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The make-or-break methodology within the commercial operations of retail FX firms is often how to acquire and retain clients, a task which is becoming not only very difficult due to very high competition, but also highly expensive and therefore difficult to achieve a satisfactory return on investment.
In Western markets, retail FX companies have become increasingly reliant on affiliate marketing, and having to pay acquisition costs to media sites as well as introducing brokers and partners.
When considering all aspects of the sales process, including commission payments to affiliates and introducing brokers, salaries and commissions of sales and retention teams, capitalization of prime brokerage or liquidity provider, and technology expenditure coupled to the low spreads that the retail market now demands, it is very evident that the constant search for an efficient business model is essential in order to turn a profit.
FX companies have gone to great lengths to increase life time value of clients, as after all of the aforementioned process has taken place, it is quite possible that clients may not trade for very long with one particular company, as customers by their nature are always comparing the myriad of competition and being approached by them on an ongoing basis in all global markets with the exception of Japan where domestic clients are loyal to Japanese firms. Attempts to increase lifetime value and reduce the cost of retention have been ingenious, ranging from mobile platform provision to social trading networks and interactive platforms which engage traders for potentially longer periods, negating the cost of having to continue to replace outgoing clients with new ones.
In order to gain a perspective on the most practical, cost effective and efficient means of getting the sales model right within FX brokerages, LeapRate spoke to Karin Zalcberg, Founder and CEO of Karinza, a specialist consultancy which provides corporate guidance to companies with regard to how to structure their sales departments, call centers, acquisition model and communication methods. Karinza has extensive experience in consulting with retail FX firms across the globe, and considers various important factors to be instrumental to their potential success or failure.
How did you initially identify a need for professional guidance for FX firms when establishing call centers, business development and sales departments? What aspects did you see where commonly not being maximized that prompted the establishment of Karinza?
This all started with the fact that many FX business owners were unable to distinguish the differences between FX sales and other products and services trying to copy and paste other sales processes that couldn’t be duplicated for FX. An FX company spends a lot of money on marketing and buying leads and many business owners were unable to understand the micromanagement needed in order to have a successful sales floor. Due to this issue many FX firms weren’t able to fully capitalize on their traffic and leads and thats how Karinza was established. Another challenge for these FX firms was the human resources challenge where they experienced very high turnover and needed to consistently train their new HR recruits and this lead to a growth in a demand for sales training and adjusting to the dynamics of the marketing being brought by the marketing team. The biggest driver for us though was our passion for sales which was meet by the high demand for our services.
With so many companies purchasing ready-made technology from a handful of technology providers and prime brokerages, therefore repackaging a similar service to each other, how best can the white label partners and brokerages taking very similar liquidity solutions to each other differentiate themselves and acquire and retain clients that will generate sufficient revenue to survive and grow, after capitalizing the liquidity and technology provider, plus cost of advertising?
The growth and popularity of the retail FX market was primarily driven by the ease of getting the right technology in place. This was great for the growth of the retail environment however what ensued thereafter was the copy and paste selection of similar offerings and platforms which left the retail customers looking at the same things with different logos and colors. In order for white label and retail FX brands to stand out in today’s very saturated, very educated market, there has to be innovation in terms of value propositions for their retail clients. This isn’t just platform, spreads or education but rather customer service, trade support and execution. The need for these operation is to become lean and lower their payroll costs in order to remain competitive and profitable in today’s FX market.
This year, there has been a drop in trading volume which has resulted in a completely opposing set of results industry wide compared to the record highs experienced by many firms last year. How can companies refine their sales teams in order to cope with the downturn and remain in good financial condition?
In order to survive in today’s market where volumes are low and FX retail firms struggle to remain profitable the first and foremost step is to ensure the FX operation is lean by only keeping the necessary people for the right roles within the sales team. The second step is to reduce marketing costs and looking for creative, innovative and new ways to market themselves with lower costs. The main back breaker for many FX firms is their marketing costs, most firms uses affiliate programs for driving new leads and traders to their platform however with the increased competition in today’s saturated market this cost is very high and leaves the broker with a lot of risk. Retail FX brokers must look at other advertising mediums with lower costs and target the right crowd in order to remain profitable in today’s low volume market.
A very interesting perspective within Karinza is that firms should not place so much emphasis on partners and IBs, a method which has been embraced on a widespread scale by many retail FX firms. Please elaborate as to why this is an obsolete methodology and how firms can concentrate their efforts more effectively.
Our perspective at Karinza happens to be more IB focused and we rather try to avoid a lot of the affiliation options out there today. We have witnessed and seen many brokers who waste resources, money and manpower on affiliation only to never reach the results they expect or the lifetime value needed for them to succeed. This is mostly due to the fact that most affiliates sell the same lead to 10 brokers at the same time. This not only not beneficial for the broker but also confuses the retail customer who is often contacted by more then a dozen retail firms with various offers. This method is the main driver of trader dissatisfaction and misunderstanding of retail FX. Firms today should focus on localization in emerging markets, look for local partners to boost their business locally and consider other channels of marketing such as Youtube, vine or Instagram to connect on a social level with their traders and build a long term relationship with them. IBs today prefer to work with Prime Brokerages rather then retail firm simply due to the liquidity and profitability.
How important is outsourcing specific aspects of a retail FX business in order to retain a lean operation?
There are specific aspects of a retail FX operation that can never be outsourced, those being sales, marketing and finance. The rest of the operation could be outsourced whether technology, operations and compliance.
Despite FX being an online business, do you think there is merit in FX companies using their marketing budget to attend trader seminars and onboard potentially high-net-worth clients who are experienced traders and will stay with the company long term, or do you think that it is still important for companies to cast their net wide and ‘churn’ customers by using online advertising and telesales agents despite the relatively ineffective conversion rate and low customer lifetime value?
There is a lot of value in attending trader seminars and conferences, however not every broker has the capability to look at high net worth clients and keep them. This actually varies based on their business model and liquidity solutions they have in place. Many retail brokers who take the risk upon themselves and therefore they look to cast a wide net and reach out via online advertising and telesales agents believing this is the best method for them. From our experience we have seen high net investors trade only through IB’s or money managers who only trust the big name firms rather then the average retail FX firm.
From Karinza’s perspective, talk us through the most effective model for acquiring clients for a newly established retail FX firm.
There are many ways for new FX firms to recruit new clients however the main challenge for many start up brokers is name brand recognition and trader trust and security. The main factor for newly established FX firms is to study their target market and find local partners, local marketing solutions and channels based on their target market. We always preach that new brokers must start by educating their clients and provide them tools for trading and recruiting other new clients.
What is Karinza’s plan for the immediate future?
We are currently putting the finishing touches on our sales book which we look to publish by the end of the year. Additionally we have begun expanding our business into other industries then finance. We have also just opened our first US office and look to develop our business here for the future.