We know POS resellers have been talking about moving to the recurring revenue business model – it’s a featured topic at every retail IT conference plus our list of recurring revenue products and services was one of Vantiv’s most visited web pages in 2017. But are POS VARs actually changing their business and implementing the as-a-Service/recurring revenue business model?
We sought to answer that question in the Vantiv, now Worldpay, 2018 POS Channel KPI Study. In January and February, an online survey was emailed to Vantiv partners and POS reseller partners of channel distributor BlueStar. Through this survey, POS VARs and software developers anonymously shared their results from 2017 and their projections for 2018. A total of 152 resellers and ISVs shared their financial KPIs (key performance indicators) with us. This is Part 2 of our four-part special report.
Our first question about this trend asked, “Which of the following statements best describes your business in regards to the transition to the as-a-Service/recurring revenue business model?” Respondents said:
- 100% completely transitioned; all our customers pay a monthly fee; extremely limited project work: 24.6%
- Mostly transitioned (61-84%); most of our customers pay a monthly fee; limited project work: 17.3%
- Halfway transitioned (40-60%); about half of our customers pay a monthly fee; about half of our billing is for project work: 26.4%
- Partially transitioned (16-39%); some of our customers pay a monthly fee; significant project work: 14.6%
- Barely transitioned (1-15%); very few of our customers pay a monthly fee; we do mostly project work: 12.7%
- 0% Not transitioned; no customers pay a monthly fee; all project work: 4.6%
Our second question asked them to look ahead. “One year from now, where do you plan to be in the transition to the as-a-Service/recurring revenue business model?” Respondents said:
- 100% completely transitioned: 35.8%
- Mostly transitioned (61-84%): 26.6%
- Halfway transitioned (40-60%): 16.5%
- Partially transitioned (16-39%): 10.1%
- Barely transitioned (1-15%): 6.4%
- 0% Not transitioned: 0.9%
- I have no plans to transition to this business model: 3.7%
We asked these same questions in last year’s POS Channel KPI Study, so let’s examine the 2016 and 2017 actuals plus the 2018 projections side-by-side:
- 100% completely transitioned: 2016: 10.3% 2017: 24.6% 2018: 35.8%
- Mostly transitioned (61-84%): 2016: 13.8% 2017: 17.3% 2018: 26.6%
- Halfway transitioned (40-60%): 2016: 20.7% 2017: 26.4% 2018: 16.5%
- Partially transitioned (16-39%): 2016: 22.4% 2017: 14.6% 2018: 10.1%
- Barely transitioned (1-15%): 2016: 20.7% 2017: 12.7% 2018: 6.4%
- 0% Not transitioned/no plans: 2016: 12.1% 2017: 4.6% 2018: 4.6%
That’s some pretty solid proof that the POS channel has been trending towards more recurring revenue and will continue to do so. For 2016, 44.8% of our survey respondents were approx. halfway or more transitioned to this business model. That figure jumped to 68.3% in 2017 and is projected to advance to 78.9% in 2018. A 23.5% leap in one year and 34.1% across two years is significant in an industry where even a single-digit change in numbers can feel drastic.
There’s movement at the bottom of the recurring revenue business model pyramid as well. In 2016, 32.8% of resellers/ISVs told us they were either “barely transitioned” or “not transitioned” to a recurring revenue business model. In 2017, that number declined to 17.3% and is projected next year to drop to 11.0%. With only 4.6% of respondents saying they have no plans to transition to this business model (same as last year), that means 95% of the POS channel is shifting to the recurring revenue model in some form.
