Tips for Growing Your Residual Stream

Good Tuesday morning everyone.  When it comes to lawn and garden projects, we all know the importance of sun, water and fertilizer, especially now that spring is kicking in. Without the proper nourishment and care, your investment can quickly whiter away during the hot summer yet to come. However, with a little time and energy, it’s easy to see great results.

Your residual stream is a lot like this. Think of it as you do any landscaping or garden project that you want to grow and protect. All it takes is a few minutes each month to follow these simple tips and you’ll see your residuals thrive:

Take a look at how your residuals for your merchant services program have been trending over the past few months. Are they growing or are they shriveling up? If they’re spiking, are they growing proportionally to the amount of new business you’ve added?

You should be concerned if you’re adding new business but your residual is not showing signs of growth. If this is the case, you could be losing merchants and should watch your portfolio for signs of attrition. Or you could be pricing new merchants so aggressively that they yield minimal profits to you. For me and many others its an average $40-$80 per merchant a month. I know some of you say you can’t do that in your market, I’m here to tell you that you can and should. A lot of this depends on the merchant sales and type of merchant they are. Ask yourself, for all the time you put in to get and support a merchant, is $40 a month really to much to make?

If your portfolio is like others I’ve seen, you have several key merchants that make up the bulk of your revenue and make your portfolio the envy of the other folks on your block. Examine these merchants carefully, and be sure to look at more than just their month-over-month growth. For example, is there any indication they could be at risk, such as if they have declining processing volume? Your merchant services provider should provide you with the ability to watch your merchants weekly or even daily.

This may seem strange, but you should also be concerned about merchants that are priced too high. The profit today may be great, but these merchants are at risk of switching away from you to get a lower price. In some cases, you should consider a proactive price reduction to retain your important merchants.

To help guarantee your long-term success, it’s important to make sure that the bulk of your residuals don’t come from a select group of merchants. This goes without saying that it’s even more dangerous if they come from a single merchant.

Yet this can happen quietly, and you may not notice it until it’s too late. Check your residuals by merchant. Would you say that more than 50% of your revenue comes from less than 10% of your merchants? If it does, then you need to diversify your portfolio.

Keep in mind that you should also be monitoring your merchants’ batching practices. If you have access, make sure you are seeing batches everyday for every merchant. A missed batch may mean nothing, or it may be a sign they’ve left you.

It’s critical that you have constant, open communication with your merchants to build a strong merchant services program. At a minimum, you should be in contact with your top merchants every few weeks. This can be achieved through bi-monthly emails,newsletters, send out cards or just stopping in to see them. When you speak with them, make sure you know their volume trends and point out any red flags you’ve noticed, such as higher than expected interchange costs. (This could be a sign that they need to remind their staff of how to prevent downgraded transactions and the higher interchange costs that go along with them.)

Just like weeding and pruning your garden, you should minimize the effects of merchants who drag down your profits. You won’t make high profits from every merchant, but you should review how you price today’s merchants to ensure their profitability is above your minimum. In essence, set a minimum return and stick to it.(like the $40-$80 from tip 1)

To accomplish the above, it is vital you have access to data in a format you can understand. Ideally, it gives you access to quickly review batches, trends, and volumes. If not, ask your merchant services provider for this information.

It’s important to know that all processors have a minimum. Most are around $60 in gross profit, meaning after a 50/50 split you would make $30 a month in residuals. And say for example your merchant has a slow month some processors won’t pay out residuals that fall below the $60 gross profit margin, also this could also trigger a charge back on bonuses and true ups.  This is why its very important you price your merchants accurately. None of us are here to lose money.

For more information about joining Payment Lynx and growing your portfolio or to discuss keeping momentum going in July please feel free to contact me at DMatney@Payme