How Credit Card Processing Sales Reps Make Money
At IdealCost, we frequently describe the logic of why credit card processing sales representatives overcharge their clients. It is essential to know that almost all credit card processing sales reps are commission-only independent contractors rather than salaried employees. Therefore, if they don’t make sales, they won’t get paid. The credit card processing industry is one of the heaviest recruiting industries on job posting websites. The turnover rate is exceptionally high, and most sales representatives are out of business within a couple of months.
The incentive to land sales is high, and the motivation to maximize their profit on each new client account. After all, the sales rep never knows when he or she is going to land the next sale, so the commission on signing up each account needs to last days or weeks. In this piece, we’ll spill the secrets about how exactly the typical sales rep receives compensation. You’ll see why credit card processing sales reps have every incentive to overcharge. You’ll also see why they have no incentive to give the best deal. You’ll then realize why some low integrity sales representatives flock to this industry.
Many credit card processing sales compensation programs include a one-time commission for merely signing up a new account. The sign-up bonus may range from $75 to $1500 per new location depending on several factors. For example, some compensation programs allow sales reps to forgo further monthly compensation in favor of a larger up-front commission. Other programs will pay higher a commission if the client has a proven history of credit card processing over a certain monthly sales volume. There are even programs that pay a higher commission based on how much the client is overcharged. Most credit card processors pay this bonus for each location so signing up a 10-location restaurant typically means a 10x up-front commission. The reason we refer to the up-front commission as an activation bonus is that the commission usually isn’t released until the account is activated and runs its first test transaction.
Additional Contract Services and Fees
In addition to the standard commission, there are add-on charges, which benefit the sales rep. For example, the most egregious fee a client can ever pay is for leasing a $400 MSRP credit card terminal for $50 per month for 60 months. In this scenario, the sales rep can make as much as $750 in additional commission. We always advise clients to avoid equipment leases. High-interest (up to 50%) merchant loans, known as factoring, are very lucrative and can pay sales agents up to 10% of the value of the loan. A $50k loan with a quick $75k payback could net a sales representative up to $5k upfront.
There are even completely discretionary fees nearly 100% of which go to the sales representative. They feel that they are entitled to charge these fees simply for their time. For example, some credit card processors allow their sales representatives full latitude to charge any amount they’d like for a set-up fee. Imagine paying an extra $200 to set up your account while the sales representative simply invented that fee to pocket it.
Monthly Residual Payments
The unique draw to work as a sales representative for the credit card processing industry are monthly residual payments. Sales reps typically receive 50-80% of the monthly gross profit from their accounts. An average merchant account might net the sales rep hundreds of dollars in monthly compensation. When clients approach their sales representatives to lower their monthly fees, they have no idea that there is no incentive for a fee reduction.
The ultimate goal for sales representatives is to build a portfolio of credit card processing accounts totaling tens or even hundreds of thousands of dollars in monthly residual payments. At some point, when they need the money or want to retire, they will sell their portfolio for a multiple of 15-36 times their total monthly compensation. A $10,000 per month residual portfolio may go for $360,000.
Now you know how sales representatives make their money and why they choose to maximize the commission on each new client. Not all sales representatives are dishonest, but the industry absolutely incentives overcharging clients. You also know that when you are approached by sales reps to change your credit card processor, they are only incentivized to save you enough to entice you to change, not the full amount, which would ultimately come out of their pocket.
Don’t Take on the Credit Card Processors by Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank, or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service, or technical difficulties. Before you consider switching credit card processors, see if you qualify for IdealCost.com’s monthly savings program. Upload your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.
If you are opening a new credit card processing account or must switch credit card processors due to funding delays, technical issues, or customer service problems, feel free to contact us for a free consultation. IdealCost.com can help secure the best terms and fees based on your specific needs.