Purchasing Residuals: The Best Way to Grow Your ISO

IRIS CRM Blog, ISOs, Sales Efficiency
Purchasing Residuals: The Best Way to Grow Your ISO

Constant positive growth is the goal of every business, and for independent sales organizations, growth is all about maximizing residuals. Residuals are the lifeblood of your business, and there are a number of ways to ensure they’re constantly trending upwards. Perhaps the most obvious is to have a constant stream of new, high-quality merchants coming on board. That’s extremely important, but acquiring new merchants is also relatively expensive. A faster, more effective, and often cheaper strategy is to go out and purchase residuals, cutting out the merchant acquisition process altogether. That can be done in one of two ways: purchasing residuals from a competing ISO, or purchasing residuals from your own agents. Those may sound like two similar options on the surface, but there are key differences that you need to understand before deciding which route to take. 

 

Option One: Purchasing Another ISO’s Portfolio

If you’re looking for immediate and significant growth, you might consider buying out the residual portfolio of another competing, smaller ISO. The upside to that strategy is that in the stroke of a pen, you can significantly boost the size of your own portfolio. But there are some major downsides as well. First and foremost, buying out another ISO is a large and complicated deal, meaning it’s going to be extremely time-consuming in addition to being extremely capital intensive. Secondly, when buying out a large, well-established portfolio, you can expect to pay a relatively high monthly multiple, possibly as high as 36x monthly revenues. That premium means the acquisition will take a very long time to pay off. 

 

Option Two: Buying Back Residuals from Your Own Agents

A potentially better option is to look internally to your own agents and to attempt to buy back residuals that you’re already paying out from your own revenues. To be clear, the average individual agent has a relatively small portfolio, probably $10,000 or less per year. That means you’re not going to significantly boost your revenues with any single agent. However, if you can find multiple agents looking to sell all or part of their monthly residuals, cumulatively, you could stand to gain a lot. For one thing, because those individual portfolios are so small, there just aren’t a lot of outside buyers, meaning you can get them fairly cheap – likely under 24x and maybe as low as 12x monthly residuals. Additionally, because they’re your agents, you’ll already have a high level of knowledge about the portfolios you’re looking to buy, their performance, and the individual merchants contained within. That knowledge carries real value because it helps to reduce uncertainty, something you ideally want to eliminate altogether.  

 

What You Need to Make a Buyback a Success 

If you do choose to offer a buyback plan to your agents, the most important thing you can do is to maximize your knowledge of the portfolios you’re going to target. In some cases, large ISOs will simply offer a mass buyout to all of their agents and buy up the residuals of whoever decides to sell. However, if you’re looking to take a more precise approach, knowing which merchants to offer buybacks to will help you ensure your time, effort, and capital are put to the best possible use by only going after agents with healthy, growing portfolios, and who are actually open to the possibility of selling. In that case, your best friend is a good analytics dashboard on whatever tool you use to track the growth and performance of your merchants. IRIS CRM, for instance, offers a reporting suite that provides easy-to-use business intelligence on an ISO-wide level as well as on each individual agent. You can drill down data right to the merchant, or even transaction level, to ensure you have the most up to date, relevant information on everything from monthly volume and revenue growth, to average profit per merchant, lifetime profit, and more. 

Not only does IRIS CRM offer the business intelligence you need to manage a successful buyback, but it also offers a wide variety of sales tools to help you bring in more merchants and to get the best possible performance out of your existing roster. A member of the team would be happy to answer any of your questions, or you can sign up for a free guided demo and check out the reporting dashboard for yourself, today!