Monetizing Payments 101: How to Add A Recurring Stream of Revenue to Your Software Business with Tilled
Tilled’s simple pricing structure makes it easy to envision just how much extra revenue you can generate through payment processing.
When looking for the next step in scaling your software company, finding a way to increase your revenue is bound to be at the top of the list. Although there are several ways to go about this, evaluating your payment monetization strategy is a frontrunner – or at least it should be.
Why? Because the right embedded payments partner can help you begin monetizing the payments accepted through your system via a revenue share. Not sure what we’re talking about? We’ll break it down:
What is a Revenue Share?
A revenue share gives you (the software company) a portion of the profits generated by merchant accounts in your portfolio that would typically be received by the processor. For reference, Tilled offers a 75% percent revenue share to our scaling partners. Depending on your annual processing volume, this can help your business generate a significant recurring stream of revenue. To give you a crystal clear picture of how this all works, consider this simple scenario:
You’re a B2B software company developing solutions for the veterinary industry. Your software provides scheduling services, an intake process, integrations into pet health record systems, and you’re also processing payments using a managed PayFac provider (think Stripe, Square or Braintree).
You have 700 customers around the country using your product. Let’s assume each of these customer locations process around $12,000 a month in sales through your software. This means you’re processing just over $100 million in credit card payments annually.
700 x 12,000 x 12 = 100,800,000
For this example, let’s round that off to an even 100 million and say that your average transaction is $50. That comes out to 2 million transactions a year total.
100,000,000 / 50 = 2,000,000
Your managed PayFac provider is charging you 2.9% and $0.30 per transaction, which you pass straight through to your customers without another thought. Once your merchants pay this fee, any profit made on processing the payments skips right by you entirely and into the pockets of your managed PayFac provider.
Keeping all of this in mind, let’s figure out exactly how much additional revenue you could generate with Tilled’s PayFac-as-a-Service.
Monetizing Payments With Tilled’s Payfac-as-a-Service
With Tilled’s competitive revenue shares, a portion of the 2.9% and $0.30 you pass to your merchants goes back into YOUR pockets. Here’s how it works for a $50 transaction:
Step 1: Subtract the Interchange Costs
Tilled operates on a simple pricing model known as Interchange ++ Pricing. Interchange ++ Pricing can be broken down into two main components:
Interchange Fees: These are the direct costs paid to Visa, MC, Amex, etc. These costs are charged to merchants by credit card networks for every credit or debit card transaction. This fee varies depending on several factors such as the type of card (credit, debit, business, etc.), the card’s issuing bank, and the transaction type (in-person, online, etc.).
Card Scheme Fees: These are additional charges set by the card networks. They cover various costs associated with the card schemes’ operations and services.
Interchange Costs can vary, but we can assume that, as the software company, your total costs will be 2.3% and $0.10 of every transaction.
Now for some subtraction! Let’s assume that you pass the standard 2.9% and $0.30 to your merchants. We would then need to subtract the interchange costs of 2.3% and $0.10 from that amount.
2.9% + $0.30
– 2.3% and $0.10
= 0.6% and $0.20 (60 basis points and 20 cents)
After subtracting the Interchange Costs, there’s a leftover of 60 basis points and $0.20 on each transaction (0.6% = 0.006 = 60 basis points).
Step Two: Apply Our Three Simple Fees
At Tilled, we operate on transparency and simplicity, so you’re not going to find any hidden fees with us. We charge just three easy-to-understand fees, and you’ll find a breakdown below detailing how each affects your profit.
1. Interchange + Markup/Discount Rate
What it is: An Interchange + Markup, or Discount Rate, is the percentage that is charged against a sale.
How Tilled does it: At Tilled, our Discount Rate is 7 basis points. In context, on a $50 transaction, your cost would be $0.035 (or 3.5 cents), since the 7 basis points act as the percentage charged against all of the volume on the account.
0.0007 x $50 = 0.035 or $0.035
What it means for you: You started with 60 basis points. After subtracting the Discount Rate of 7 basis points, you’re left with the remaining 53 basis points, which are then split according to your revenue share percentage. Tilled’s revenue share is 75%, so on a $50 transaction, you’d be seeing nearly $0.20 go back in your pocket.
75% of 53 basis points on $50 : 0.75 x 0.0053 x $50 = $0.198
With $0.20 going in your pocket for every transaction processed, and assuming you’re processing 2 million transactions per year, you’ll end up earning nearly $400,000 in additional revenue annually.
$0.2 x 2,000,000 = $400,000
2. Transaction Fee:
What it is: A per-transaction charge that a business must pay each time it processes an electronic payment for a customer transaction.
How Tilled does it: At Tilled, we charge $0.05 per transaction processed through our system.
What it means for you: The remaining $0.15 across 2 million transactions is split between you and Tilled. At the same 75% revenue share, that translates to $250,000 a year going straight into your business’ bank account.
75% of $0.15 on 2M transactions: 0.75 x 0.15 x 2,000,000 = $225,000
3. Monthly SaaS Fee:
What it is: A recurring monthly fee for using Tilled’s platform
How Tilled does it: As a scaling partner, we charge you $2,500 per month. Enterprise partners are charged $10,000 per month but in exchange receive a 90% revenue share. For ease of example, we’ll continue to use our scaling partnership in this explanation.
What it means for you: You can certainly pass a portion of this fee to each of your customers, but if you decide to absorb this fee, it would cost you $30,000 per year.
$2,500 per month X 12 months = $30,000 per year
Step 3: Total Your Profits
Now that we’ve broken down the math behind the fees, it’s time to sum our profits using the rough totals from above:
$400,000/year in/Discount Rate profit
+ $225,000/year in transaction fees profit
–$30,000/year in monthly SaaS charges
= $595,000 a year in revenue.
That’s nearly $50,000 per month in additional recurring revenue straight to your bottom line. Just as a reminder, this example was for a software company with 700 customers processing $100 million/year in payments. And don’t forget this is RECURRING revenue that you generate month after month and will continue to grow with your business.
Tilled Can Help!
A major reason that so many businesses overlook payment processing as a source of added revenue is because it can be a difficult process to understand, usually only discussed in legal fine print. But at Tilled, we make these conversations more accessible and transparent for our partners, helping them not only increase their revenue, but improve their overall understanding of how you can successfully embed and monetize the payments flowing through your platform.
We’ve also simplified the pricing process for your merchants, with pricing templates that can be set up quickly and easily, and reports that monitor costs and create opportunities for optimization. At Tilled, we make it easy to create pricing programs that help you stand out in the market – while still maximizing your revenue.
Hopefully, this breakdown of the math around embedded payment processing will help you understand just how easy it is to increase your revenue through monetizing payments. If you think you may be missing out on a major amount of cash (hint: you probably are), feel free to contact us to discuss more about monetizing your payments.
