This post is written by Debbie Watkins, bKash Resident Advisor in Dhaka, Bangladesh.
One part of the Alternative Delivery Channel (ADC) financial modelling equation is paying commission to agents. When considering the share of revenue to give to agents, don’t just think about the amount they receive, but how much of their precious time they have to dedicate in order to get it. I call this the profit-per-transaction minute (PPTM) ratio, and it’s calculated in much the same way as the dollar-per-wear equation I use to justify buying a really expensive pair of shoes (but enough about that).
Here’s roughly how it works. In order to motivate an agent, they need to be offered a good ROI (return on investment), and a good ROT (return on time) – as this is how their existing business works. A small shopkeeper needs to do two things at a basic level in order to make profit: invest in stock, and invest in the time required to sell that stock. So, let’s say he’s an orange seller:
- He buys 100 kg of oranges for $50 = $0.50 per kg (comprising roughly 10 oranges)
- He sells them for $0.60 per kg = $0.10 markup per kg (or 20%)
- The average transaction (weighing the oranges, putting them in a bag, taking the money) takes 1 minute
- The average weight he sells per transaction is 2 kg
- Therefore his PPTM is $0.20
This equation changes drastically if the markup remains the same but his average sale is only a single orange – the PPTM goes right down to $0.01 (so it takes him 20 times as long to sell the same amount and make the same profit as before).
This can be one way to guide that “how do I select agents?” discussion. Here’s an example, comparing a cash-in transaction to our orange seller’s PPTM.
Assuming an average commission of 1%:
- A deposit of $10 earns him $0.10
- The average transaction (processing the transaction and issuing the receipt) takes two minutes
- Therefore, his PPTM is $0.05
A PPTM that is less than an agent gets on their existing business lines may result in them “sidelining” offering financial services over a period of time. Although they may not actually evaluate the offering using a formula, small shopkeepers are generally pretty astute and able to work out what makes sense for them and what doesn’t. Particularly in countries where competing businesses operate side-by-side, mobile money agents have dropped out due to their losing “more valuable” trade to their neighbors while processing transactions.
This equation can therefore be very useful in helping to choose the types of stores that are likely to be motivated to offer the service. Start by choosing the types of business for whom the profit-per-transaction-minute for cash-in/cash-out is favorable compared to the products they’re already selling. Illustrate this point to them using some simple examples – once it’s perceived as a lucrative “product” compared to their normal lines, they won’t feel they’re passing up a better trade, and may even (as has been seen in some cases) scale back on their main business line in order to concentrate more on offering the service.
So does this mean that a business who has a PPTM for their core products which is higher than the service is offering won’t be a successful and happy agent? Not necessarily – it just needs to be clear about what the other benefits could be for them, and articulate/quantify them well.
- It can be pointed out to the orange seller that unlike with oranges, he doesn’t have the risk that what he’s selling may be unsalable in a few days.
- If the business model requires him to invest in mobile money “stock,” he can return any unsold excess whenever he wants (a kind of sale-or-return deal).
- In a location where there are more cash-outs than cash-ins, he can offload cash inflows from regular business sales back out to branchless banking customers, rather than hiding it under the bed or travelling to the bank.
- Being associated with a recognized and reputable brand could help him stand out from his competitors and attract more foot traffic.
Agent dropout (or agent apathy) is expensive, taking into account the costs in recruitment, kitting out and training required to get them started. By quantifying and recognizing what the different motivators could be for different types of business, mobile money providers can potentially minimize these risks and be more effective in signing up agents who are consistently motivated and proactive.