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Do you still need sales people?
About six months ago, I was at a friend’s in Vauxhall and wanted to get Daebak (go if you haven’t been). I decided to do something crazy when making this order – I actually called them on the phone instead of using a food delivery app. This set in motion a Seinfeld-esque series of events, in which my friend started asking why I was calling and then the person that answered the phone told me I should have ordered on Deliveroo.
Now I know what you’re thinking. How is he going to pivot from talking about ordering fried chicken in Vauxhall to discussing something related to retail brokers? Well, the point that incident highlighted to me was that people’s phone habits have changed quite a lot in the past 5 – 10 years.
In simple terms, people don’t like speaking on the phone as much anymore. About 10 – 15 years ago, it would be totally normal to call and chat with people or make plans (or BBM them). Now everyone just uses WhatsApp or its equivalent.
This was brought home to me recently when chatting to another friend who works in sales. The basic problem he has faced since the pandemic is that:
- People are working from home so it’s often hard to reach them on the phone
- Even if you can reach them on the phone, they aren’t in the office so they don’t have the pressure to look like they’re doing their job by answering the phone
- A general drop off in enjoying talking on the phone
So now we have our thesis – assuming it is becoming harder to reach people on the phone and people don’t like talking on the phone as much as they used to, does it follow that you have less need for salespeople and can just use messaging apps / email for customer relations?
Our first stop was to speak to a disgruntled account manager working for a broker that mainly deals with clients in Dubai. Said account manager was indeed finding it harder to talk to clients over the phone.
“It has become much harder to reach people since the start of 2022,” said the account manager. “Everyone is feeling the heat because all our KPIs are weighted to time on the phone. But I think only part of that is to do with not wanting to be on the phone. You have to take into account market sentiment as well and at the moment people don’t want to trade as much.”
That final point was one that a sales trader at a commodities and FX broker based in London, also told us was happening.
“I have seen a bit of drop off in demand to speak from clients,” said the sales trader. “But I think that’s only relative to the pandemic when a lot of those guys were, to put it really simply, bored at home. So you had more people wanting to chat about the markets then and now it’s gone back to more normal levels.”
One premium client desk manager working for a London-based broker noted that they continue to see demand for phone calls, albeit with the caveat that younger people tend to be a bit less keen on them. However, they added that once a client is on a call they end up being happy to have them.
“What I’d say is that younger clients may be a bit more reluctant to talk on the phone,” said the desk manager. “But when you get them on that call, they quickly realise the benefits that the account manager relationship has for them. And then you see that they’re really, really engaged. I would say the challenge for us today is actually not reaching people, it’s that a big part of what we have to do is talk about the practical side of the accounts, so what are its benefits, what are trading conditions like and so on. So it’s not just talking about markets. You have to have a bigger toolbox and an understanding of that toolbox, which you can then talk about to clients.”
This sentiment was echoed by a senior executive at another broker, who noted that client call answer rates have remained unchanged but that younger clients will tend to brush calls off or be more responsive to messages.
“Increasingly the telecom providers are labelling calls as ‘scam likely’ or something like that when it’s a known frequent caller,” he added. “So it’s harder in that sense. But it’s easier in that there are more messaging apps now and ways to be in touch beyond the phone.”
That will probably not be news to brokers and it is part of the reason why many now mix both written comms with phone calls. Enis Mehmet, Founder of communications tech provider Convrs, has seen these developments first hand.
“The Convrs team, with over 40 years of combined experience in FX and CFDs, has seen a big shift in how brokers operate over the last decade,” said Mehmet. “They’ve ditched the old communication methods and now use messaging apps like WhatsApp to connect with people and businesses. [We also] help brokers automatically engage with prospects and clients in apps like WhatsApp when accounts are ready to fund or becoming dormant.”
Doing things this way clearly has its merits. For instance, Trading 212 and Plus500 both appear to have no account managers and instead use customer support-type employees to respond to customer needs.
On a purely P&L basis, you could argue that this is very beneficial for both companies as it helps improve margins. This is compounded by the fact that, based on LinkedIn data, careers pages and annual reports, these functions are overwhelmingly based in Bulgaria for both companies, which should mean further lowering of costs.
Trading 212’s most recent set of publicly available accounts show it made just over £86.4m of operating income on revenues of £138.7m – or an operating margin of close to 70%.
Plus500 regularly has equivalent margins of about c.50% but with substantially higher revenues. As we’ve looked at before, the company is extremely lean and makes a lot of money with far fewer employees than companies with equivalent or even far lower revenues. Prior investors in the company that we have spoken to also note this is both a strength and weakness of the company.
And as that suggests, the counterargument to this would be that both companies attract poorer quality clients, which they then find difficult to retain.
Trading 212 is not a publicly traded company, so working out what their client base or retention levels are like isn’t easy. However, the serious corporate governance problems the company has had over the past two years might be a sign that running a lean operation doesn’t always work out.
Having said that, Plus500 may show that retention levels don’t really change if you don’t have phone-based account managers. If you look at the company’s latest set of results, you can see the proportion of revenues derived from customers based on their length of time trading with the company:
IG Group, which has a large premium client management team, published similar stats last month:
As IG put their data in a dumb bar chart, instead of the more sensible and clearly labelled pie type thing that Plus has used, we can’t get the exact comparison there, but to me those figures look pretty similar.
However, there is a large difference in the average revenue per customer. For IG, the figure for FY23 was £4,261 (or $5,431 at current rates) versus $2,966 for Plus500. CMC Markets, which also makes use of account managers, had average revenue per user of £3,968 last year, so also well ahead of Plus500.
So even if customer lifespan is similar between IG and Plus500, the former is much better at attracting higher value clients and it doesn’t seem implausible that is partially due to its premium service.
Moreover, if you look at Plus500’s activity over the past two years, a large part of it has been to set up services geared towards retention and attracting higher value clients. For instance, a ‘Premium Client’ service was launched and they also set up a data product (‘+Insights’) for retention purposes. I guess you could be really cynical and say this is purely for the optics and an attempt to give investors/shareholders the impression that they’re doing stuff to get higher value clients, but that seems unlikely to me.
The other important point to make here is that IG had operating margins of close to 50% last year, which was not far off what Plus500 achieved in 2022 (55%). So the point there is that having premium client managers does not necessarily lead to bad margins, just as not having phone-based account managers doesn’t seem to be a sign that you can’t make good money.
And as that suggests, there is no cut and dry answer here. If our logic was…
- People don’t like talking on the phone as much / it’s harder to reach them
- You can cut costs by just doing digital comms so you should do that
The first point doesn’t appear to be true. People still like speaking on the phone.
The second point is partly true. You can focus heavily on digital comms and cut costs by doing that. However, it’s not clear that’s a winning strategy if you want to attract higher value clients.