Residual Income Definition – What Are Residuals and Why Are They So Important to Independent Sales Organizations?

IRIS CRM Blog, ISOs, Residuals, Sales Efficiency
Residual Income Definition

Residuals are the lifeblood of independent sales organizations, and understandably, ISOs and agents alike have a vested interest in ensuring the health and consistent growth of their residual portfolios. But residuals aren’t straightforward, and new agents and ISO employees often lack a clear picture of exactly what residuals are or how they impact ISOs and agents alike. Below, we provide some clarification on those areas, along with some advice on how ISOs can approach their residual calculations in a new way to ensure maximized growth. 

 

How Residuals Work

Residuals are a tiny fraction of each transaction fee that belongs to the ISO. Whenever a merchant makes a sale and an electronic payment is processed, a transaction fee is charged based on the rate structure of the payment processor being used. That payment processor gives a slice of those earnings to the independent sales organization that signed that merchant up as payment and as a way to keep ISOs sending merchants in their direction as opposed to a competitor with a less favorable residual split.

 

Why Residuals Are the Lifeblood of ISOs

While some ISOs provide additional merchant services for additional fees, the vast majority of an ISO’s revenue comes from their residual portfolio. The residual earned from a new merchant belongs to the ISO for as long as that merchant continues to process transactions with the same payment provider. As a result, over the course of years, ISOs can build up a large and highly valuable residual portfolio, the revenue from which generally make up the largest part of not only an ISO’s earnings but their value as well. 

 

Why Accurate Residual Calculation is so Important

As important as residuals are, calculating them can be a major headache. ISOs often partner with many different payment processors, each with a different fee and residual structure. That means that keeping the calculations accurate can be difficult at the best of times when done manually. Not only does that make it hard for ISOs to keep track of their own portfolio health and growth, but it also impacts their agents as well. Agents typically earn themselves a small slice of the residual pie as well, directly from the ISO employing them. Inaccurate calculations or payouts are a surefire way to lose talented agents to competing ISOs. 

 

How ISOs Can Maximize Residual Growth

One way ISOs can maximize residual growth and ensure portfolio health is to entrust modern technology to help them with the calculation, management, and payment of residuals. IRIS CRM, the payments industry’s leading customer resource management tool, provides automatic residual calculation and pulls all the relevant data from each processor into the built-in reporting dashboard, providing easy to read reports and ensuring an accurate picture of processer-by-processer and portfolio-wide residuals. It also enables ISOs to quickly and easily payout residuals to agents via e-check from right within the CRM. Altogether, IRIS CRM ensures accurate residual calculations, solid management decisions, timely payouts, and happy agents. The result is the best possible portfolio performance and maximizing growth. 

For more information on how IRIS CRM can help your ISO with your residual calculations, management, and payouts, sign up for a guided demonstration or free trial today!