Many software providers choose Stripe or Braintree as their first integrated payments provider. And it makes sense as these solutions are incredibly easy to implement. As software businesses scale, they begin to realize that they need to monetize the payments flowing through their system and start participating in the payments revenue stream. With the opaque flat rate pricing models employed by Stripe and Braintree, it can often be difficult for software companies to really understand how much money they are leaving on the table. Not so with PayFac-as-a-Service.
We wrote this article to help break down exactly how much money a B2B software provider could generate by properly monetizing the payments flowing through their software system with PayFac-as-a-Service.
If you want a quick refresher on some of the terminology we are going to dive into, please check out our PayFac as a Service glossary.
With Tilled’s innovative PayFac-as-a-Service solution you could easily add $500,000 a year of pure margin into your business. Here’s how.
Let’s imagine for a moment that you’re a B2B software company developing solutions for dental offices, and you have 700 customers around the country using your product. Your software provides scheduling services, an intake process, integrations into health record systems, and you’re also processing payments using a managed PayFac provider like Stripe, Square or Braintree. They charge you 2.9 percent and 30 cents per transaction, which you pass straight through to your customers without another thought.
If each of your 700 customer locations processes just $12,000 a month in sales through your software, in a year you are processing just over $100 million in credit card payments. For the sake of this example, we’ll round it off to an even $100 million and go from there. If your average transaction is $50, that’s two million transactions per year.
$3.5M to Stripe or Braintree?!
If you’re currently using Stripe, Square or Braintree, that means you’re sending them $3.5 million a year for their processing services! The question is where does that $3.5M go and how much is Stripe or Braintree currently making in profit? Shouldn’t some of that revenue be going into your pocket?
With PayFac-as-a-Service, first we subtract the Interchange costs, which are the direct costs paid to Visa, MC, Amex, etc. Because Tilled operates on Interchange Plus pricing, this will vary from card to card, but it’s safe to assume on average that 2.3 percent and 10 cents of each transaction will pass straight through to the major card companies and banks.
That leaves us then with 60 basis points (one-hundredth of a percent) and 20 cents on each transaction. With a $50 average ticket, that means that there is still one percent unaccounted for!
Settlement Fee/Discount Rate
At Tilled, our cost is seven basis points for our Settlement Fee, also known as a Discount Rate, Or, in context, on a $50 transaction, our cost is 3.5 pennies. That means that the remaining 53 basis points are split according to your revenue share percentage. Assuming Tilled’s standard 66 percent revenue share, that equals $350,000/Year for you in profit.
Transaction Fee
At Tilled, our cost is five cents per transaction on each transaction processed through our system. That means the remaining 15 cents across two million transactions is split between you and Tilled. At the same 66 percent revenue share that translates to an extra $200,000 a year going straight into your business’ bank account.
See how this is all starting to add up?
There’s one final cost to consider, and that’s the monthly merchant fee costs. According to Tilled’s Schedule A, each merchant you add to your platform costs $6 per month. If you decided as a service to your customers not to pass through that cost, it would cost you $50,000 per year (Although you could always charge more than $6/merchant/month and generate additional revenue).
All together now — the $350,000 a year in discount rate profit, plus the $200,000 a year in transaction fees, minus the $6 per merchant monthly charges, equals $500,000 a year in revenue for a software company with 700 customers processing $100 million a year in payments. Keep in mind this is recurring revenue that you generate month after month and will continue to grow with your business.
And that’s how you add half a million dollars a year in revenue to your business with PayFac-as-a-Service!
While we realize this is a single-use case, and that every business is different, we encourage you to run the numbers yourself using our online revenue calculator tool on the pricing page of our website or by reaching out to our experienced team of payments experts. They’ll be happy to run the numbers for you, and also explain how we can get you set up with Tilled in a matter of days and start adding revenue to your business without any upfront costs or hassle.
PayFac-as-a-Service allows any software company to generate more revenue with substantially less effort and involvement on their part, giving them the opportunity to take advantage of the same margins and revenue shares that larger, enterprise companies have been doing for years. With developer friendly APIs and SDKs that can be implemented in a matter of days, PayFac-as-a-Service is the best solution on the market today for software companies of any scale looking to integrate payments into their product offering.
As your company grows, the choices you make surrounding Payments will become more and more important to the long term success of your business. For companies interested in finding a partner that can help grow your business and create additional revenue opportunities while also limiting liabilities and distractions away from your core mission, it’s time for Tilled.