POS resellers have a reputation of adapting slowly to change, but is that the case with recurring revenue? Let’s split out their actuals from 2016 and 2017 and their 2018 projections:
- 100% completely transitioned: 2016: 5.0% 2017: 14.1% 2018: 25.7%
- Mostly transitioned (61-84%): 2016: 15.0% 2017: 21.2% 2018: 30.0%
- Halfway transitioned (40-60%): 2016: 22.5% 2017: 28.2% 2018: 18.6%
- Partially transitioned (16-39%): 2016: 22.5% 2017: 14.1% 2018: 11.4%
- Barely transitioned (1-15%): 2016: 27.5% 2017: 15.5% 2018: 7.1%
- 0% Not transitioned/no plans: 2016: 7.5% 2017: 7.0% 2018: 7.1%
There’s a group of POS dealers – right around 7% to be precise – that are flat out refusing to transition to this business model. But look at every other stat line above. From 2016 to 2018, the number of POS resellers mostly or completely transitioned to the recurring revenue model is expected to move from just 20.0% to 55.7%. At the same time, those barely or partially transitioned are going to decline from 50.0% to just 18.5%. And for those skeptics who think reseller projections for 2018 are rosy, understand that when we asked POS resellers last year to project their recurring revenue for 2017 they underestimated their progress. We all knew resellers were exploring the recurring revenue model, but I’m not sure many expected the conversion to be at this quick a pace.
We learned in last year’s report that ISVs were ahead of resellers in terms of recurring revenue. Let’s see if they’re continuing to make progress:
- 100% completely transitioned: 2016: 30.7% 2017: 47.8% 2018: 60.9%
- Mostly transitioned (61-84%): 2016: 15.4% 2017: 13.0% 2018: 21.7%
- Halfway transitioned (40-60%): 2016: 7.7% 2017: 21.7% 2018: 8.7%
- Partially transitioned (16-39%): 2016: 15.4% 2017: 8.7% 2018: 0%
- Barely transitioned (1-15%): 2016: 0% 2017: 8.7% 2018: 8.7%
- 0% Not transitioned/no plans: 2016: 30.7% 2017: 0% 2018: 0%
It appears the resistors to offering cloud POS have given up en masse. In 2016, nearly a third of the ISVs we surveyed (30.7%) hadn’t begun the transition, but they’re now all on the recurring revenue bandwagon. Following a pattern similar to POS resellers, the number of ISVs mostly or completely transitioned to the recurring revenue model is expected to move from 46.1% in 2016 to 82.6% in 2018, a 36.5% leap.
Only 16 ISV/VAR hybrids shared data on their recurring revenue transition, so I won’t break their numbers down in detail like we did above for resellers and ISVs. But I will report that from 2017 to 2018 the hybrids in the mostly/completed categories are expected to jump from 44.0% to 62.5%. And none (0%) of the hybrids plan next year to be barely/not transitioned to the recurring revenue model.
Last year I said I was “encouraged” by the results our KPI study revealed about the adoption of recurring revenue in the POS channel. This year I’m delighted. For at least the past decade there’s been public handwringing about channel sustainability and questions surrounding how we attract a new generation to the POS industry. The best way to do that isn’t through marketing; it’s having a healthy, sustainable, compelling business model that the next generation of business owners find attractive. It appears most of our industry is actively working towards that more attractive model.
I’m not saying the POS channel is in the clear – we’ll detail threats and opportunities in Part 4 of our special report – but at least the break/fix model is being put to rest. Strict adherence to that model was a self-inflicted wound that has been steering our channel away from relevance with merchants and new entrants to our space.
Throughout March, look for additional insights from our 2018 POS Channel KPI Study via “On the Edge with Jim Roddy” (this is article Part 2 of 4). These articles will be compiled into a comprehensive report available only to Vantiv/Worldpay partners. Plus we’ll host a special webinar on March 21 where we’ll walk through key figures from this report and analyze the state of the POS channel. We’re calling the webinar “KPIs of Rich-and-Famous POS VARs and ISVs,” and you can register at no charge using the link above.
Our Part 1 article focused on Annual Revenue Growth Rate and Net Profit Margins. In our final three installments, I plan to share exclusive new data on the POS channel related to:
- Employee turnover
- Employee benefits
- Sales rep and technician compensation
- Effective recruiting tactics
- Revenue per employee
- Payroll expenses
- Marketing expenses
- R&D expenses
- Channel threats and opportunities
Please call me or email me if you have thoughts or questions about our 2018 POS Channel KPI Study or would like to discuss these numbers in-depth. My job as a Reseller & ISV Business Advisor for Vantiv’s, now Worldpay’s, PaymentsEdge Advisory Services is to help our partners improve their effectiveness and implement best practices, so please reach out to me anytime if I can be of assistance.