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Show Me the Money
By Ed Freedman

My last column discussed the importance of building your portfolio on a solid foundation by making sure you have an agreement that protects your residual income. Now that we're all building our merchant portfolios on a solid foundation, let's talk about THE MONEY.

While paging through The Green Sheet and checking out articles and advertisements, I noticed what a great job The Green Sheet does of showcasing the many different compensation program options in our industry. As we all know, there's not one best compensation program for everyone. It really depends on what your needs are, what you like and your personal situation, such as the types of merchants you write and your financial status.

The good news regarding the latest trend in compensation to the MLS is that the businesses paying Merchant Level Salespersons are paying more money. Whether it's ISOs, banks or processors, they all have recognized the value and importance of a long-term relationship with you - the honest, hard-working Merchant Level Salespeople. As a result, the red carpet is being rolled out for you. Sales reps are getting treated better, getting paid better and getting more free services.

Companies are getting very creative with their compensation programs. Your decision on which pay plan you choose will greatly impact your financial success in this business. Two different sales reps setting up the same types of deals and the same number of deals could end up in very different places - from a financial standpoint. Let's look at some of the current options we're seeing in the marketplace, and I'll give you my rating and opinion on some of these offerings.

Upfront Money Instead of Residuals Payments

One new and somewhat controversial idea is to offer a Merchant Level Salesperson the ability to sell his or her residual stream upfront. Instead of receiving a residual commission, you wait a few months and then receive a payment for the account. How is this option going over? Here are a few reactions to upfront payments posted in the MLS Forum:

  • "I received the package and dissected it months ago. Seem like good guys and all, but that's what they do. You sign an account and have to wait 90 days of their processing with 'XYZ ISO.' Then the average is calculated and they pay you 16 times."

  • "16x doesn't seem fair to me."

  • "The idea is that agents can make money without hustling equipment, but there are ISOs out there that will pay you $100+ for each account and you still retain your residuals, have plenty of money to pay the bills and still build a portfolio."

Ed's Rating:

I am sure that one or more of these compensation programs are the right one for any particular ISO/MLS, depending on your particular circumstance. While the ratings and opinions below are my opinion, they are rooted in a particular view that if you are working in this business, you plan to stay in it for some time. This said, as it relates to any of the compensation approaches that involve giving up your residual, I must say I don't get it. Even if you need the money, you're better off building up some residual income, earning the money each month and then selling the account for something like 16x (or more, since it's seasoned). In this way, you will get 12 to 24 months of residual income while you hold the account and then another 16x when you sell it.

Signing Bonus

These days, everyone seems to have a signing bonus. The company that started this concept is owned by a good friend of mine. He's one of the smartest guys in the business, so I'm not surprised that many other companies decided to compete with this type of offer and provide their own version of a signing bonus. The biggest issue with this offer is that it's limited to the first X number of deals you establish with a company. In some cases, you have to activate a certain amount of deals within a certain amount of time to qualify. As such, only 20-30% of Merchant Level Salespeople may actually benefit.

Ed's Rating:

It's a good concept, and it's better than nothing. The problem is that it's a short-term fix. It is not a long-term solution.

Production and Conversion Bonuses

Some innovative companies have taken the positive idea of a signing bonus and eliminated the negative issues noted above. A production bonus is an upfront bonus paid upon the signing of an account. These bonus payments get paid every single month. As such, it's money that the MLS can count on each month.

Additionally, many companies have been paying "conversion" bonus payments for years. A conversion bonus is a bonus paid upfront - upon signing an account - to convert a currently processing account. Both production and conversion bonus payments are becoming more lucrative and do not require giving up any type of residual compensation.

Ed's Rating:

It's about time that ISOs, banks and processors start subsidizing the cost of acquiring a merchant. It's nice to see that you do not have to give up your residual income to get these upfront payments. With diminishing margins on selling terminal equipment, this is clearly a needed boost to the income of a hard-working MLS.

Rewards Programs

Some companies are offering their own version of a "rewards" program - sort of like my United Airlines credit card, which I use to accumulate miles. After setting up each account, you receive "points." These points can be redeemed for some type of merchandise. In this way, you can save up points to get a toaster oven or a nice trip to Disney World.

