Today I’m going to give you four reasons
not to sell merchant services for a processor. It is my belief that the vast majority of
the credit card processing companies that I’ve spoken with are actually not terrible,
evil, wicked people. They just have very different value propositions. I get the opportunity
to talk to all these different sales people, different ISOs, and different managers. It’s
so funny to me like this group is just terrible. They are just trying to rip off the merchant.
This group is like, “That group doesn’t know how to make any money.” They are different,
but there are four things that I have noticed, that I really believe you got to at least
have these four things in today’s market place to really affectively sell merchant
services. Four reasons not to sell merchant services for a particular processor. These
are in no particular order. Number one on my list is a high Schedule A
per item cost or high Schedule A basis point cost. Let’s back up for a second and talk
about what the Schedule A is. Let’s say you have a merchant and you sell them a 10
cent transaction fee. Every time they do 100 transactions, they are going to pay 10 cents
a transaction. They are going to pay $10. 100 transactions times 10 cents is 10 dollars.
They are going to pay $10 in fees. What is the Schedule A cost? Let’s say the Schedule
A cost is five cents. That means the profit out of that $10 is $5. Because you have a
five cent cost. Five cents times 100 is five dollars. They have a five dollar cost. The
total of $10 in revenue, so you have $5 in profit. What you get out of that profit we
will talk about later, when we are understanding the compensation a little bit more. You are
going to get some percentage of that profit in most cases. The Schedule A cost though
is a really big deal. Let’s talk about the other Schedule A cost.
The two that really matter are the per item fee and the other one that matters a lot is
the basis points. Let’s say you priced them at 50 basis points, which is half of a percent.
A basis point is 1/100th of a percent. 100 basis points is 1%. 50 basis points is ½
of a percent. So they do $10,000 a month in volume. You sell them at 50 basis points and
10 cents. This is a pretty reasonable cost structure. That 50 basis points should be
getting you $50, which is ½ of a percent of $10,000. They are going to pay $50 in revenue.
Again what is your Schedule A cost? If your Schedule A cost is 5 basis points, that’s
going to be 5 basis points is 5/100th of a percent times 10,000; that’s five bucks.
Now out of that $50 in revenue, $5 is cost and that ends up giving you a spread of $45.
Here is the thing. Normally those are not like hugely important. In other words, they
matter, but if you sell somebody doing $10,000 a month in volume, if you have a 5 basis point
cost or a 1 basis point cost, we are talking you are literally splitting up three or four
dollars. Then depending on your percentage of residual, it’s not a big deal. Or we
could be talking about the transaction fee, the difference between it being three cents
and six cents. If they only did a hundred transactions, we are only talking about a
couple bucks. It’s not a big deal. But here is the problem. It does really limit
you because as you start to grow your business, you are going to start targeting larger companies
that do more transactions, and you are going to run across companies that are small ticket
size, where you need to price them lower in order to get their business. Sometimes you
are going to sell somebody and they are like a huge company. You need to price them at
maybe three and a half cents and 10 basis points. If your Schedule A cost is 7 basis
points and 6 cents, that’s a problem because you are under water and you are going to lose
money every month on that account. Right? So the Schedule A cost is a big deal. I would
say number one on my list of four reasons not to sell for a processor is if your Schedule
A cost is just totally out of whack. If you’ve got somebody where their Schedule A cost is
above five or six cents per transaction, that’s a really big deal. You really want to try
to get that down closer to three to four cent range. Somewhere like that is very reasonable.
On the basis point side, you really want to try to stay under 10 basis points and you
really want to stay under five. If you can get down around two or three basis points
of cost, that is really good. Be careful about this because the processors do a lot of times
hide these costs. That’s why you won’t see them right away. That’s a really important
one. So number one on my list is the Schedule A cost, if it is crasy out of whack, I’m
not going to sell for that company. That’s not a good deal.
Number two, no free terminal option. Let me put a provision in here for this. I am not
saying you should not sell for a company that only does free terminals. If they lease terminals,
don’t sell for them; I’m not saying that at all, quite the contrary in fact. I’ll
talk more about that on how to make money selling merchant services. It is not inherently
evil to sell a lease. The question is how much is the lease. Is it a huge rip off? Is
it a good deal? There are a lot of kinds of different leases and you can make a lot of
money with that. However, my point here is just you are looking at three different companies,
how do I eliminate one of them? Number one, is there Schedule A cost really high? Number
two, do they not even offer a free terminal option? You need to have that. The reason
is because of the opposite of the first one which is sometimes you come to smaller accounts.
They really need a free terminal. They are not going to pay a lease. They are not going
to pay three, four, or five hundred bucks for a terminal. You need to be able to say,
“Hey, here is a free terminal. Sign up with me.” You are going to lose sales if you
