Wednesday, March 18 2020
If I had to make a rough estimate, it seems to me that about 90% of merchant services agents aren't actually very familiar with their residual splits and how they work. This isn't a great position to be in and you don't want to be in the dark, so take a look at these tips to get a good grasp on the subject:
1) First of all, do you actually own your residuals for the life of you account? If not, then years of work on your part could just disappear literally overnight. You could have been working tirelessly to build up a huge portfolio, but it would all be down the toilet simply because you stopped selling for awhile. Many ISOs have these stipulations, where you're required to bring in new accounts every certain amount of time, or your residuals are lost. Does that sound fair to you?
So many agents fall for this racket. Don't do this, no matter how much bigger your part of the split will be. Over the long-term, it's just not worth it. You're trying to build long-term passive income here, not turn your work in sales into an ordinary job—that's a waste of a great opportunity. Make sure you ask about this before you choose a merchant services ISO program. Tell them to give you an exact play-by-play of what will happen if you decide to leave the business. If the answer is “You will lose your residuals,” then walk away. Also, if you can't sell your residuals, then reconsider as well, since this is an indication that you don't really own them.
2) Forget about the percentage of your split. This doesn't really mean anything. To illustrate this better, let's say you're playing monopoly and your friend wants one of your properties. He offers you 30% of his net worth for it. However, another player butts in and raises the stakes. He tells you that he'll give you 50% of his net worth. Finally, a third player screams over your other two arguing friends and declares that he'll give you 10% of all of his cash if you will sell him the property. How do you decide which deal to take?
Well, obviously, you don't have enough information to make a good decision, do you? Before you know which deal is the best, you need to know the net worth of each of the players! After all, if Player 1 and Player 2 only have 100 monopoly dollars to give you, then you know that what they're offering is a raw deal if Player 3's net worth is 5000 dollars. Even with only 10% of that, it's far more than what the other two players were offering.
The same goes with credit card processors. Ignore their bragging about how they will give you 70% or 80% or whatever inflated number. It doesn't actually mean anything unless you know how they calculate the profit in the first place. Always get some context for these numbers, or else they are just going to be completely useless to you.
3) Always keep an eye on costs and the fees that the processor is going to charge you, as this will have much more influence on your profit than the actual split. You can find out what these fees are by looking at the Schedule A that your credit card processing agent program will provide for you. You will also need to ask yourself a few things when considering cost. For example, do they add basis points before they calculate the profit? What are they going to charge you for the transaction fee?
Some processors give you a true interchange pass through, while others will mark up the fees a few basis points above interchange before they start to calculate the profit. With the former kind of processor, things are a bit more obvious. For example, if your transaction fees are $0.03 and you in turn set up your merchant's transaction fee as $0.09, the profit per transaction is $0.06. If you had a 50/50 split, then you would get half of that in the end. It's a case of simple arithmetic. However, if you're having to deal with a huge mark up of dozens of basis points first, a lot of that profit is lost, and even if you had a 90% split, it wouldn't be worth it.
By the way, stay away from “buy rate” programs, as they don't offer you good deals. If you have any doubts about this, then be sure to get into contact with me and I will tell you all about it. You might be tempted to go with one of these programs, but I assure you that after I break it down for you, you will change your mind. Always go with a revenue sharing plan, as it's much more lucrative in the long run, especially if you choose a good processor to work with. I've even heard of processors trying to set up these kinds of deals with merchant services ISOs themselves, which is very silly in my view. You're trying to run a business here and build your empire, so don't settle for a buy rate.
4) The pricing is not as important as the cost structure when you want to get accounts of a significant size. Aim for a low cost structure for your clients. If your processor is charging more per transaction than $0.04, then you probably won't be able to pass on a reasonable deal to your merchants, so think twice about going with a processor that is this pricey, even if you're making 80% of the split. Make sure to have more than one partner so that you have access to the lowest rates and the best deals, and this way you can give your merchants a variety of options. This is especially true for your larger merchants.
5) Finally, keep in mind that you shouldn't get too caught up in either the cost structure or how much of a percentage of the residuals that you get. Ultimately, making the sales is what will determine your success in the long run. You need merchants to make money, and you need to close a lot of deals. Any merchant services ISO program or processor that you're partnering with should know this and help you get the kind of training that will lead you down the right path. If you can't even close deals, then there's no point in worrying about your compensation—you won't be getting it anyway! Whether you make 50% or 90% of $0, it is still $0, and that's certainly not a handsome residual to be getting every month. So choose your associates wisely, as they can help you to succeed—or drag you down.
We're happy to help you on your endeavor, so we offer all kinds of resources, from informative material, to help with your marketing, to training. If you're curious or have any questions about how to move forward in this career, then don't hesitate to send us an email.
