Residual Splits: The Importance of Accuracy and Clarity in Residual Calculations

IRIS CRM Blog, ISOs, Onboarding, Residuals
Residual Calculations

An extensive, healthy residual portfolio is the goal of every independent sales organization, and the independent agents working for them. So, it should come as no surprise that the way you split those all-important residuals with your agents is fundamental. Not only do split percentages and residual agreements impact your bottom line, but they also have a massive impact on your ability to attract the best talent available to you, and to keep that talent on board in the long run. In this article, we’ll examine the importance of three critical residual considerations – long-term ownership, the actual split you offer your agents, and the transparency you offer concerning residual calculations. A better understanding of each will enable you to build a stronger team of happier, more loyal agents, resulting in stronger long-term earnings, and fewer headaches along the way. 

 

The Importance of Residual Ownership

One key issue when it comes to splitting up the residuals between your ISO and your independent agents is the terms of ownership. Traditionally, there are two significant categories of residual payments: those which are owned by the agent for the lifetime of an account, or “life vested,” and those who are not, and expire at the end of an agent’s partnership with the ISO or after a certain period of inactivity. In the first case, an agent will continue to collect residuals for as long as the accounts they’ve brought in continue to make sales. If the agent moves on to another ISO, get out of the game, or retires, they still own those residuals for the lifetime of that merchant’s account. In the second case, once an agent parts ways with the ISO or fails to meet specific benchmarks, the residuals stop, regardless of the merchant’s status.

From an ISO standpoint, it might seem logical to offer agents deals that have an expiration date. It would mean that eventually, you’d be able to keep 100% of the residuals on at least some of your merchants. But that thinking is a trap that you should avoid for a straightforward reason – the best agents know better. You might be able to sign new, green independent agents to non-lifetime deals, but if you’re after top talent, you need to offer life vested residuals. Experienced agents will probably demand them anyway, and those are the agents that are going to be of the most value to your portfolio in the long run. Don’t push them to your competitors by trying to squeeze them. 

 

The Importance of Split

On the surface, the importance of the split percentage on your residuals is obvious – it determines what size chunk you’re going to have to give up. But in some ways, splits are much more important than that, because they can shape the kind of relationship you’ll have with your agents. In other ways, divisions aren’t relevant at all since it’s the actual dollars and cents that matter, not an abstract percentage. With that in mind, the history and performance of your both your ISO and the agents you’re courting should be a massive factor in what kind of splits you offer, since, at the end of the day, the most profitable relationship is the one that benefits both parties as much as possible.

First and foremost, you should never operate on a fixed-split basis across the board. Each agent is unique, with unique strengths they can bring to the table, and as such, you must be willing to tailor your splits appropriately on a case-by-case basis. More experienced agents who can be expected to drive significant business to your ISO deserve – and will likely demand – higher splits, but don’t just give away the farm because a rainmaker asks you to. First, consider what you bring to the table. If you’re a new ISO trying to recruit top talent without a strong track record to back you up, then yes, you’re going to have to dig deep. But if your ISO has a long history of performance, with excellent attrition rates, an impressive existing residual portfolio, and unmatched customer service, then split percentage isn’t everything. 

Think about it – an agent might be able to get a higher split by working for one of your competitors, but that split won’t be worth nearly as much if the merchants they bring in end up bugging out after only a few years or don’t receive the support they need to maximize revenues. Be willing to pay top talent what they deserve, but remember that it’s also your job to honestly analyze what it is that you have to offer your agents, and to be able to sell them on those benefits too, not just the split percentage.

 

The Importance of Transparency

Trust is everything in any business arrangement, and the same is true of your relationship with your agents. A strong, trusting relationship is one that will keep an agent informed, happy, and, most importantly, loyal – and that loyalty is the key to keeping your talent and building your residuals portfolio in the long-term. When it comes to residuals, building trust is all about transparency, because, if an agent understands how their earnings are calculated and can see for themselves that it’s been done carefully and accurately, they’ll never have any reason to wander. 

The problem is that residual calculations can be complicated. That’s especially true when you have a large roster of agents, all with different agreements and different splits. That complexity means that manually calculating residuals and payouts are not only slow but it also often leads to mistakes – mistakes with the potential to sour your relationships with your agents. The way to avoid that pitfall is simple – remove human error altogether by automating as much of the residual calculation process as possible.

Automatic residual calculations, like the ones performed by IRIS CRM’s residuals reporting suite, ensure that your ISO and your agents will always have access to timely, accurate residual reporting, and those accurate payments can be made promptly month after month. With IRIS CRM, you can even give your agents limited, permission-based access to the residual reports on the merchants they’ve driven to you, allowing them to see the exact calculations themselves at a glance, ensuring maximum transparency and, in turn, utmost trust. 

The dashboard allows users to break down reporting at the processor and individual merchant levels, and each merchant displays their total sales amount for the reporting period, the ISO’s income on those sales, the ISO’s expenses on those sales, the ISO net, the split percentage, and the agent net. It’s all calculated entirely automatically based on the terms set out in each agent’s contract, and the amounts are displayed in a clear, easy-to-read table. And because IRIS CRM’s residual reporting dashboard is integrated with the rest of the CRM, once the residuals report has been generated, you can then send out ACH or eCheck payments to agents in a matter of minutes. With IRIS CRM, it’s never been faster or easier to calculate residuals – no matter how complex an ISO’s agent roster or split agreements may be – and to send out prompt, accurate payments – the key to ensuring happy, loyal agents.

 

IRIS CRM also provides complete analytics on a host of portfolio-level KPIs, including monthly volume and revenue growth, average profit per merchant, monthly BPS margin growth, YTD profit, and much more. For more information on how IRIS CRM can eliminate the frustration and risk involved in manual residual calculations, or find out how its full suite of sales and productivity features can help your ISO accelerate growth and maximize your revenues, contact us today!