Understanding your Residual Split

I would say nine out of ten agents I speak to in this industry do not fully understand how their residual split works. Don’t be one of these agents! Read these short tips to gain a better understanding of your residual split.

 

How to Sell Merchant Services in 6 Steps

If I could write an eBook knowing what I know today and then go back in time and deliver it to myself 10 years ago when I first got into this industry, this would be the one! CLICK HERE TO DOWNLOAD

1. Is your residual “life vested” or “owned for the life of the account?”  Imagine how frustrated you would be if you sold for years and built up thousands of dollars per month in income only to learn that as soon as you stop selling for thirty days, three months, or six months your residual income will stop. I would say at least 60% of the agents in our industry have such a plan.  DO NOT LET THIS HAPPEN TO YOURSELF!!!!!  I have seen so many agents who take the larger split even though it isn’t life vested. They usually learn two things quickly:

First, they are building a job not a business, and it is a waste of time.
Second, they would be making more residual with a company that pays lifetime vested residuals anyway because of the lower cost structure. This is the future of your family’s financial success, so DO NOT GIVE YOUR PROCESSOR A PASS ON THIS!!! Ask them to walk you through your exit strategy. Here are some good questions to ask via email so you get a response in writing.

2. Don’t get hung up on the percentage. Imagine you are at a family reunion. Your uncle walks up and says, “I’m going to give you 50% of everything I own!” Right after that your other uncle says, “If you don’t take his offer, I will give you 80% of everything I own!” Then your grandpa walks up and says, “Don’t take either of their offers. I will give you 10% of everything I own in my will.” Who would you choose? In order to make this decision, there is one important piece of information missing; isn’t there? You need to know what you are getting a piece of, right? If both your uncles have $5,000 in the bank and your grandpa has 2 million, you would be fool not to take his offer of 10%. Just because some processor says, “we pay out 80% of the profit!” doesn’t mean you will make more from them than one who offers 50%. You have no idea how they calculate the profit or of what you are getting 80%. In order to accurately compare residual splits, you need to use a tool like the  Instant Quote Tool where you can compare not just the residual split percentage but the dollar amount in monthly residual that each program / processor will pay out. Once you load in the programs from the various processors with whom you work, including the cost structure and residual split, you can add a specific merchant and statement and see the exact dollar amount each program will pay out as well as the savings for the merchant and the up front bonus.

3. Cost Structure is more important than the percentage split. You will usually find the cost structure on the “Schedule A” from your processor. You need to know two things in order to calculate the best deal for yourself:

(1) Is it a true interchange pass through or do they add basis points before calculating profit? (called a bin sponsorship)
(2) What is the transaction fee cost?  *Side note: if you are on a “Buy Rate” program, you are not getting the best deal. That is just the truth. If you have questions about it, give me a call or send me an email. I would be glad to give you a break down. Revenue share plans are always better than buy rate plans (with the right processor.) I actually saw a processor yesterday doing a buy rate for registered ISO’s; what a joke! If you are on one of these cost structures, get off and start building your income.

4. Cost structure, not pricing is the key to landing large accounts. If you want to land a large account, you need a low cost structure. Even if your current processor pays out 80% of the residual, but their cost per transaction is $0.06 or more, you will rarely land a large deal. Large accounts usually get a transaction fee of less than $0.06 which would put you in the negative. If selling large and multi-location businesses is a part of your business plan for the future, you need a partner with multiple platforms.

5. Lastly, remember that compensation and cost structure do not determine how much you make. The determining factor in how much you make is how many sales you get. Find a partner in this industry who will provide you the training, and technology resources you need! Without that, all the talk about compensation will be meaningless. 80% of $0.00 is the same as 50% of $0.00, and 80% residual on five sales per month is less than 50% residual on ten sales per month.

Make it a great day!
James Shepherd

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