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Transcript

Hi, my name is James Sheppard, and I've been doing this little mini series on understanding compensation in the payment processing industry. And in this video I'm going to go a little bit deeper, so you have to stay with me. But I want to talk to you about negotiating your compensation as a merchant services agent or ISO. And this is something I've had a lot of experience in. I've done a lot of deals myself. I've done a ton of consulting along these lines. And so I want to start off with two really interesting numbers that you need to know. Before you go into a negotiation, OK, here they are #1 that you need to know is your cash burn or your cash flow projection. Now, don't tune me out here. If you're like, well, I'm just an individual agent, you know, whatever. Yeah, I'm talking to you too, OK, not just the big companies. In other words, the question is how much money do you need to make and how much cash do you need, right, to get through as you're building a portfolio now in our industry, of course, the idea is that there's this recurring residual. You know, revenue stream that grows overtime, but it grows overtime. And if you're coming to our industry and you're like, well, I normally make $150,000 a year and I have a, you know, a $1500 a month mortgage payment and all this, right. And you're going to come in and you're going to start brand new in a straight Commission environment. Well, hold on a minute, right? Like, how much can you survive on, like, can you survive on 10,000 a month, right. If you're a larger and you're like, well, yeah, we're going to hire a bunch of W2 salespeople and pay them $50,000 a year, Well, OK, how much are you going to burn? Like you have to know you gotta map out an Excel spreadsheet and say here's how much cash that we need over time until we break even in the business and we have that break even moment where now we don't need more money, we can, we can continue to grow. So that's a prerequisite. You need to know that. Again, I'll talk more about that, about why in a minute #2 you need to understand the lifetime value of an account. OK. And understanding a lifetime value of an account is super important. And the lifetime value is very simple to calculate. OK, There's there's complicated ways to do it. I'm give you the simple way. OK. Figure out how much money you're going to make every month on your average account. So who are you going to sell? How much do they process? You're like, well, the average merchants going to process $50,000 a month in volume and we're going to, on average, we're going to make, you know, whatever on average going to make 100 basis points. We're gonna sell dual pricing and make a hundred basis points. They do 50,000 a month in volume. So that's going to be. $500 in in. You know, that's how much we're going to make on the account after our residual split schedule cost and everything. It's worth 500 bucks a month And you figure out on average, you know, you look at that county, OK, 500 * 12, you're gonna make $6000 a year on that account. And you say on average we think they're going to stay with us for three years. OK, that account is worth $18,000. OK, that's the lifetime value of the account. Now once you have these two numbers, your cash burn and your lifetime value, you're now ready to start. Thinking about your negotiation, well, when you go to negotiate, a couple of things you got to keep in mind. OK. First of all, you want to be very careful to make sure that you're getting from that company all of the support and services that you need in order to execute your plan. See, most people start with what's the residual split? What's the upfront bonus, Is there hardware provided? What kind of capital am I going to get? Hold on a minute. None of that is going to matter if you're not able to close deals and give your customers, your merchants, the experience. That they need. You've got to start there before you start thinking about the compensation stuff, right? You know how much cash you're going to burn. You know what the lifetime value of your accounts are going to be. So now you got to say, well, wait a minute, what do I need, right? Like what kind of technology solutions do I need for my own company, right? What kind of technology solutions do I need for my merchants? You know, what kind of service and support, you know, in In some industries it's not as important as others. If you're going to place standalone terminals for auto repair shops, guess what? Customer service isn't really that big of a deal in my opinion. We're going to call once every six months, maybe once every year. If you're gonna sell point of sale systems to restaurants, it's almost the only thing that matters, right? Bad customer service. You're going to have a nightmare on your hands, right? So that's how I look at this, right? You got to know that you have a good solution. So once you find out, you're like, OK, I've got three different companies. They all provide a great solution. I have the technology I need to succeed. I have all of this. Now what do I look at? And now we want to look at this balance, OK, between this kind of risk and reward scenario. Whoever is going to put out the risk, meaning the money, they're the ones they're going to want to get a lot of their rewards. So what do you need from this, from this particular company, right? Well, let's think about that a minute, right. What do you need? Well, what you need from this company is you need to cover your cash burn. OK. Either you're gonna go out and get an SBA loan or some other source of capital, but if you realize, well, I need, you know, I'm gonna need whatever $500,000 or or $100,000 or 5000 a month or whatever this number is, you got to go. OK, well, I have to have that that amount in order to cover my, my cash burn while I build the portfolio you want. I'm telling you right now, I promise you, your best bet of getting that money covering that cash flow is going to be from the processor that you're going to work with now, if you're like, well, James. I already have residual from another company. I'm just looking for a new partner. I'm not going to, I don't need any cash. I'm fine. You're in a perfect negotiating position. You don't have to worry about this at all. But for the rest of you, it's like, well, I got to think about that, right? So you got to make sure you got a company that's willing to do that. They could give you debt and they could say we're going to loan you this money. And then as you start to build residual, we're going to take some of that residual, maybe 2030% of the residual that you get. They're going to take that until the loan is paid back and they say we're going to loan you this money, make sure you get it in writing as to how much they're going to loan you. What the terms are going to be? This is not something you do on a handshake, OK? This is something you have in a contract, right? Maybe they're gonna give it to you, an upfront bonus money. So they're going to say hey. We're just going to give you $200 up front on every deal, $300.00 up front in every deal. And you know, we're going to give you this money. You can keep it. OK, well, if they're gonna do that, what is your true cost of that money? Because most likely they're going to give you a much lower residual split. And this is where our lifetime value comes in. We say, well, wait a minute, what are we actually giving up? And you're like, well, we're going to give up in order to get this up front money, we're going to get up to 25% of the profit on the account. OK, well, you got $250. Fraud or $300.00 up front. And you gave away 25% of $18,000. Probably not a very good deal. If instead you're targeting hot dog stands and the lifetime value of an account is $1000, well now you're giving away 25%, which is 250, and you're getting 250. That's a really good deal because you have to pay that 250 back. That's great, you understand. So you got to think through what's my lifetime value? What am I giving up in order to get this money? And you want to. Structure it to your advantage. Spoiler alert, It's usually better to structure it as debt than upfront bonus. Just letting you know. OK, so it's a general rule. You being able to borrow the money from the processor that you need in order to scale up and then having to pay that money back through residuals is usually a better deal. But if you don't have a track record of success, they may not be willing to do that deal with you. OK, so we've talked about this kind of very high level idea. I want to mention one other thing really quickly. So this whole entire series has brought to you by ISO amp. We've got more videos to come, but head over to get isoamyl. com, it's get ISO amp.com and check it out. It is by far the best. Really it's the only full service statement analysis solution left, meaning we analyze every statement that's uploaded as long as it is an actual payment processing statement. We will take a look at it for you and we will give you all the data that you need. We have a very large percentage that are fully automated and we get our turn around times down around 10 minutes on average for the ones that aren't fully automated. So head over to get iswim. com. Click on Get a demo and check it out. My name is James Sheppard. Thanks for watching this video.