ETA Expert Insights: Growing an ISO/Sales Organization — Raising Capital
By the ETA Payment Sales & Strategy Committee
Travis Chrisman, President, Coastal Pay • Patrick Gallagher, CEO, Reliable Payments • Bart Kohler, Chief Sales Officer (CSO), Unity Fi Payment Solutions • Naomi Mastera, Business Development Manager – ISV, NMI • Greg Renfroe Payments Executive, PayiQ, a Division of Quisitive
Capital requirements for growing an ISO can vary significantly depending on several factors, such as the scale of operations, services offered, technology infrastructure, and desired sales channels.
If you are a standalone agent, the least expensive way to do this is to recruit 1099 sales reps. This is almost free, as the reps are only paid when residuals are paid. There are no upfront costs unless you decide to help with administrative and marketing costs such as, the cost of business cards and marketing materials. On the other hand, bringing on board W2 sales reps, most options consist of an uplift in salary or signing bonuses based on future expected earnings and a smaller portion of residuals as they are paid. While this is more capital intensive, you can “control” sales reps’ efforts regarding management, setting quotas and expectations, and target markets and verticals. You can also hold them accountable to standards you set to represent your brand as you see fit.
Considering these two options, 1099 reps allow you to add more reps faster, but you have less control over their sales processes and efforts. While W2 reps require more capital upfront, you can often set clear expectations to garner the success you are looking for.
The above paragraph only speaks to folks looking to start slowly and methodically. If you are looking to grow an ISO at a more significant, more rapid pace, most of the time, this will require taking on debt from some party, whether it is a bank, private investors, etc. This often comes with obstacles to prepare for. It would be best to have a clear, attainable business plan with metrics and KPIs that can be tracked and reported on. This option can have significant risk, as investors are eager to get their money back, and you are pressured to perform to expectations. The upside is that if you have the right investor, they can act as a partner, lending guidance as needed, as they are strongly tied to your success.
As you grow your ISO, other costs cannot be ignored; it is essential to be aware of them. It is always best to plan your budget with potential expenses in mind. Some of the possible costs are listed below.
- Licensing and Compliance: Merchant services companies must comply with financial regulations and may require licenses or registrations, which can involve fees and initial capital outlay.
- Technology Infrastructure: You’ll need a CRM, robust payment processing systems, card terminals, and possibly software development if you offer custom solutions.
- Marketing and Sales: To acquire merchants, you may need marketing expenses, sales commissions, and promotional materials.
- Operational Costs: This includes office space (if applicable), utilities, employee salaries, and initial equipment inventory.
- Risk Management: You might need to set aside funds for potential chargebacks and fraud prevention measures.
- Reserve Requirements: Some payment processors and banks may require you to maintain a reserve fund as security against potential liabilities.
- Insurance: Consider insurance policies such as liability and cyber insurance, which can add to initial costs.
- Partnerships and Agreements: If you partner with banks or other financial institutions, there may be partnership fees or revenue-sharing agreements.
- Scaling Costs: While you may start small, scaling up operations will require additional investment in technology, personnel, and infrastructure.