don’t have that. I’m not saying you are going to use it all the time. You may use
it 20% of the time, 50% of the time. I don’t know, maybe 100% of the time. It’s up to
you. That’s not the subject of this article. The subject of this article are there some
reasons I can just flat out eliminate a processor. If they do not have a free terminal option,
I would put them off your list because it is really going to hurt you when you are out
there trying to sell. Number three is if they want you to sign an
exclusivity agreement on day one. If they are like you are coming on board and they
are like, “Now we do have an exclusivity clause, non-solicitation whatever, that is
like a super exclusive, you can’t sell for any other processor.” That is not a good
idea on day one. I’ll tell you why. You may sell for them. This is like a game. There
are so many ways to hide fees and hide costs and all these different things that it’s
literally a little bit of a game for the processor. You are not really going to know what their
cost structure is honestly until you see the first statement from your first customer that
comes in. That’s going to take two months. You don’t want to be exclusive on day one.
There is absolutely nothing wrong with an exclusivity agreement if you are getting some
kind of financial benefit in return. I’ve done exclusivity deals before where I was
getting money for helping to grow my business or whatever. As a general rule, I would never
sign an exclusivity on day one. I’ve never done that. I’ve had processors where I’ve
had exclusive, but I’ve never been like day one I’m exclusive. No, usually you are
going to have a testing period. You are going to try things out as a sales rep and see how
things are going. Later on down the road, when you are building this huge company and
you got all these connections and stuff, that’s a little different. When you are starting
out as a sales rep, sell a little while before you sign an exclusivity deal. That’s a huge
one. That’s number three. Number four is that they have no up front
bonus. Let me explain this for a second. There is something that really small, tiny companies
do. If they are a really small processor, they don’t have a lot of money. They are
going to pitch you on this straight residual thing. They are going to say, “Oh, we have
a much better deal than these other companies because we give you an 80% split,” 90% split,
60% split, whatever it is. You get all this percentage of the profit. There are a couple
problems with that. Number one, they are actually talking about their profit in most cases,
meaning that they are kind of like a sales rep for somebody else and they are getting
60% of the profit, and you are going to get 90% of their 60%, or 80% of their 60%. It’s
a no risk deal for them. You have to understand that. They have no risk at all. They are just
paying you a percentage of what they get. Am I saying you should never sell a merchant
on straight residual? Of course not, there are plenty of times I’ve done that. I’m
like, “I don’t want an up front bonus. I want a high residual split.” We’ll talk
more about that in the commission part, but my point here is if the processor doesn’t
even have the option to make an up front bonus, that’s a really big problem. You’ve got
to at least have the option to get an up front bonus on some of these deals because in many
cases, it makes financial sense. Not just cash flow, not just I’m broke and I need
the money. No, I’m talking about if you have a $100,000 in the bank and you go sell
a merchant, there are many cases where I would advise you to take the up front bonus on that
deal because for you it makes financial sense. It’s a financial decision. That merchant
might cancel. There are things that might happen. It’s a good deal to get the up front
bonus in a lot of cases. If the processor doesn’t have an up front bonus at all, again
you may or may not use it very often, but if they don’t even have a program for up
front bonuses, they are off the list in my mind. There are four reasons why I would not
sell for a processing company. Having said that you are like, “Well, James,
my company has two of those four.” Go to Click on find processor. You
can fill out a form. I will personally do a call with you. It’s something I enjoy
doing because I really like to connect with my audience. Now that I am doing training
and technology primarily, I can kind of sit back, look at the industry, see what is out
there and I can help you out. I can make recommendations. I can make introductions for you. Fill out
that form. Angela, my assistant, will reach out. She will schedule a call with me. I’ll
take 10 or 15 minutes and I’ll just talk to you about who you are selling for. What
kind of comp do they have? The value proposition etc. etc. From that I will be able either
to say, “You got a great deal, continue.” Or I’ll say, “Maybe there is a better
deal out there. Maybe you should call this person. Maybe you should talk to this person.”
I’ll make you an introduction. My name is James Shepherd. Thanks for reading
this article. I hope you have an awesome day.

4 Reasons Not to Sell Merchant Services for a Processor – Part 2
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One thought on “4 Reasons Not to Sell Merchant Services for a Processor – Part 2

  • November 8, 2017 at 5:35 pm

    If we give Up front Bonus to Sales Reps, and their accounts No stay more than 6 Months, or even worse, if the Rep move his sales to other processor.How can we recoup the money from there or be protected? Most of the time even having an agreement we have to go through a legal process that can take up to 2 years and thousands dollars
    What do you suggest, is there any kind of Bonds or Insurances that can protect our company?


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