Recurring revenue is a beautiful thing. Managed services providers (MSPs) and value-added resellers (VARs) have discovered that selling services their clients use month after month can build a steady revenue stream. And, if you keep your customers happy and the churn rate low, your recurring revenue stream can continue indefinitely — and even grow.
One excellent opportunity to build recurring revenue is residual income from payment processing. Dave Menton, Senior Director of Channel Sales North America at Tabit, says it’s one of the most lucrative options to add to your solution stack.
Do the Math
Although the residual income you can expect will vary depending on your clients and your payment processing partner, here’s one, simplified illustration to show the potential recurring revenue from payment processing:
- A merchant pays an effective rate of 4 percent for credit card processing, and the VAR that sold the account receives 30 percent of that amount.
- On average, the merchant has $10,000 per month in credit card sales. The merchant pays $400 in fees, and the VAR receives $120.
- If the VAR increases its number of customers with the same credit card processing volume by five per month, at the end of two years, the VAR would have 120 customers. If they make $120 per month from each account, it would mean the VAR receives $14,400 per month in payment processing residual income.
- If the VAR maintains a base of 120 customers, that would mean $172,800 per year in recurring revenue from payment processing residuals.
Menton stresses this is just one example and advises having a detailed conversation with your payment vendor to understand exactly how this will work for your clients and the residual income you could expect. “Some do profit share, some give top line, it varies based on processor or acquirer,” he says.
A Little Investment Goes a Long Way
Menton says VARs and MSPs should expect to spend some time upfront to educate yourself and your team on providing payment solutions. “The overall business model is more complex than a standard solutions sale,” he explains. “Payments have several layers — banks, acquirers, processors, ISOs — a lot of different pieces come into play.”
You don’t have to navigate the learning curve on your own, however. Look for a payments partner willing to educate you and help ensure your success. “There are always a lot of options for companies to partner with when adding to your solution stack. It’s essential to vet companies to truly understand who they are and if they’re a good fit. This is equally important in payments,” says Menton. “Understanding the payments space is an investment: It pays off in the long run.”
Business growth can be part of that ROI. “Payments can open up avenues you aren’t selling in today,” he says. “You may have walked past doors before that you can now walk into with something to offer.”
Payments also help you build stronger relationships with your current clients. “Most customers prefer to deal with a single vendor for as many solutions as possible,” Menton says. “If they can turn to you, their trusted advisor, there’s no confusion about who to call and no finger-pointing.” He adds that payments are also one more solution in the stack that you provide, building stickier relationships that clients would find it hard to walk away from.
Evaluate Your Unique Opportunity
Menton says with the industry moving to the as a Service model, VARs and MSPs need to find ways to build recurring revenue to replace the upfront margin they once received from solution or project sales.
“Payments is a big part of that,” says Menton. In fact, a few years ago, the RSPA surveyed its members to create a Target Operating Model for point of sale (POS) solution providers. The association found that one-third of all nontraditional revenues for VARs in this space came from payments.
“Clearly, payments is a major player,” he says. “Ninety-nine percent-plus of businesses in some way, shape or form are taking non-cash payments. For you not to take advantage of it is a missed opportunity.”