers and partners.”
Understand your market
Tom McDermott, General Manager at asset based lender Borro, has observed many changes in non-bank financing over the past decade. “In today’s post-recession economy,” McDermott commented, “it’s still a challenge for the small business owner to find working capital. Banks and traditional lenders continue to be restrictive, which creates an opportunity for Borro to be a resource for the small business owner who may be looking for capital to fix a problem or cash flow issue. However, we’re not seeing the same sense of urgency in today’s borrowers. In fact, we increasingly see people looking for capital for opportunities, such as buying inventory for cash, or acquiring a piece of property or equipment to expand their operations.”
Jared Weitz, CEO of United Capital Source, is a hands-on CEO who manages a team of eight sales professionals and delves into every facet of the business: Marketing, acquiring, sales, and accounting.
“As a small business owner myself,” said Weitz, “I can react quickly to the needs of my clients. If a merchant says ‘I’d like a 3-to-6 month payment plan’ then we know how to handle it or if they want a long-term plan, like 18 months, we have relationships that offer longer terms so we service that need as well. Some merchants like the flexibility and cyclical nature of credit card advances. Others prefer to take a fixed payment plan and budget around that.”
Close one account, open multiple streams
Looking for a simple way to create reoccurring revenue? Begin with reoccurring customers. “We have a renewals team who introduces themselves the same day we acquire a new client and they maintain contact with our clients throughout the whole term of the advance,” Weitz stated.
“We aggregate all of our own leads and data and for a small team we are very efficient. We’re really focusing on growing our company out even more including our new division United Capital Payments, which handles credit card processing that we now offer. We try to switch the merchant processing and now even the payroll account so we save them money while we’re providing financing.”
United Capital Source also works with brokers and client service specialists who are looking to help out their own existing book of business. Weitz said, “When you’re providing three or four different services to a merchant and you’re being the most aggressive with your pricing the chances of their leaving are very slim. They get offers every day to lower rates on credit card processing or lower fees on payroll services or even give them a cheaper rate on financing. For us it’s really about the relationship as well as offering really competitive pricing, and to a certain extent it’s also about timing. That’s why we invest real time in molding and training our people. We want them to keep the relationship, be personable, and understand the needs of the merchant.”
McDermott, also a believer in cultivating customer relationships, commented, “Our sales people focus on the new customer and also maintain contact with all of their customers. We have a 65% rate of repeat customers; people who experience how easy and hassle free it can be to work with us will usually come back and ask about other services.”
Think like a CEO
Isaac D. Stern is CEO at Yellowstone Capital, one of the original cash advance companies that attributes its exponential growth to a culture of innovation and robust partnership network. Stern gives his sales professionals the resources and freedom to be creative and entrepreneurial. “My philosophy is ‘Your own business under my roof’,” Stern said. “This is a partnership. If you win, I win. If you lose, I lose. We give you everything you need to be successful. What I also do with my team is lend them money so that they can participate in their own deals. It’s a voluntary program and we make sure they are experienced enough to handle it. The end result is we are all working in the same direction and it doesn’t devolve into that sales guy vs. underwriter dynamic.
We get deals that other people have declined; C paper, that’s our specialty. We probably get 150 deals a day from ISOs, and that’s on top of what we generate from our $500,000 per month online marketing campaign. We work closely with other MCAs, including Strategic Funding, OnDeck Capital, and Fast Business Funding. They fund our higher quality stuff and I am getting great feedback on the performance of our originations. I take pride in that.
I give my sales reps a system, administrative staff, and a strong referral network, so all they have to do is walk in, sit down, and start making money. They sell the merchant with everything they have. There’s no salary, and no one’s watching the clock. Fifteen hour days are the norm in this business. But if you’re working 15 hour days and having fun then it’s not really work, is it? And that’s our philosophy at Yellowstone: work hard; play hard. We had everyone over last summer for a giant barbeque in my backyard.”
Most ancillary revenue streams originate in referral networks that Stern called the “gold of our business.” These networks can include customers, coworkers, friends, family members, and strategic alliance partners who specialize in an array of services.
“There are as many secret sauces as there are revenue streams,” Otar noted. “It takes a blend of consultative selling and expertise to create the right product mix for each client. In addition to being our own ISO, we work with asset based lenders, UCCs, receivables, small SBAs, and others. Our referral network enables us to be a one-stop shop because we can leverage our partners’ expertise in their respective financial programs. Having a diversified team of specialists gives us the flexibility to underwrite and fund many different types of deals, as well as the ability to choose our level of involvement in each of those deals.”
To paraphrase the Greek philosopher, we may never step into the same deal twice, but working together to build sustainable partnerships will give us, our partners, and our customers, a rewarding and profitable ride.
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