Bill Lodes, Executive Vice President of Business Development & Strategy at First American Payment Systems sat down with ISVinsights to discuss what software companies need to know about recurring revenue, evaluating residuals from different payment processors, increasing payment residuals, and what kind of investments ISVs are making with these increased revenues.
Recurring revenue can mean a more profitable exit when it comes time to sell your software company. Payment processing residuals offer another stream of recurring revenue for ISVs.
What kind of impact can payment residuals have on an ISVs bottom line, both in terms of revenue and customer retention?
When an ISV partners with a payment company, there are many components they should evaluate to ensure they have the right partner. One key benefit of working with a payment partner is the opportunity to earn residuals or recurring revenue on the payment processing program. ISVs don’t think or realize the importance of partnering with a payment provider, and what the additional revenue could mean to their business in terms of growth and possibilities.
Payment residuals can be a very important component of the bottom line for an ISV. As an added revenue stream, it can help ISVs reinvest in the business and provide even more functionality and features to the end user. Residuals are also attractive if the ISV is looking into a potential sale, as this kind of recurring revenue stream will increase the profitability of the business. It also can allow them to expand their sales force and increase marketing efforts.
If an ISV is not currently receiving residuals or recurring revenue from their payment program, they need to start looking for a new program or partner that can help them gain access to this revenue stream.
What factors should ISVs pay closest attention to when evaluating residuals from different payment processors?
There are several factors an ISV should evaluate when it comes to a payments partner. The residual opportunity is definitely a key deciding factor. The partner should be receiving a portion of the revenue to further entice them to continue to promote the program and provide additional revenue back into the business. If the ISV feels that they aren’t seeing their fair share, that should be negotiated with the payment partner.
However, residuals aren’t the only factor an ISV should use when picking a payment partner. By partnering with a payment company that understands the ISVs business and more importantly, their customers, ISVs have the opportunity to increase the amount of customers they acquire and retain those customers for a longer period of time, therefore increasing their residuals over that period of time.
They need to be sure that the partner is offering modern and secure payment technology that is easy to integrate, a wide variety of payment options so that the end customers can pay how they want to pay and a supportive team at the payment company that will help them from integration all the way through to customer service. All of these pieces will assist the ISV in acquiring and retaining more customers.
Beyond simply selling more merchant accounts, what can an ISV’s sales and customer success team do to increase payment residuals?
As I mentioned, payments partner selection is critical to an ISV. They need to ensure they select one that adds the most differentiation (technology & solutions) that will help them attract new customers and retain them over time. The partner needs to have a reputation of servicing customers effectively and a strategy to keep innovating their payments solutions.
In addition, selling more accounts will definitely increase their residuals. However, ISVs can also look at adding additional value-added payment products into their software that will allow them to gain more payments business or charge additional fees to access these products. For example, we have rolled out new security and recurring revenue products, such as our 1stPayMaximizer Account Updater product, to our ISVs that allowed them to increase their monthly payment residual by attracting new customers overall to their business or increasing the amount of products a current customer is paying for. It’s really allowed our ISVs to grow and expand in ways they had not thought of before.
What kinds of investments are your successful ISV partners putting back in to their business as a result of increased revenue from payment residuals?
An ISV can certainly benefit from the added revenue of payment residuals and invest that money right back into their technology. We see many ISVs that we work with to develop new features and functionality with the increased revenue that they were putting off. In addition, we see others that are able to increase their marketing and sales activities whether it’s by traditional marketing or hiring a salesperson or a sales team, they are able to grow their business leveraging payment residuals. It’s really up to the ISV to invest the money where they will get their largest return for their business.