ISV Business Growth Strategies: Payment Processing Residuals
In recent years, there has been remarkable growth among the number of ISVs (independent software vendors) established within the U.S. and across the globe. In 2008, there were only 10,000 SaaS companies, which has since exploded, reaching 100,000 in 2018. Based on these statistics,experts are predicting that there will be more than 1 million ISVs by 2028.
The SaaS market alone has gone from being worth $14 billion in 2014, to approximately $85 billion just five years later. This is a clear demonstration of how fast the current market is increasing and makes the point that ISVs are at the forefront of this explosive growth.
Why is the ISV market growing so fast?
Faster and cheaper cloud technology is fueling this growth in every single category. The expansion of ISVs enhances the overall value of cloud services and the way they are delivered to the customer.
The rise in this technology and the change in demand from consumers means merchants are looking for the right solutions to allow them to compete with the biggest and most established chains. Businesses now seek comprehensive, one-stop-shop solutions that make daily operations easier. This means that there are additional pressures on ISVs to strengthen their relationships with payment partners to ensure that they can get the help that they need to optimize their services and create the most valuable experience for their users.
How can you make your ISV stand out during this growth?
To be able to differentiate yourselves from the large number of competitors that currently exist or are entering the market, a payment processing revenue sharing program is something that you should not overlook when choosing your payments partner. Finding the right partner that is transparent and open about pricing strategies will allow you to free up capital, attract more business and grow to a point where you can focus on and successfully execute your exit strategy.
It is completely normal that most ISVs use the first few years to try and break even. The SaaS landscape, although growing, is competitive and it can take time for your brand to be established. Around 30% of U.S.-based new businesses fail within the first two years. Once you get past this point, you are probably going to be looking at new ways to bring in additional revenue. Finding new ways to generate revenue streams does take time and involves a lot of strategy and creativity. One of the easiest ways to continue growing your ISV is to partner with a payments provider like CardConnect that offers a payment processing residuals program.
What is payment processor revenue sharing for an ISV?
For ISVs, payment processor revenue sharing (also known as payment processing residuals) occurs when your software company partners with a payments provider to integrate payment acceptance into your software or app. As your merchant users accept payments through your software’s payment gateway integration, you have the opportunity to get a split of the revenue earned through all transactions processed. It can be a very important business partnership, especially for growing software providers looking for additional revenue streams.
How does payment processor revenue sharing work?
To understand the residuals available to an ISV from a payment processing partnership, it’s important to think about how a payment is processed and the interchange costs. Interchange costs are basically the standardized rates set by the credit card providers and this represents the cost the payment processor has to pay with each transaction. These costs vary depending on the brand of the credit card and whether they were swiped, keyed, or dipped (EMV chip) during the transaction.
Knowing these different rates for how clients receive payments from their customers will allow an ISV to calculate the impact of the payment processing residuals. Once you have an understanding of interchange costs, you can discuss Schedule A and the revenue share with your payment processor. As a software provider, you should always think logically about the agreement on payment processing commission as mistakes can be made if you don’t calculate your costs correctly, if you fail to understand the padding of interchange rates or if you do not fully comprehend how your merchant users accept payments from their customers.
Think about the experience you want to provide your users and consider how they might prefer to accept payments. This will help determine what kind of payment gateway makes the most sense to integrate into your software. Discovering a partner that offers omnichannel payment acceptance could be extremely important to your business in order to cater to multiple needs of your software users. An integration that provides more than one way to accept payments means more transactions are being processed which can then translate to greater revenue share.
When it comes to settling on a rev share percentage with your payments partner, the range of a share can depend on the experience of the software. Typically, a revenue split of somewhere between 30% and 80% is common among partnerships. If a software has never integrated a payments platform before, then they are generally offered a percentage of revenue share on the lower end of the range. Essentially that ISV must prove their growth before they can take on more responsibility. This is because that ISV will typically rely heavily on the value of sales and marketing support by their payments partner which requires a great deal of resources. Showing your value to your payments partner will be an important part of your growth opportunities.
