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How to Compensate Your Reps: the Total Package

By Mitch Levy

In the electronic payments industry, as ISOs we all face a common dilemma: How can we grow our businesses? There are a variety of factors that influence growth: access to capital, proper infrastructure, lead generation techniques and technology, to name a few. But perhaps the most significant factor is the ability to recruit and retain competent sales reps.

How do you do this? Part of the answer is easy: Pay your reps, on time and in correct amounts and provide accurate reporting to help them to understand what they are being paid.

Sounds easy, right? Wrong. How many of us have either heard or told stories about reps being paid improperly, late or not at all? If you're looking to grow your business, failing to pay reps properly and on time spells doom. No excuses: If you want to keep your reps, pay correctly and pay on time.

When you've committed to paying reps correctly and established systems to get checks out on time, you're ready to consider more difficult questions. How can you tailor a compensation plan that will allow you to attract and retain quality sales reps?

Do you share residuals? How much equipment revenue should go to the rep? Should you offer up-front bonuses? Buybacks? Advances? Should your reps be independent or employees?

My advice? Treat your reps the way you treat your clients: as long-term partners. Whether you're dealing with clients or representatives, you're in business for the long term. You treasure the annuity-based revenue that residuals represent. You need to develop compensation plans that will attract the best professional sales representatives.

That means sharing residuals. This might seem unattractive at the outset, but remember that the goal is rep retention. High-quality salespeople understand residuals and will insist on sharing in them.

In fact, if you are truly serious about retention, I would go a step further by offering lifetime residuals and a generous buyback.

Can you afford to do this? Chances are you can't afford not to. Since you only pay residuals if you receive them, you can surely pay lifetime residuals, and there are ample sources of capital available if you need cash to fund a buyback.

The long-term benefit in terms of rep retention will far outweigh the initial capital costs. The proper amount of residual to share will depend on your particular business model, but in order to recruit and retain quality reps, you must provide an attractive residual package.

Equipment revenue, which is paid one time in a lump sum, should be dealt with separately in your rep compensation package. As an ISO, you need the equipment revenue to help your P&Ls until your residual income grows to the levels needed to sustain profitability. However, in the long term, equipment revenue becomes less important to you and more important to the reps with whom you work.

Eventually, you'll develop an exit strategy for your business, which generally involves a sale to a processor or bank. When you sell, however, it will often require negotiating a valuation based on its income stream or the size of its merchant portfolio. Buyers will value the recurring revenue on the residual stream at a far greater value than the one-time, non-recurring equipment revenue.

For reps who are looking to meet their obligations, the lump sum provided by an equipment sale or lease is an important source of cash. My recommendation: If cash flow is sufficient, you should pay reps almost all of the gross profit on equipment. This way, reps will generate an acceptable income up front while waiting for their residuals to grow.

Some ISOs offer plans that pay reps up-front bonuses based upon estimated or historical processing volume or residuals. Up-front bonuses are a great idea, but often difficult to deliver.

Paying a multiple of estimated or historical residuals to a rep upon delivery of a merchant contract will appeal to many reps who crave instant gratification and cash flow.

But a bonus program requires significant capital, and a growing ISO needs to carefully consider how to deploy its capital. If you're watching your capital flow, I'd recommend the combination of a healthy sharing of residuals combined with equipment revenue over a bonus program. The reps will still be satisfied and fairly compensated, and you won't be faced with making risky projections for up-front bonuses.

Now, we are all aware that a rep starting in our industry will need time to generate significant income. Even a high-quality rep with a generous residual plan will take many months to develop a healthy residual.

To keep new reps motivated, you might consider advances that can be repaid over time from the rep's residual and equipment commissions.

But that begs another question: From an ISO's perspective is it preferable to have independent sales reps or salaried employees? That issue, long debated in our industry, will not be settled here.

While it could easily be argued that in the long term, an ISO will be better served with a salaried direct sales force, the best sales people will always prefer commissions. I know of some ISOs who offer a combined package, pairing a modest base salary with a residual and commission program.

What can we conclude is the best compensation plan for an ISO seeking growth? Different compensation strategies and combinations of revenue options will work best for different companies. The most important thing to remember is the piece of advice I started with-pay correctly, pay on time and provide accurate reports.

And one more thing: Train and support your people. But that's a whole different article.

Mitch Levy is the Executive Vice President and Director of New Business Development for Cynergy Data. Cynergy Data is a merchant acquirer that provides a wide array of electronic payment processing services while continually striving to develop new solutions that meet the needs of its agents and merchants. In addition to offering credit, debit, EBT and gift card processing, along with check conversion and guarantee programs, the company offers its ISOs the ability to borrow money against its residuals, to have Web sites designed and developed, to provide merchants with free terminals, and to benefit from state-of-the-art marketing, technology and business support.

Founded in 1995 by Marcelo Paladini and John Martillo, Cynergy Data strives to be a new kind of acquirer with a unique mission: to constantly explore, understand and develop the products our ISOs and merchants need to be successful, and to back it up with honest, reliable and supportive service. For more information on Cynergy Data contact Nancy Drexler, Marketing Director at

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