Ed's Rating:

It's not cash and it's certainly not improving your quality of life. However, I will give it one thing - it is better than nothing. One exception is the recent offering of shared health care premiums by some companies.

Free Services

In the past, not only were there no free services, but you as an MLS had to pay an application fee when submitting each new deal. Now, another way your income is getting a boost is from the increasing trend in the number of free services being offered. Everything seems to be provided these days. Little things that used to cost you money are no longer expenses. Companies are paying for your business cards, letterhead, Web site and marketing materials where once they used to bill you.

Companies also are paying for downloading programs onto terminals, PIN pad encryption, free PIN pad swaps, even ground shipping costs. They're also sending out free welcome kits as well as providing merchant training and conversion assistance at no extra charge. This is clearly saving many salespeople $50-100 per deal as well as saving a lot of valuable time that can be better spent selling more accounts.

Ed's Rating:

This stuff adds up. Operating costs need to be a part of your financial evaluation of the program. Kudos to the ISOs that are stepping up to the plate and providing all of this FREE stuff for you.

Leasing Programs

Every lease program gives you the ability to earn money upfront from the sale or lease of point-of-sale terminal equipment. As such, a good leasing program with competitive factor rates is very important. The innovations we've seen with leasing are faxed leases, online reporting, quick credit grading, guaranteed approvals and upfront bonus payments in addition to the normal funding on your first batch of deals.

Ed's Rating:

You need to evaluate more than just the factor rates. These additional features add up to a more profitable program for you in the long term. A good leasing partner is invaluable.

Additional Revenue Streams

Additional income can also be earned by getting set up with good pricing for terminal equipment, point-of-sale processing software and Internet gateway processing providers. You also can make money by setting up new American Express, Discover and Diners/Carte Blanche accounts. Some companies give you the ability to make money by establishing check conversion and check guarantee services, gift card and loyalty programs, prepaid applications and/or wireless processing services and programs with your customers.

Ed's Rating:

While it's nice to be able to offer these types of services, these additional revenue streams should only be important to you if you are actually going to sell a lot of these services.

Underwriting Guidelines, Documentation Requirements and Merchant Enrollment Many people consider this a non-financial issue. I actually think it's a real financial issue.

Companies are making it easier for you to sign merchants with liberal underwriting guidelines, relaxed documentation requirements, online applications, faxed applications, online status and approval reporting with download information. This makes your job easier and gives you the ability to set up a larger number of customers in a shorter period of time. As such, it's something to consider.

Ed's Rating:

Ask yourself how easy is it to enroll merchants on the program you've chosen. Your time is valuable, so make sure you consider this important issue.

Now, let's address the real "meat and potatoes" part of the compensation plan debate. While the above features are important, we really need to look at the highly debated issue of BUY RATE versus REVENUE SHARING.

I speak with countless sales reps every month. One of the things I've learned is that many have relationships with several different companies. I'm confused by this concept. When I ask why, they explain they try to maximize their earnings on each merchant by placing certain merchants on a good buy rate program and placing other merchants on a good revenue sharing program. The problem is that some programs require you to choose upfront whether you want to get paid on a buy rate or revenue sharing program. A good solution for this problem is to choose a program that gives the MLS the ability to choose the best plan for them on a merchant-by-merchant basis. This is important since it enables you to send all of your business to this type of provider.

I noticed a great post in the MLS Forum in response to a question regarding what is a good rate and what is a good split:

"There are companies advertising 70/80% on split and 1.25 on buy rate. The numbers are real easy to manipulate and you will find a snake in the grass somewhere. The most important aspect to look for is honesty in dealing with you by their actions and reputation with other reps."

Here are more insightful posts on the great debate of buy rate vs. revenue sharing:

"I've worked under both plans and would recommend the 50/50 split. The most important aspect is finding a company that will pay you what they advertise. You may be told you're receiving 50/50, but the company may be padding their fees before they do the split. Remember, they could offer you 100%, but you have nothing if they stop paying you. Do some research here in the Forum and listen to what the reps tell you more than advertising claims made by different companies."

