At‑a‑Glance: Residuals = spread on % + per‑item – fixed costs. Model by MID, assume realistic churn, and pressure‑test scenarios for pricing, risk, and sales productivity.
Residual Components
- Revenue billed
- Percent fees (e.g., 2.69%)
- Per‑item fees (e.g., $0.10)
- Monthly/annual fees (POS, PCI, gateway)
- Pass‑throughs
- Interchange and assessments
- Processor costs to ISO
- Basis points and per‑item
- Operating costs
- Deployments, chargeback handling, first‑line support
Formula: [Net Residual = (Billed% – Interchange% – Cost%) × Volume + (Billed$ – Pass‑through$ – Cost$) × Transactions – Fixed]
Modeling Churn (Logo & Volume)
- Logo churn: Lose 2 of 100 MIDs monthly? That’s 2% logo churn. Apply it forward to avoid over‑forecasting.
- Volume churn: Seasonality (e.g., restaurants dip in Jan/Feb). Layer a seasonality index per vertical.
- Counteracting churn: new adds, upsell to software modules, and reinstall saves.
Pricing Levers That Move MRR
- Interchange‑plus vs. flat/blended: Interchange‑plus can win on sophistication; blended wins on simplicity. Dual pricing protects margins.
- Dual pricing/Zero‑fee: Offer a cash/credit price structure to lower merchant costs while preserving ISO spread.
- Monthly software fees: POS, online ordering, KDS, loyalty—recurring revenue that reduces dependency on swipe volume.
Example Scenario (12‑Month)
- Starting 50 MIDs, $25k/mo each, 400 tx/MID
- Billed: 2.79% + $0.08; Pass‑through: 1.82% + $0.04; ISO cost: 0.11% + $0.02
- Fixed ISO ops: $3,000/mo
- Adds: +6 MIDs/mo; Logo churn: 1.5%/mo; Seasonality ±10%
Result (illustrative):
- Month 1 net residual ≈ $8,900
- Month 12 net residual ≈ $23,000
- Run‑rate MRR: ~$20k and growing
Risk Scenarios
- Chargeback spike: Reserve 5–10% of GP in high‑dispute verticals.
- Ticket mix change: Larger average tickets can increase interchange; monitor.
- Card‑not‑present creep: Watch blended ER promises when e‑comm volume rises.
Reporting & Tools to Use
- MID‑level P&L, activation cohort reports, approval rate dashboards.
- Automated residual statements with drill‑downs by % spread, per‑item, and fees.
- Alerts for attrition risk (sudden volume drop, dispute uptick).
How MPG Helps
- Portfolio modeling templates (plug your MIDs, volumes, and pricing).
- Dual pricing programs with compliant signage and receipt scripting.
- Clear, on‑time residual statements and support cost transparency.
FAQ
What’s a healthy spread? Many ISO portfolios target 60–120 bps depending on vertical, risk, and value‑add software.
How should I set per‑item fees? Benchmark your card‑brand mix and average ticket; per‑item protects margins on low‑ticket merchants.