In my frequent interactions with many sales people, ISO’s, and managers, I often hear one group criticizing and/or judging another. However, my personal belief is that the vast majority of credit card processing companies are not terrible, evil, wicked people. Rather, they have very different value propositions. There ARE four reasons not to sell merchant services for a processor. I believe these four things are vitally necessary to affectively sell merchant services. These are not listed in any particular order.
Read the previous blog. How to Choose the Right Processor – Part 1: http://bit.ly/2hT6xw7
#1 – High Schedule A per item cost or high Schedule A basis point cost.
First, let’s define “Schedule A.” As an example, suppose you sell a merchant a ten-cent transaction fee. For every 100 transactions, the merchant pays $10 in fees. (100 transactions x 10 cents = $10) Suppose the Schedule A cost is five cents. The merchant owes $5 for the 100 transactions. (100 transactions x 5 cents = $5) Therefore, out of the $10 revenue, only $5 is profit. (You will receive some percentage of that profit; we’ll discuss this after having a better understanding of compensation.) The Schedule A cost is a really big deal.
The basis points is another fee that is vitally important. Suppose you priced the merchant at 50 basis points. A basis point is 1/100th of a percent. 100 basis points is 1%, so 50 basis points is ½ of a percent. Let’s say the merchant does $10,000 a month in volume. A reasonable price structure would be 50 basis points and 10 cents. That 50 basis points should be getting you $50, which is ½ percent of $10,000. The merchant is going to pay $50 in revenue. If your Schedule A cost is 5 basis points, that would be 5/100th of a percent times $10,000 or $5. So out of $50 in revenue, $5 is cost. That gives you a spread of $45.
Although these fees matter, you are literally splitting three or four dollars in the example of the merchant doing $10,000 a month volume. So, these are normally not hugely important – UNTIL your business grows and begins to target larger companies who do more transactions. You’ll also need to price companies with a small ticket size lower in order to get their business. In such situations, these fees will limit your progress. If you sell a huge company, you’ll need to price them at 3 ½ cents and 10 basis points. If your Schedule A cost is 7 basis points and 6 cents, you are going to lose money every month on that account! Schedule A cost IS a big deal. The Schedule A cost should be in the 3 or 4 cent range. Basis points should be under 10 – under 5 would be best. About 2 or 3 basis points of cost would be ideal.
Use great caution since processors do often hide these costs; you won’t see them right away. So, number one on my list of reasons not to sell for a processor is the Schedule A cost. If it is crazy out-of-whack, I wouldn’t sell for that company. It’s not a good deal.
#2 – No free terminal option.
Disclaimer: I am NOT saying you shouldn’t sell for a company who only offers free terminals or for a company who leases terminals. To sell a lease is not inherently evil. The question is whether the amount of the lease is a good deal or a huge rip-off. There are many different leases which can make good money for sales people.
The point in this article is how to eliminate a company from the list of considerations. Does the company offer a free terminal option? Businesses which are smaller accounts need a free terminal. They are not going to pay a lease or three to five hundred bucks for a terminal. The sales person needs to be able to say, “Hey, here is a free terminal. Sign up with me.” You’re going to lose sales if you don’t have that option. Whether you use the option 20%, 50%, or 100% of the time, the absence of the option is going to hinder you in sales. Processors without a free terminal option should be eliminated from your list.
#3 – The processor wants a signed exclusivity agreement on day one.
Some processors may have an exclusivity clause, or non-solicitation, which prohibits your selling for any other processor. To sign such a clause on day one is not a good idea. There are many ways to hide fees. You won’t thoroughly understand the cost structure of the processor until you see the first statement from your first customer, which takes about two months. Although there is nothing wrong with an exclusivity agreement if you’re getting financial benefit in return, a testing period is always advisable in the beginning.
#4 – No up-front bonus.
Small processing companies who have less money may pitch you on “straight residual.” They might say, “Oh, we have a much better deal than these other companies because we give you an 80% (90%, 60%, etc.) split. You get a big percentage of the profit.” This usually means the processor is functioning similarly to a sales rep for someone and getting 60% of the profit. Therefore, you’re going to get 90% of their 60%, which is a no-risk deal for them. I’m not saying you should never sell a merchant for straight residual; there are plenty of times I’ve done that. At those times I didn’t want the up-front bonus, only a high residual split. I’ll discuss this further in the commission section. The point here is that the processor should at least offer an up-front bonus. There are many situations when the up-front bonus makes best financial sense. The merchant might cancel, other things might happen; getting the up-front bonus is a good deal in many cases. You may or may not use the option often, but it should be available to you. If the processor doesn’t even have a program for up-front bonuses, they are not on my list.
You may find that your company has two of these four. I can make recommendations and introduce you. Go to ccsalespro.com and click on “find processor.” Fill out the form there; my assistant, Angela, will schedule a 10 to 15-minute call for you. I have more overview of the industry now that I’m primarily working on training and technology and would enjoy connecting to my audience and offering insights. I can say, “You got a great deal; continue.” Or I can suggest someone else and introduce you for a call.
My name is James Shepherd. Thanks for reading this article. I hope you have an awesome day.
How to Choose the Right Processor – Part 1: http://bit.ly/2hT6xw7
How to Make Money Selling Merchant Services – Part 3: http://bit.ly/2ymdHiI