A property management platform with 900 customers can watch $400 million move through its own screens every year and earn nothing on any of it. The invoices are generated in the product, and the tenant pays somewhere else. The provider that settles the money keeps the fee, and the platform that created the transaction is left with a $79 monthly subscription and a support ticket when the deposit does not arrive. Closing that gap starts with pricing decisions.
Two Ways to Get Paid
The first model is a revenue share. The provider owns the merchant pricing and the merchant agreement, collects the fees, and pays the platform an agreed percentage of what it earns. Setup is short, and the accounting is simple. The platform has little say over what its customers are charged.
The second model gives the platform a wholesale price, called a buy rate, and lets it set the number its customers actually see. The difference between the two is the platform’s revenue. Revenue is higher under this model, and so is the operational load behind it. Somebody has to approve pricing exceptions for a customer threatening to leave, reconcile the statement each month, and explain a line item to an angry gym owner on a Friday afternoon. Platforms that pick this model without staffing it end up discounting by accident.
Flat, Blended, and Cost-Plus Pricing
Under a blended structure, the customer pays one rate on everything, say 2.9% and $0.30. It quotes easily, and it hides the variation underneath. Card costs are not uniform, so a customer whose sales drift toward rewards and corporate cards costs the platform more each month while paying exactly the same price.
Cost-plus works the other way. The network cost is passed through at whatever it actually was, and the platform adds a fixed markup on top. Margin per transaction stays where it was designed to be, and the customer sees the underlying cost move around. Larger merchants usually prefer this and ask for it by name. Smaller ones often prefer a single number they can predict, even when the single number costs them more across a year.
Benchmarks for the Sell Rate
Start from what the customer already pays today. Effective rate is total fees divided by total volume. Compare offers on that number, since headline rates leave out assessments, and a customer quoted 2.6% who actually pays 3.1% has room to be helped and a reason to switch.
Ticket size decides how much the fixed portion matters. At an average sale of $8, a $0.30 per-item fee is 3.75% on its own, which is why coffee shops and parking operators care more about that number than the percentage. At an average sale of $2,400, the fixed fee barely counts, and every basis point on the percentage is real money. Providers of embedded payments for SaaS platforms generally publish two or three tiers rather than a single rate, because one price across a customer base with different ticket sizes leaves margin on some accounts and loses deals on others.
Price with the customer’s own pressures in view. Many of the businesses being quoted cannot raise prices on their end without losing volume, so a rate a quarter point above what they pay today needs a reason attached, such as faster funding or one less system to reconcile at month end.
Sources of Margin Leakage
Designed margin and realized margin are different numbers. The gap comes from a few predictable places.
Transactions that miss data requirements settle at worse cost categories than the ones used in the model. Keyed sales, late batches, and missing address data all do this quietly, and the platform absorbs the cost when pricing is blended. Refunds are a second source, since the original fee is usually gone even when the sale is reversed. Disputes cost a fixed fee each, win or lose.
Cross-border sales and corporate cards cost more to accept than a domestic consumer sale, and a customer base that skews toward either one will run below the modeled margin from the first month.
The largest customers are the final cause and usually the biggest. A platform selling to businesses in an affordability crunch of their own will meet owners who track every recurring cost in a spreadsheet, and the ones processing the most volume are the ones who negotiate hardest. When the top 10 accounts make up half the volume, a concession to any one of them moves the whole revenue line. Publish an exception policy with floors in it, or the sales team will invent one.
Forecasting the Revenue Line
The forecast has three inputs and only three. Eligible volume is what customers currently process outside the product. Adoption is the share of them expected to move it inside. Realized spread is the average revenue kept per dollar after leakage, which is generally below the number in the pricing model.
Two details break most first-year forecasts. Migration is slower than the plan says, since a business changing how it gets paid has to update bank records, recurring billing, and its own bookkeeping. The second detail is timing. A seasonal business does most of its volume in a few months, so a platform selling to landscapers or tax preparers will book a revenue curve that looks nothing like its subscription curve. Model the calendar the customers actually operate on.
Track realized spread monthly once volume starts moving, at the account level rather than in aggregate. Aggregate figures hide the accounts that drifted to worse cost categories and the ones that quietly received an exception. A platform that reviews this quarterly will find out about a 15-basis-point decline two quarters after it began.
The Revenue at Stake
The figure that settles the question is the volume customers already process, multiplied by the spread the platform expects to keep and discounted for adoption. At $100 million of annual volume and 30 basis points kept, the payments line is worth $300,000 a year. At 60 basis points it is $600,000, which for many platforms exceeds the subscription base it would sit alongside. A platform that cannot get its own estimate past $150,000 has an answer about which model to pick, and so does one that clears $2 million.
David Prior
David Prior is the editor of Today News, responsible for the overall editorial strategy. He is an NCTJ-qualified journalist with over 20 years’ experience, and is also editor of the award-winning hyperlocal news title Altrincham Today. His LinkedIn profile is here.
