Why Revenue Share Models Fall Short – Embrace Profit Sharing for True Partnership
In the evolving payments industry, partnerships between Payment Processors and Point of Sale (POS) Providers are crucial for delivering seamless, competitive services to merchants. Traditionally, many of these partnerships have relied on revenue share models—but there’s a growing recognition that these models are often riddled with hidden pitfalls.
Here’s why revenue sharing falls short and why profit sharing offers a far more transparent, aligned, and sustainable solution.
The Problem with Revenue Share Models
Revenue share agreements may sound simple: splitting the revenue generated from merchant fees between the Payment Processor and the POS Provider. However, what looks fair on the surface often turns murky. Here are four major issues with the revenue share model:
- Inconsistent Reporting
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- The rules for calculating shared revenue are not always standardized or clearly defined. Each partner might apply different formulas or exclusions, leading to confusion and disputes over what is owed.
- Misaligned Incentives
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- Revenue share models prioritize top-line revenue without considering costs. This structure can push partners to raise prices to merchants, risking customer churn while inflating short-term income rather than driving sustainable, long-term growth.
- Hidden Costs and Expenses
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- Revenue-sharing contracts may not fully disclose operational costs. One side might absorb or manipulate hidden costs, causing an imbalance in profitability. Without a clear understanding of how profits relate to expenses, each partner may pull in different directions.
- Risk of Manipulation, “90% of nothing is nothing”
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- It’s easy for bad actors to exploit Point of Sale partner hopes by providing a large revenue share percentage that basically returns nothing in real dollars. These issues not only damage trust but can also lead to contentious relationships and lost opportunities.
Profit Share: A Smarter Approach to Partnerships
Instead of splitting revenue, profit sharing focuses on dividing net profit—what’s left after all expenses have been accounted for. This subtle shift creates a transparent and aligned partnership model.
Here’s how:
- Aligns Costs with Profits
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- Profit-sharing encourages both partners to keep operational costs under control, as every dollar saved directly impacts the bottom line. Both the Payment Processor and POS Provider are motivated to work efficiently and share the responsibility of cost management.
- Competitive Pricing Incentivizes
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- Rather than just maximizing revenue through higher fees, profit sharing encourages competitive, sustainable pricing. The focus shifts to providing more value for merchants, ensuring long-term retention and growth.
- Transparent Reporting Builds Trust
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- With profit sharing, reporting becomes clearer—both sides have a mutual interest in understanding and verifying costs. This transparency fosters trust and stronger collaboration, setting the foundation for a healthy business relationship.
- Maximizes Profit for All Parties
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- By aligning both partners’ interests, a profit-sharing model ensures that everyone benefits when the partnership succeeds. The result is shared success and lasting growth, rather than short-term revenue spikes that may jeopardize merchant relationships.
Conclusion: Let’s Build a Better Partnership Together
While revenue share models have been the norm, their limitations and risks are becoming increasingly clear. Profit sharing offers a more transparent, aligned, and collaborative way to grow together focusing on net profit, efficient operations, and customer value.
If you’re ready to embrace a partnership that puts sustainable success first, let’s talk about how a profit share model can work for you.
Click here to discuss in more detail
Matt Ozvat
President / CEO of Humble Payments, Inc.