Heartland Restructures Its Sales Force to Jumpstart Productivity

While hoping that it's seeing the light at the end of its long data-breach tunnel, Heartland Payment Systems Inc. also is restructuring its sales force in an effort to boost flagging productivity. The Princeton, N.J.-based merchant acquirer fired 98 low-performing relationship managers in November, but is in the process of hiring hundreds more salespeople, company president and chief financial officer Robert H.B. Baldwin Jr. told analysts Thursday. Under the new system Baldwin and chairman and chief executive Robert O. Carr disclosed, Heartland is organizing 13 industries it services into so-called verticals. The first is restaurants, a category in which Heartland is a leader and has endorsements from the National Restaurant Association and 40 state restaurant trade groups. Relationship managers, who are Heartland employees, will be assigned to service approximately 500 restaurant owners in a given territory. They'll have exclusive access to these business owners, meaning that no other Heartland sales representative will be allowed to call on them, and they will be expected to contact each of them once every nine months. In addition to its core payment card processing, managers will be expected to sell Heartland's growing stock of other products such as payroll services, loyalty systems, and prepaid and specialized cards for college campuses. Besides restaurants, Heartland is organizing similar verticals around health care, pharmacies, lodging, and other industries. Heartland switched to a direct sales force model early this decade, a model some other acquirers use though most still rely fully or in part on independent sales organizations and so-called 1099 sales employees?independent agents?to book new merchants for them. Thus, Heartland's new exclusivity policy is unusual in an industry characterized by so many salespeople calling on the same merchants, often peddling the same processing platforms. Carr says the promise of exclusivity will motivate the relationship managers to work harder, giving Heartland a competitive edge. “It's going to be difficult for many of our competitors who use ISOs, sub-ISOs, 1099 folks, and sub-1099 folks who have no clue what their salespeople are doing,” he said. In addition to getting commissions from booking new merchants, Heartland's relationship managers get residual income when their existing merchants expand and generate more processing volumes. But with the recession, that hasn't been happening, and the downturn has reduced sales-staff productivity, Baldwin noted. Now Heartland wants sales reps to get back onto the street and do cold calls. “One of the reasons we're going to this vertical strategy and the saturation-selling model is really to change behaviors,” he said. “We want people out making the calls. Unfortunately, in a tough business environment, you know it's easy to sort of roll over and stay in bed, not be out aggressively. What we're doing in this model is requiring that a certain level of calling effort be maintained.” The 8% cut in November reduced the relationship-manager sales force to 1,069 from 1,167. Carr said the company “had a call to action of all of our hiring managers” to cull low sales performers. “And so, most of that reduction is the result of us terminating non-productive reps that should have, frankly, been terminated before November,” he said. But Baldwin quickly added that Heartland is in hiring mode, seeking “hundreds” of new relationship managers for the restaurant sector alone. Meanwhile, Carr said merchant attrition was up only 0.1% in 2009 versus 2008, for which he thanked Heartland's merchants and sales staff. In the wake of the huge data breach Heartland disclosed early last year, one that compromised an estimated 130 million cards, attrition could have turned into a massive problem (Digital Transactions News, Jan. 20, 2009). Heartland made a pre-tax provision of $23.7 million for breach-related expenses in 2009's fourth quarter and $128.9 million for the year. The company has a $99.9 million reserve for ongoing breach-related expenses. It already has announced a settlement of about $60 million with Visa Inc. to reimburse Visa card issuers for their reissuance and fraud costs. Heartland settled with American Express Co. for $3.5 million and is settling a consumer class action for up to $2.4 million (Digital Transactions News, Jan. 8). Heartland indicated other settlements are possible, but mentioned no companies or groups by name. It seems likely, however, that it will try to settle with MasterCard Inc. and Discover Financial Services. Heartland said charge volume in its small and mid-sized merchant segment was $14.8 billion in the fourth quarter, up 5% from a year earlier. Same-store sales, however, declined 5% in the quarter, though that was a 3.4-percentage-point improvement over the third quarter. But January same-store sales fell 4%, and bad weather in the first half of February held down charge volumes, Baldwin said. Heartland does not expect a big turnaround this year.