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Payment Processing Residuals Shouldn’t Be All of Your Recurring Revenue

processor residualsThere’s no doubt that you can build recurring revenue with payment processing residuals. Think about it: If an ISV or point of sale (POS) VAR sells payment processing to a merchant who pays an average $400 per month in fees, about 30 percent of that could go to the VAR. That’s $120, on average, in recurring revenue from that account. Multiply that by some fraction of your customer base that will set up their merchant accounts through you, then by 12 months in the year, and you definitely have something to talk about.

If payment processing residuals are your only source of recurring revenue, though, you may be putting your business’ viability at risk.

Recurring Revenue Should Be Predictable

One of the benefits of building a recurring revenue stream is that it ends the cycle of living month to month, counting on profits from one-time-sales and project work to cover payroll and operating expenses. Therefore, to give your business a true advantage, you need to build a recurring revenue stream that’s predictable.

A recurring revenue stream comprised totally of payment processing residuals, however, is not predictable. Fees that your clients pay can vary depending on their industry, their average ticket size, and the volume of their transactions. Moreover, consumer-facing businesses may have seasonal highs and lows or be more responsive to economic uncertainty. Lower volumes of sales or lower average tickets will mean merchants pay lower fees that month — and your percentage equals less revenue.

The payments space is also experiencing significant mergers and acquisitions activity, which could impact your residuals, increase churn — or even force you to rethink partnerships if a vendor expands its offerings and suddenly becomes a competitor.

With payment processing residuals dependent on your clients’ and vendors’ businesses, the amount of recurring revenue you receive is largely out of your control. Your business needs recurring revenue that’s within your control.

How to Build a More Predictable Recurring Revenue Stream

A smarter strategy is to offer more products and services on a subscription or as-a-Service basis. Point of sale solutions providers can build stable recurring revenue streams with:

  • Software as a Service: Instead of selling a license for a software version, sell POS SaaS. Businesses benefit from replacing software CAPEX with an OPEX, and they don’t need in-house resources to patch or update the software — the vendor does the maintenance.

  • Value-Added Services: You may offer a feature-rich POS solution, but some clients may need more functionality. Expand your portfolio to include value-added services, such as gift card, loyalty rewards, customer relationship management (CRM), marketing, and customer survey solutions, which provide your clients with the tools they need to compete.

  • Service Offerings: POS solutions providers traditionally offered service contracts — but accepting smaller monthly payments that cover support, in-house service, and specific service levels can have greater appeal to customers while keeping revenue coming in.

  • Consumables: If your clients need printer ink, receipt paper, labels, gift cards, or other consumables, offer them on a subscription basis so your clients will never need to worry about running out.

  • Total Solutions: Expand your offerings or partner to provide all of your clients’ IT needs as a Service, from infrastructure, wireless and business continuity to digital signage content and menu management.

Find the Right Balance

A predictable recurring revenue stream can be the difference between worrying about making ends meet each month and confidently planning to improve your business with new staff, infrastructure or offerings.

Even if you devote a full-time, in-house resource to managing payment processing, you probably can’t rely on residuals to fully cover the costs of your growing business.

Payment processing residuals are definitely an opportunity for ISVs and VARs — and you should take it — but don’t make it the entire basis of your recurring revenue strategy.

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