Download PDF: Your Residual Split: Understanding How It Works
Monday, March 02 2020
Imagine someone who is running a business in a field that many consider to be “dubious” or risky, such as tobacco sales, debt collection, adult entertainment, gambling, or even travel and time shares. They may seem like everyday staples of a free market, but many payment processors won't touch these kinds of merchants with a ten-foot poll. They are known as “high risk.” A business like this might find that it is unusually hard to get a merchant account, but they still need to be able to take people's money and perform cashless transactions just like anybody else. Where do they turn when no one seems to want to work with them?
This is where you come in. One strategy that you can take as a merchant services sales agent is to find a partner that allows you to cater to these high risk groups that might have a hard time attaining processing services for reasonable rates. You can even focus on this niche exclusively and strike some very lucrative deals because these higher risk businesses are usually willing to pay more. Many times, businesses like these may also have a high sales volume, which can make you a lot of money in residuals over time, even if you might have to take a smaller cut.
Before we take a look at the benefits, though, let's define what a “high risk” business is, and why a credit card company might consider them to be a risky prospect. In this context, a high risk business often falls into one of these categories:
- The business deals in goods of high price, where each individual transaction is hundreds or thousands of dollars. Some businesses just sell expensive items, and the added risk of charge-back means that credit card companies are less excited to work with them.
- The business sells goods or services to customers in certain high-risk countries. Sure, not everyone in these countries is a scammer, but if a particular territory is known to breed fraudsters, then companies aren't going to be keen on working with them.
- The business uses dubious sales practices, such as employing high-pressure sales tactics to sell people things that they don't really need or want; e.g. time shares, travel packages. There is a huge problem here with charge-backs if your customers are likely to have buyer's remorse.
- The business deals in what some consider morally questionable goods and services. Again, as with businesses in certain physical territories, credit card companies like to avoid businesses that reside in certain moral territories. You might find that gambling businesses, strip bars, or cigar shops fall into these categories—basically, anything that deals in the vices.
- The business performs transactions where the physical card isn't present. Basically, this takes a lot of ecommerce businesses out of the running for low-risk accounts. A lot of credit card fraud can take place online, and of course the charge-backs that result from fraudulent transactions can be costly.
Now you might realize that it all really comes down to charge-backs. If the processor believes that there's a non-trivial chance that the activities of the business will result in a lot of charge-backs, or that the merchant may not fulfill their responsibility to pay for the charge-backs, then it may be considered high risk. Many processors will not deal with high risk merchant accounts at all, and in fact merchants in high risk businesses may have to work with specialized processors, and they may even have to set up their merchant accounts with over-seas companies.
There is certainly a hungry niche here, and you might do well to serve it. Many businesses have a hard time securing a merchant account, and you can make things a little easier for them by providing high risk merchant accounts. Here are some of the benefits of dealing in this sector:
- Less competition. Other merchant services companies or merchant services sales agents may be (understandably) hesitant to work with these companies, so you might be able to pick up the slack. Yes, these accounts are riskier, but sometimes the risk can be worth the reward. Merchant service providers can mitigate some of that risk as well by raising their transaction costs or requiring a deposit.
- Online sales are booming. People are buying goods online more than ever, and that means that someone is going to have to provide all of these online retail businesses with merchant accounts. Why not get into a niche that is explosively growing? You will never be in want of merchants to turn into your customers.
- Many high risk businesses are also very lucrative. If your clients are making a lot of sales, then you are getting a piece of that pie. This is especially true for businesses that sell people what are considered vices. As much as society may look down on these businesses, they also love to buy from them.
- You can cater to all business types with few limits. If you only sell merchant services to low-risk businesses, then you cut out many potential niches that you could work in. By specifically offering high risk merchant accounts, you open yourself up to just about any business that you want to work with. Never turn away another merchant simply because they don't fit the narrow definition of what a low-risk account entails. As with anything in business, of course, there are risks as well as benefits—that's why they call these high risk accounts. As a sales agent, you wouldn't be responsible for charge-backs, but you might be faced with making a smaller cut in terms of both residuals and any upfront payments for each merchant account that you sell. This is natural considering that the processor will have to more likely deal with charge-backs, so their fees will be on the expensive side. Still, by finding a partner that will allow you to take high risk merchants, you can add a more diverse variety of merchants to your portfolio, which will make your business more well-rounded.
Download PDF: High Risk Merchant Services for Agents and ISO's
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Sunday, March 01 2020
As you might already realize, when it comes to the world of financial transactions, the devil is in the details. You have to stay on top of the fine print, or you may find yourself getting taken for a ride that you didn't sign up for.
Companies always go out of their way to tell you what you want to hear when they are trying to recruit you, so you'll no doubt hear all about their great features, their superior technology, and how low their rates are. However, this doesn't mean that there aren't plenty of other things that they're strategically sweeping under the rug. It's not that they're being dishonest exactly, it's just that they're probably not going to tell you the whole story.....