First, a Pop Quiz
The list below contains several reasons for why new online businesses fail, according to a widely cited report conducted by CB Insights (and several updates supporting the original report’s findings):
- Ran Out of Cash
- Get Outcompeted
- Pricing/Cost Issues
- Need/Lack Business Model
- Poor Marketing
- Ignore Customers
Let’s look at that list again:
Ran Out of Cash -> Read: Couldn’t sell our product/ service and get cash coming in fast enough.
Get Outcompeted -> Read: Competition moved faster and smarter, using resources more efficiently
Pricing/Cost Issues -> Read: Poor pricing strategies and lack of ability to iterate and experiment quickly. Costs not kept under control. Too heavy upfront investment.
Need/Lack Business Model -> Read: Rigid business model, lack of flexibility to adapt quickly
Poor Marketing -> Read: Lack of or poor utilization of tools and resources. Poor reporting. Lacking additional marketing/sales channels or adequate support for those.
Ignore Customers -> Read: Lack of customer support across touchpoints/ channels or time zones. Little ability to embrace customer feedback, or poor timing in doing so.
Conclusion? When considering selling online, in order to avoid these failure reasons, software and SaaS providers need to better understand the intersection between payments, commerce and distribution applicable to their vertical.
Bonus: Check out this Datasheet to Grow Your Business Quickly Without Payment Processing Headaches.
Here are a few steps to get you started on your way, and some “uncomfortable” questions to ask your providers:
Step 1.
Review your current payment charges and operational costs – including risk/fraud management, taxation compliance and filing, foreign exchange fees, financial reconciliation and others – to get a complete picture. Although many payment processors have transparency in their gateway fees, there are many hidden fees such as API call fees (with most transactions needing 3-4 API calls/transaction), chargeback fees, cross-border fees, refund fees, etc. making that seemingly inexpensive 2-3% gateway fee pretty expensive. Besides fees, you need to understand whether additional integrations, contracts or support resources are needed.
Step 2.
Commerce, marketing and merchandising tools – here the list can be very long. Do you have the capabilities for eCommerce, from cart integrations and management, purchase flow customizations? Are you capturing cart abandonments and utilizing retargeting strategies – follow-up marketing messages, can you easily set up promotions, with coupons and discounts, etc., etc., can you set up integrated marketing campaigns across channels and touchpoints?
Step 3.
Make sure you understand the business model you are signing up for – do you require a merchant account for each country you are selling into? Understand if you have flexibility over the business model by country or region, depending on your goals.
Step 4.
Can your provider respond to new market opportunities – for example, in Brazil, China, Russia? Are global but also local payment methods supported? This is a key growth area.
Step 5.
Demand better performance from existing traffic – improved conversions and more control. It’s easier to optimize than to acquire new traffic.
Step 6.
Track authorization rates and get insights into how the authorizations are managed, or what tools, if any, are utilized to increase authorization rates.
Step 7.
Review subscription-billing effectiveness and examine the link between the payment processor and billing provider. Some payment processors don’t support recurring transactions. Or they support recurring online payments via a third-party partnership, which means another implementation, another party to manage, another negotiation for rates, another contract to sign, etc.
Step 8.
What percent of your transactions are chargebacks and refunds? Ensure that you are not close to the red line of 1%. Also, understand if your provider will manage or fight chargebacks on your behalf; if there is no incentive for them to do so, it may mean an increased cost for your business longer term.
Step 9.
How easy is to onboard? Most payment processors only have a gateway, which means you need to find an acquirer and go through extensive risk evaluation (routine exams for money laundering, cross-reference against OFAC list, etc.) which can take several months for companies to get approved, delaying time to market.
Step 10.
How scalable is the solution you are choosing? Very often with payment processors, in order to have true scalability, you have to implement partner offerings (which means another contract, more fees, additional risk evaluation, integration time and costs, etc.) to complete the framework needed for your commerce functionality.
