By Jeffrey I. Shavitz
People choose to enter the payments industry for a plethora of reasons – but one "biggy" is the opportunity to earn residual, or recurring, income. I must admit I never truly appreciated what this powerful word "residual" really meant until I entered the merchant services industry. As a former investment banker at Lehman Brothers, yes, I worked on billion dollar transactions – but, they were just that "transactions."
Following a merger or sale, our service was finished, and our group needed to identify another transaction. This is very different from a residual-based business. I just wish that I had been exposed to this type of industry out of college and had additional time to leverage the power of growing a residual income stream.
And there are many residual based businesses – for example, insurance, telephone, health club and alarm companies – but we are in the payments industry, I'll keep our comments centered around our business.
In this two-part series, "The power of residual income," I will share personal stories plus stories from fellow merchant level salespeople (MLSs) who have experienced first-hand the great payments opportunity and who have shared their thoughts on being involved in a recurring revenue model business.
For young people entering our industry or salespeople and executives interested in a residual based model, I like to share this story about the power of residual income. To keep the math simple, let's assume each account will generate $100 per month in profit (I know, depending on the processing account sizes in the portfolio, the profitability margin and other variables, the profit will vary considerably whether it's $15 per month or $1,000 per month, and there is revenue sharing between the ISO, agent, etc.).
That said, let's use the $100 as our number for this informal forecast. My next assumption is that the MLS will close 10 deals per month, and we're assuming zero attrition for this analysis to keep the math simple.
At the end of just one year, a salesperson who followed this formula would have sold 120 deals at $100 per month. Using the power of residual income, sales from that activity would equal:
The total for year one of gross monthly revenue would be $93,600. Thereafter, using month 12 as an indicator, and even if that salesperson sold nothing for the following year (and zero attrition, which I recognize is unlikely as the accounts mature), the existing clients would generate ongoing gross revenue of $172,800.
Not bad for one year of hard work. I hope this example demonstrates how ongoing revenues on this scale can help ISOs and MLSs earn real "power money." And, if you don't like my number of $100 per month, cut it in half to $50, it will still highlight the potential of the residual income model.
GS Online MLS Forum member Steve Norell shared a story that he has used for years. He wrote the following:
"Employee A: Works for a company making $75K a year, has a mortgage, car payment and two kids. Monthly nut is approx. six grand a month give or take. One day he is riding down the street and sees a really cool Porsche in the showroom at the dealership. He starts to think that if he leased or bought it on a loan, the monthly nut is around $1K, give or take. Well, after thinking about his monthly expenses, he realized that the only way to make this work is to either get a really big raise or start saving $100 a month which will take years.
"Employee B: Works for a Merchant Services Co. and has all the same things in expenses but is generating about $5K a month in residuals and makes a bit more when he sells a lease or another service. He sees the same car and wants to buy it with cash in one year. So he goes home and starts to do some calculating and figures that he needs to generate approx. another $6K in additional revenue to make his dream come true. So he makes a plan that says two cash advances, two leases, eight new merchants on CC a month, and voilà, hello Porsche this time next year.
"The moral of the story is that if you really want something, you always have a shot at getting it if you are in commissioned sales and recurring revenue. You will never do that with a fixed income.
"A wise man told me years ago the following: 'You want a raise? Then sell more.'"
Benjamin Abel stated he agrees "100 percent" with Steve Norell. "When I first got into this business and would close a deal, my sales manager would say, 'Congrats, you just gave yourself a raise of $x a year,' be it $600, $1,200 or whatever, based on what the expected residuals could be. That really stuck with me in comparison to people who I see fighting for raises and things like that.
"When you're salary or hourly your income is typically very stagnant or increases in a series of plateaus which are each a good distance from each other. I see this very thing with family and friends. A good merchant services salesperson, on the other hand, should see their income in an ever increasing direction, month to month. Sure, it'll have some peaks and valleys to it, but if you did a regression analysis, it should be going up and up with a good slope, otherwise you're in the wrong business.
"The other thing is with residuals there were two big differences in the perspective it gave me in relation to my work overall:
"1. I always felt confident that in the future I would be doing better. In one year from now, I will be making more money. It gave me a really optimistic attitude to my work and my career overall. If you stick with it, you will make money and more than you're making now. That's it.
"2. As opposed to the idea that one day my hard work will get me a raise and a better life, with residuals, it felt like every deal I closed improved my standard of living. Want to get a gym membership, a car lease or go out more often? OK, well that restaurant you just closed paid for your gym membership. That store just paid for going out to dinner a few more times a month, etc., etc. It would really help me to stay motivated knowing this very deal, this piece of work I'm doing right now will make my life better in a month from now."
Forum member Dee Malik added a profound comment, which I second 100 percent: "If cash is king then what are residuals? Residuals are cash's eternal twin."
Yes, not only will you make money while you sleep, but you can also make money while in a coma.
Jeffrey I. Shavitz is Chief Executive Officer of TrafficJamming LLC, which is a virtual business group for entrepreneurs and small business owners to help grow a company's sales (traffic = customers in his language). His experience in payments includes co-founding Charge Card Systems Inc., which was sold to Card Connect in 2012; Alternative Merchant Processing, dedicated to high-risk merchant processing; and Charge Card Funding, involved in the cash advance space. Jeff has published three books: Size Doesn't Matter - Why Small Business is Big Business; Small Business Aha Messages; and The Power of Residual Income – You Can Bank on It! He can be contacted at 800-878-4100 or email@example.com; his websites are www.jeffshavitz.com and www.trafficjamming.com.
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