Deciding factors that make up the revenue share percentage of an ISV also include processing volume, the number of merchants/users, merchant pricing strategies and the pricing model (flat rate vs. interchange plus). It’s very important to think about the experience of the merchant and the needs of the software for their users as this will play a role in the pricing. In essence, a revenue sharing program varies from partner to partner and pricing and earnings are usually based on the current situation of your software company.
What makes the CardConnect Revenue Share program different?
1. We are highly interactive when determining the revenue split with partners
Our ISV program is unique because we provide an opportunity for our integrated software providers to expand their revenue share as they grow and sign up more merchants. We are flexible with our percentages, which are never ‘set in stone’. We believe that the share percentage should fairly mirror the performance of an ISV.
2. We work together with our partners
We have a dedicated team that will personally work with our partners to review the goals of their business regularly and if targets are hit and exceeded, we can reassess the revenue split for potential increases that provide financial benefit. The efforts of our partners are rewarded. We make sure each software partner gets back exactly what is put into it.
3. We provide flexibility regarding merchant pricing
We are uniquely positioned to work closely with our partners to determine the best merchant pricing structure that aligns with payment processing offerings and the business goals of the integrated software. We understand that the needs of each partner is different and our custom revenue share plans are something we’re proud to offer.
4. We’re more than just a payment processor
CardConnect is a company of Fiserv, a global leader in payments and financial technology. That means a partnership with us connects you to a powerful network of innovative and scalable solutions. Beyond integrating payment acceptance, we’re able to provide our growing partners unmatched value and opportunities for expansion.
What can ISVs do with the funds they receive via the CardConnect Revenue Share Program?
ISVs that receive funds from the payment processor residual program can use this money how they like. We encourage our partners to put the additional capital back into projects that promote further growth of the software. If you have never been a part of a payment integration program before, this is brand new capital to invest in that you weren’t initially anticipating.
You could put the money earned into projects that you had previously put on hold due to limited resources or you could fuel your growth by earning extra revenue through the addition of payment acceptance. Some ISV founders that we have spoken to have seen the program as valuable as the subsidiary income has provided opportunities for them to develop their own exit strategy.
The additional revenue stream can also open up opportunities for expanding into new markets and growing merchant bases in other verticals that hadn’t been reached before. Our experience is invaluable and we’ve helped many customers expand and grow to their next level. Just take a look at a recent success story from an ISV partner of CardConnect that has partaken in our Revenue Sharing Program:
“Since our partnership began in 2015, CardConnect has given us the ability to provide our customers with an integrated card processing solution that helps streamline business operations. The tools that CardConnect offers both Gingr and our customers are the best in the industry. Their intuitive merchant portal, CardPointe, has helped minimize customer attrition through user experience and support efficiencies. CardConnect’s partner portal, CoPilot, is an all-in-one solution that allows for simple account boarding with online applications and effective portfolio and merchant support management.
Outside of enhancing our customers’ card processing experience, this partnership has created for us an additional stream of income. The revenue sharing program is very straightforward. Plus, we have direct access to a relationship manager which affords us the ability to quickly resolve more technical questions that come up from time to time. The support we receive has allowed us to effectively allocate our internal resources. It’s comforting to know that we have aligned our company and customers with the best card processing solution out there.”
Robin Braun, Director of Payments
Gingr, User-friendly dog daycare, kennel and grooming software
What are the next steps my ISV should take to earn residual revenue?
There are several reasons integrating with a payments partner is beneficial, and the opportunity to earn residuals is just one. In order for you to stay ahead of the game and get the edge against the rising number of new SaaS competitors entering the market, you need to focus your efforts on other ways to increase income. Partnering with a payments provider through a revenue sharing program will allow you to increase the cash coming into your business and utilize that money to develop your software and growth overall.
We are working with hundreds of ISV and SaaS providers, so we understand each individual circumstance. We encourage you to get in touch today with one of CardConnect's Revenue Share specialists who will work with you to find a mutually beneficial solution to help get you involved, increase your revenue and beat your competition.
If you’re interested in learning more about our ISV partner program and the opportunities available for revenue sharing, visit our ISV Partner page.
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