Before you signed your current credit card processing agreement, did you tell the salesperson what you expected from him and the provider? Did you ask him what he expected from you, as a merchant? It’s critical that each party understand the expectations of the other for a healthy, long-term relationship.
This article is the second installment of a three-part series on identifying acceptable salespeople and convincing them to work with you, not against. The first installment, “Partnering with Credit-card-processing Salespeople, Part 1: Detailed Statements Key,” we published last month.
Setting Expectations for the Provider
When reviewing processing offers on behalf a merchant, I tell the merchant what the gross annual revenue for each provider would be under its proposal. One of the many reasons I promote interchange-plus pricing is because it is easy for merchants to calculate this.
For example, say a business generates $1 million in annual sales at an average order size of $100. Say the credit-card-processing offer is 0.08 percent + $0.08 per transaction over published interchange rates and pass-through fees charged by the card companies, plus a $10 monthly fee.
The provider’s gross annual revenue would be (0.08% x $1,000,000) + ($0.08 x 10,000 transactions) + ($10 x 12 months) = $1,720. The rest of the merchant’s processing cost goes to the banks and card companies (Visa, MasterCard, American Express, Discover).
The merchant should know the provider’s gross revenue for two reasons.
First, comparing gross revenue among competing offers is the easiest way for merchants to determine which provider has the lowest cost. The lowest cost doesn’t always mean the best value, however, as other factors, such as service and integrity, are critical as well.
Second, the merchant and salesperson should agree on the service expectations based on an agreed-to gross revenue point. The merchant should know this relative to her current provider and other competing offers. She should note issues with previous providers and decide how she wants them handled going forward. This includes critical features and services that she does not want to lose if she changes providers.
… comparing gross revenue among competing offers is the easiest way for merchants to determine which provider has the lowest cost. The lowest cost doesn’t always mean the best value, however …
Setting Expectations for the Salesperson
The pay of nearly all credit-card-processing salespeople is 100 percent commission. What they earn from a merchant customer is based on their industry knowledge, how well they selected a provider, and how well they negotiated their contract with the provider — most salespeople are contractors, not employees.
As a rule, a salesperson receives roughly 35 percent of the provider’s gross revenue from a merchant. This is typically paid in monthly residuals for as long as the merchant processes with the provider. In the example above, where a provider generates $1,720 per year in gross revenue, the salesperson would make around $600 per year, or roughly $50 per month.
Salespeople who focus on processing revenue instead of upfront payments from equipment leases have an incentive to service their merchants within reasonable expectations. These salespeople often earn less than $15 per month on many of the merchants in their portfolio. So, they may need 200 or more clients in order to make a decent living on these monthly residuals.
It’s important that merchants understand this. Do you really expect a salesperson making $15 per month on your account to drive 50 miles on a Saturday night to deliver a roll of paper for your terminal? Do you expect him to answer his phone immediately, or is a call back within, say, two hours more reasonable? What types of issues warrant calling the salesperson versus the provider’s customer service personnel?
In my experience, a salesperson and merchant should agree on the following items before the merchant signs the provider’s agreement.
- Confirm no termination fees. The salesperson should show a merchant the actual text on the contract, terms and conditions, or addendum that explicitly states that there is no termination fee or, alternatively, states the minimal termination fee you agreed to. I am not an attorney; most attorneys want to review far more than the termination fees.
- Review statement after first month. The salesperson will meet with the merchant in person or via the phone to review the statement after the first full month of processing, to ensure all rates and fees are as agreed in the “confirmation of offer” email — not the merchant agreement. (See my April article, “Credit-card-processing Negotiating Mistakes, Part 2: Understanding the Offer,” for details of the email confirmation.)
- Review statement in May and November. The salesperson will also meet with the merchant in person or via the phone to review the May and November statements each year. This is because card companies typically change rates and fees in April and October.
- Allow competing salespeople to help. The salesperson should understand that the merchant may allow a competing salesperson to review — in May and November — the processing statement against the pricing on the “confirmation of offer” email. This is not to solicit another processing offer (unless significant problems are uncovered), but to identify discrepancies, since the merchant is, presumably, not an expert on processing statements.
- Allow existing salesperson to respond. If any problems are discovered in the aforementioned statement reviews, the existing salesperson will have an opportunity to resolve them before the merchant leaves. However, discrepancies between the “confirmation of offer” email and the processing statement may be considered a breach of contract between the salesperson and the merchant — not between the provider and merchant as that’s covered in the merchant’s contract with the provider.
By agreeing to the above items, the merchant and salesperson confirm that it is critical to receive a detailed statement to verify pricing, as I described in “Part 1” of this series.
In reality, the “confirmation of offer” email is a statement of the salesperson’s knowledge and integrity. That email, along with the merchant’s expectations, essentially becomes the agreement with the salesperson. Yes, the merchant likely signed a one-sided contract with the provider that has several pages of verbiage and caveats that only lawyers understand. (But the merchant made sure that there were no termination fees or, alternatively, the termination fees were minimal.)
Agreement with Salesperson Most Important
A merchant should tell the salesperson that the only agreement that matters is the one with him, because he was the one that (a) quoted the rates and fees, (b) stated that they would be based on published interchange rates and actual pass-through fees, (c) stated that there would be no hidden fees, inflated fees, or surcharges, and (d) stated that the provider would not increase or add new fees.
Therefore, it is the salesperson’s responsibility to make sure that the provider lives up to the merchant’s agreement with him (the salesperson) or the merchant will terminate the agreement and find a new salesperson and provider. Period.
In holding the salesperson responsible, know that the card companies can and do change the interchange rates and pass-through fees — again, generally in April and October. Neither the salesperson nor his provider has any control over those rates and fees. However, the merchant and the salesperson should still review these rates and fees — as well as the agreed-upon provider rates and fees — to ensure that the provider is not inflating or surcharging them.
I have found that less-than-acceptable salespeople representing less-than-acceptable providers dislike this entire approach. Conversely, knowledgeable and reputable salespeople representing knowledgeable and reputable providers appreciate this approach because they get an opportunity to prove their integrity twice a year.
Moreover, they don’t have to worry about you leaving because a less-than-acceptable salesperson misled you into believing he was offering a better deal. They know that their knowledge and integrity may lead to referrals from you. Referrals, after all, are critical for commissioned salespeople.
See the third (and final) installment of this series, at “Part 3: Weeding Out Unacceptable Parties.”