FiveStars, the well-funded SMB loyalty company that competes against Belly, SpotOn and others, is projecting it will grow its merchant base to 8,000-9,000 businesses by year-end, up from its current base of 6,000 customers. Customers who subscribe to FiveStars premium service pay as much as $200 a month. The San Francisco-based company has received over $45 million in funding.

Growth Manager Brian Lee, in a Webinar discussion with Radius Product Manager John Hurley, said the company is now positioned for rapid growth. Radius’ big data analytics helps it better understand its sales prospects and vertical segments, and manage its sales team.

Specifically, the company has grown increasingly confident in growing its sales team, which consists of 35 inside reps and 50 outside reps. “We had been stuck in neutral” with 15-20 reps for a long time,” notes Lee, who likes to call himself a “revenue hacker.” “But we asked ourselves: ‘Where can we grow as a team?’ Half the battle has been figuring out the addressable market,” he adds — something that Radius has helped with. “We are now ready to grow and talk to customers.”

Lee adds that it hasn’t been a matter of simply adding 20 sales people. “This isn’t a product you can (sell by reading) from a script. Every rep we bring on represents ‘X’ percentage of revenue. It is a very refined model that takes in both the performance of reps and the performance of leads. We look at what leads (the reps) are getting. And how are verticals performing.”

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Local marketing has moved beyond a sole focus on new customer acquisition to also focus on customer loyalty and engagement. Using credit card registration and point-of-sale integration techniques, leaders in the space have found new ways to engage with millions of local customers and merchants.On the final day at BIA/Kelsey‘s Leading in Local: Interactive Local Media conference, a panel of industry leaders were brought together to discuss how transaction marketing is changing the way SMBs relate to their customer base.

One major trend that was discussed heavily was point-of-sales systems. Bringing all of the “big data” that SMBs acquire and making that information manageable and useful is where the future of transaction marketing is headed. Victor Ho, CEO of FiveStars, recognized the opportunity for POS systems in the SMB market and jumped on the opportunity. “All systems are integrated on a point-of-sale. When we looked at the market we decided there was an opportunity here. We then created a platform that worked through any POS.”

FiveStars‘ quick jump into the market proved to be the right move. The company now has just under 3 million memberships.

Panelists also discussed the development of the transaction marketing space. According to Jason Dailey, Senior Director at Microsoft Bing, “mobile devices and electronic wallets are going to be one of the next biggest things.” Looking at the broader perspective, Eckart Walther, CEO of CardSpring predicts that we will be seeing “more and more online companies capture online data.The levels of interest in transaction marketing are going up exponentially.”

With all of the new interests and innovation in the transaction marketing area, Albert S. Bitton, Founder and President of Local Commerce Association of Canada warns against SMBs becoming overwhelmed with all of the different products the industry now has to offer them. “The expectation of the industry is way too high. They have a lot they need to deal with and there are too many applications that small businesses will want to manage but they can’t. This is why I am excited about companies like Groupon and FiveStars because everything is integrated”.

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The card-linked loyalty and rewards space is seen by a lot of the smart money as the next Groupon. Today, we saw new money being poured into FiveStars ($13.9 Million), LevelUp ($9 Million) and LocalBonus ($900,000). The companies have now raised $16 million, $21 Million and $1.4 Million respectively — about half the $78 Million that we estimate has been invested in the independent loyalty space.

FiveStars, a 55 person Mountain View, CA entity, won its new funding from Lightspeed Venture Partners and DCM. Other investors include YCombinator; Mayfield Fund; Hadi and Ali Partovi; and former Facebook and AOL Mobile exec Chamath Palihapitiya.

CEO Victor Ho reported to BIA/Kelsey today that the company has signed up over 400,000 users in 14 DMAs, and that more than 775 merchants are paying it monthly fees, which widely vary but are typically around $50-65 a month.

Roughly half of its merchant accounts are with larger chains, while the other half is to mom and pops. The chains include Subway, Round Table Pizza, Metro PCS, Baja Fresh and TuttiFrutti frozen yogurt.

Ho says the major differentiator for FiveStars from rivals like Belly and LevelUp is that it has been fully integrated with the vast majority of POS systems — something loosely claimed by a number of companies. The patented technology is the company’s “secret sauce,” says Ho.

The live POS integration enables offers to be spit out to consumers based on what they are currently purchasing. It also makes it easier to sign up customers on the spot and allow merchants to see information about the customer at their display. “They can see that Peter is a loyal customer” and what he purchased, Ho notes.

The POS integration also cuts down on rebate and rewards fraud and/or mistakes. This is a major issue when cash back rewards are being applied, he says.

Ho adds that FiveStars’ Live POS integration (and other features such as social media and mobile marketing) results in the company getting “3-4 times the penetration of any competitors,” and more than 500 members at the average store, compared to 100-120 for other companies in the space. Verde Tea Cafe, a Silicon Valley chain, for instance, is cited as having gained 20,500 members in one year.

BIA/Kelsey’s SMB Digital Marketing conference Sept. 17-19 in Chicago is going deep into the loyalty space with leaders from Belly, Cartera and Edo participating. Register here.

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