The Value of a Good Affiliate Contract (Or “Unexpected Holiday Bonus”)

As part of our ThunderTix service, we help our clients set up merchant accounts for accepting credit card payments. These accounts pay a small monthly residual above and beyond our service price, and I remember being pretty stoked when payments reached a couple of hundred bucks a month. Of course over time and as we’ve grown our client base, those residuals have added up to a real chunk of monthly change.

The accounts take place through a partner program with an ISO or Independent Sales Organization, and we are an agent processing merchant accounts on their behalf. We divide profits generated by the portfolio of accounts on a percentage basis.

Two years ago and in a fit of anger, the guy that owned the ISO informed me he was ending our relationship and our residuals would end effective immediately. I marched right over to my attorney, and it was music to my ears when he told me the ISO was now in breach of contract, and the threat of a lawsuit would almost certainly turn things around in my favor. It did.

Not only was my account reinstated and residuals paid on time, but my attorney took the opportunity to write an addendum to our original contract providing us greater protections. Had I recognized the potential growth of that portion of our business, I would have hammered out a better agreement in the first place, but like many small businesses endeavoring into new and uncertain areas, I simply didn’t understand the importance of the contract.

Several weeks ago I was informed that my portfolio was sold thus ending the ISO’s obligation to pay residuals. Instead, he was offering one year of residuals as part of a buyout of the portfolio if I refrained from moving my accounts to a new ISO. The addendum saved my butt, as the original contract would have allowed him to take all accounts with zero compensation to us, and prevented us from moving to a new ISO.

The value of a portfolio is based on earnings, attrition rate, and future growth, and in every category our performance is excellent. I felt our portfolio value was higher and refused the offer.

The value of great customer service and client relationships shines in situations like this. I know–and I believe he knows–that our clients would follow us. We can offer our clients incentives such as ThunderTix service price reductions or free upgrades, and even pay cancellation fees to the ISO should it be necessary. Instead of reaping the windfall he sought, he could find himself with a fraction of his previous residuals.

And wouldn’t you know his buyout offer began inching up. First by 12%. Then another 12%. Five iterations later, we settled on an amount I’m ecstatic about. In addition to the cash infusion, we now have the opportunity to reevaluate ISO relationships. For the time being, I’m just thrilled to be headed to the bank.