" ... So long as the split is a TRUE profit split on all network and interchange costs, then that is the way to go. Most of us don't take into account items like batch fees (usually no cost at all), MIDs and NONs at the interchange level of the particular card, AVS, return fees, monthly minimums, annual fees, non-bankcard items (Amex-Discover), voice auth, chargeback fees, debit access (again, usually no cost at all), etc."

"I was on buy rate programs at the onset of working, and it was because I did not understand true costs and it seemed simple to me at the time. I assume that this is the same reason why most agents are on buy rate plans."

"The math is hard to see on an individual merchant level, but when you look at the entire portfolio it becomes very evident. This business, for better or worse, has become fee infested. This was guaranteed to happen as the margins grew smaller. ISOs are out on the street selling at 1.49 when interchange is 2 basis points from that. What successful company works off a 2/100's of a percent margin? Impossible."

"If more fees are being charged and you're not sharing in that revenue, you are missing out on the bulk of the profitability."

"I would always go with a 50/50 over a buy-rate program." "One reason a Buy Rate is better for me is I'm working with larger volume merchants and get special pricing often. This eliminates revenue streams traditionally made on 50/50 split programs and smaller volume merchants. I am very pleased with a buy rate program."

Ed's Rating for Revenue Sharing:

Since I always tell people my opinion, let me say that I believe in the revenue-sharing program. I think it's the most honest and fair way to partner with an MLS. Even if you agree with me and believe in revenue-sharing programs, you cannot stop your evaluation after you hear the split amount. You need to delve a little deeper. Most of these programs are interchange-based. However, there could be a mark-up. You need to closely evaluate your costs, whether its transaction fees, monthly service fees, chargeback fees, retrieval fees, batch or deposit fees. You need to ask if the programs charge an annual fee of which you receive nothing. Do you share in termination fees? These programs all have different cost structures, and everyone's definition of true "revenue sharing" on every income stream seems to be a little different. You need to ask all the right questions to get all the answers. Additionally, make sure the program has no liability for merchant losses.

Ed's Rating for Buy Rate Program:

For the buy rate advocates out there, I think you're all a bunch of dinosaurs that need to come over to my way of thinking. Just kidding! In some cases, you can make more money on a buy rate program. To do so, you'll need a merchant that's priced properly. You do not want to choose a buy rate program and then sell the merchant right at or near your cost. In those cases, you'll always do better on a revenue sharing program. To earn more money on a buy rate program, you will need a retail merchant with at least 20 basis points of qualified revenue income and, more important, you need a merchant with lots of transactions (more than 500 per month) and income on those transactions (at least 10 cents per item). Bottom line: I believe in the latest trend in compensation programs, that trend being the aggressive courting of the MLS with many lucrative new incentives, lots of free services and terrific revenue sharing programs. Let's face it, a buy rate program is still a form of revenue sharing.

Notwithstanding all that's been discussed, it's important that you consider what's most important to you. Get set up with a provider that truly meets your needs. Examine the types of merchants you're selling and make sure they match with what your provider services.

Most sales reps want to be in a position where all they need to worry about is residual income rather than making a lot of money on selling or leasing terminal equipment. The problem is that many are not there yet. As such, a good mix of upfront income and residual income is necessary.

My advice is to make sure you never sacrifice your residual income for upfront money. Take everything we've discussed into consideration before deciding that someone's 60% program sounds better than another provider's 50%/50% program. Making the right choice takes work and due diligence. Do it. It will prove invaluable.

As always, I'd love to hear from you. (I particularly wish to hear from you if you don't agree with my views or ratings.) Please send feedback on this issue (and any others) to "" My next column will discuss the importance of vendor selection. Obviously, this is a hot topic, and I'd really like to include your opinions in that discussion.

"Lack of money is no obstacle. Lack of an idea is an obstacle."

- Ken Hakuta I'll see you next time where the rubber meets the road.

Ed Freedman is founder and President/CEO of Total Merchant Services, one of the fastest-growing credit card merchant account acquirers in the nation. Ed is the driving force behind all business development activity as well as the execution of Total Merchant Services' marketing plan, including recruiting and training independent sales offices and establishing strategic alliance partnerships with leading vendors so that Total Merchant Services can provide its customers with the highest quality and most reliable services available. To learn more about Total Merchant Services, visit To learn more about partnering with Total Merchant Services, visit or contact Ed directly at

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