In Brief: While integrating payments capabilities in your software platform can create incremental revenue, often that revenue does not reach its full potential. At a time where many SaaS providers are turning to price increases to bolster the bottom line, maximizing integrated payments revenue makes smart business sense. Below we will take a closer look at some of the reasons contributing to lackluster payment income and five ways you can maximize that revenue source.
How Do I Increase Payment Revenue in My Software?
A question I frequently hear from SaaS providers is “how can I make more money?” Certainly a software price increase is a common SaaS pricing strategy. Acquiring more customers is another. And maximizing revenue share from integrated payments is a third method and one I’d like to explore in this article. It’s also one whose path is often a little less clear.
Regardless of your payment partner(s), your path to payment monetization always starts with the Schedule A. This is the document that outlines the terms, inclusions, and exclusions from the revenue share agreement.
Unfortunately, the payments industry doesn’t have a sterling reputation for its transparency on fees and revenue share agreements. Many times, the numbers can be misleading and positioned in a way that make them seem better than what they actually are. For example – You are promised x percent revenue share. The question is “x percent of what?” Often, the denominator is unclear. Sometimes processors have fees that are not indicated in the Schedule A. As a result, SaaS customers are paying those fees, but the SaaS is excluded from a share of that revenue.
This leads us to our first tip for maximizing your payment revenue:
#1. Negotiate your Schedule A
Determine which elements and fees are sharable. Protect your software customers by adding terms that restrict non-commissionable added fees. And protect yourself by making sure the overall percentage of revenue shared is crystal clear.
Then, make sure you monitor your revenue share reports and funds received. They can be confusing so ask to see the math if there is anything that doesn’t make sense or comes in below your expectations.
#2. Consolidate your Payment Partners
The prevailing mindset used to be that it’s best to give customers their choice of payment providers. This led to a couple of issues pretty quickly: 1) a growing expense to support multiple payment integrations and 2) an inconsistent payment experience for customers in terms of payment processing fees and timely access customer support.
A multi-provider integrated payments environment has also resulted in fragmented revenue share for SaaS providers. Not all payment processors offer the same Schedule A terms. Some do not offer revenue share at all. Routing your software payment transactions to various payment processors splits your revenue share potential. Rarely does this work in the favor of the SaaS. To maximize your income from payments, I recommend having a preferred provider to process most or all of your transactions. This makes tracking your revenue payouts much simpler as well.
#3. White Label Payments Program
Migrating to a white label payments program gives you more control over your customers’ payment experience – from program branding to pricing to sales to tier one customer support. Because you assume a greater role in your payments program, you will earn a greater revenue share from your payment partner.
One caution though, more control over your customers’ payment experience also means more responsibility. Here are a few pros and cons of transitioning to a white label model:
- Pro: You set the pricing for your customers, meaning you have the opportunity to make more money from payments
- Pro: You have the ability to deliver a customer experience consistent with your company’s standards
- Pro: Easier customer attachment as you have already built customer trust
- Potential Con: Payment expertise and a support infrastructure will be necessary. If you are new to payments or do not have internal expertise, your program will be difficult to manage. In these instances, it’s important to partner with a payment provider that will put you on a migration path to building your expertise and internal support structure.
#4. Use a Pricing Strategy to Deter Non-Integrated Payments
Not all your customers will sign on for your payments feature. To encourage integrated payments, consider a dual pricing strategy to motivate your customers to process their payments through your software. Simply stated, customers who sign on to use your integrated payments feature pay less for your software than those who process outside of your platform.
#5. Implement Feature Differentiation for Payments Customers
Bundling specific software features in a purchase or subscription tier that includes payments provides a strong motivation for your customers to use your payment integration. If they want features x and y, they must use your payments program to get them.
Also, consider offering unique payment features that enhance your program and differentiate it from your competitors. Examples of added value features include:
- Advanced fraud prevention tools: In today’s world, offering cutting edge fraud protection is a strong motivator for customers.
- Automated Card Updater: Automatically update expiration dates and reissued card numbers to ensure your customers’ subscription or other recurring payments are uninterrupted.
- Level 2 and 3 Processing: Pass along all of the proper level 2 and 3 data so your customers will qualify for lower interchange rates from the credit card companies.
Implementing some or all of these SaaS monetization initiatives can help you increase your payments-related revenue in your software. But I encourage you to think bigger than a payment monetization strategy. Consider the impact your customers’ payment experience has on your ability to retain them and grow them. A poor experience leads to attrition. And attrition cuts into your company’s revenue and profitability.
Your payment partner must not only offer you a revenue share, but consistently deliver these important payment experiences:
- Competitive pricing – that remains competitive.
- Timely customer service so your customers don’t need to wait for an email response or a call back to get their issues resolved.
- Ample technology – payment channels and methods that meet the needs of your customers.
- Heightened security including assistance with PCI compliance.
To learn more, check out the “5 Ways to Monetize Integrated Payments” webinar, available through our Webinars on Demand. It dives deeper into how to best increase payment revenue in your software.
