Four Types of Commission – Selling Payment Processing
I hope you’re enjoying this mini-series. I am guiding you back to the basics of selling payment processing. I’ve discussed some history and definitions in the two previous episodes. Now let’s discover more details of earning income in this episode. There are four types of commission through which you can make money. I’ll go […]
I hope you’re enjoying this mini-series. I am guiding you back to the basics of selling payment processing. I’ve discussed some history and definitions in the two previous episodes. Now let’s discover more details of earning income in this episode. There are four types of commission through which you can make money. I’ll go through them one by one.
#1. Residual income. This was briefly discussed in the last episode. You created a profit on an account. Suppose you generated $100 a month in mark up or profit on an account. Depending on your management of these other three types of commission, you will get a percentage (25%, 50%, 70%) of that profit. The amount depends on several variables, but that is the definition of residual income.
Residual income is usually paid monthly and with a one-month delay. Merchants processing in January will get their merchant statement February first. Whatever profit was generated on that February statement will be your pay on March first. You should know how much mark up you generated and what percentage of the residual is yours. There is much more negotiating for you to do with the other three types of commission.
#2. Up-front buy-out. This terminology is one I have coined to help eliminate confusion between an up-front bonus and an up-front buy-out. This is a big topic in our industry. The next episode will be dedicated to an explanation of the differences. The basic definition of an up-front buy-out is giving up a lot of residual to get an up-front payment. The rep is being paid money up front to buy out the residuals long term. So, as a rep you won’t get very much residual long term, but you’ll get an up-front buy-out.
#3. Up-front bonus. This is exactly what the name implies – a bonus. You might get $200 to $400 as a bonus. There is no impact on your residuals. There is usually a “claw back” period. This means if the customer cancels within twelve months, you must repay the money. The larger the up-front bonus, the lower your residual split will be. Those are two levers you’re always pulling: the amount of money you need up front and the amount you need long term. Your task is to balance those two levers.
#4. Equipment sales. There are three options in this commission: leasing a terminal, renting a terminal, or selling a terminal. Just like a retail store, there is a cost for the credit card machines. You can mark up the cost to make money. You might sell a $250 terminal for $500. Some processors offer free terminal placement. This is more like a loaner. When the merchant cancels, the terminal must be returned. There is also usually some monthly fee associated with that.
If you are selling the equipment, you probably don’t need a big up-front bonus. So, you’ll get more residual and can offer lower pricing to your merchants. Neither option is good or bad. There is just a trade-off. If you’re new to the industry, be aware of the varying opinions you’ll hear. “Our way is the only way” and “That way is wrong.” However, in this particular case the issue is not right and wrong. Certainly, there ARE some lines over which you won’t want to cross. But generally speaking, there are just different methods. The priority is to have multiple options available. Have the ability to sell different types of merchants in different types of ways.
These four commissions are the basics of earning income by selling payment processing. Don’t miss the next episode. I’ll dive a little deeper into the up-front buy-out versus the up-front bonus.