Merchant Portfolio Buyer



How Much Is a Merchant Portfolio Worth?

How Much Is a Merchant Portfolio Worth?

Valuation is a critical aspect to be considered when it comes to ISOs and merchants’ portfolios. In some cases, this process has to be carried out manually. Some of these situations include owner retirement, outright business exit, or just for record purposes.

Whatever the case may be, the knowledge of the value of a merchant portfolio is critical. As such, it is important to know the metrics or determinants of a merchant portfolio’s value.

This article extensively highlights the factors that influence a merchant portfolio’s valuation, and how they do so.

What Determines Merchant Portfolio Value?

Multiple factors determine a merchant portfolio’s value. These various factors base their valuation on a common metric —monthly residuals.

Monthly residuals account for the majority of an ISO’s revenue. An ISO’s valuation is determined by multiplying the ISO monthly residuals by a multiplier that varies for each situation. These multiples by which a merchant portfolio’s value is determined can start anywhere from 3 to 6. In some situations, these multiples can go as high as 40X and even higher.

These multiples used in portfolio valuation are not easily derived, nor are they arbitrary or set in stone. This means that, ultimately, buyer and seller bargains might come into play and the portfolio may be purchased at a considerably different price.

The factors that determine the value of a merchant portfolio include:

Monthly Revenue

The monthly revenue that a merchant portfolio generates is the primary driver of its value. This is only because potential buyers —other ISOs or private investors— would regard merchant portfolios that bring in more monthly revenue as particularly valuable.

In other words, the higher the monthly revenue a merchant portfolio brings in, the more it’s worth.

Potential buyers tend to attribute a portfolio with a high monthly revenue to several years of hard work by reputable ISOs. This is why such portfolios are considered safer investments by buyers.

This is not an alien concept. A portfolio bringing in tens or even hundreds of thousands in monthly revenue would generally be considered a better investment compared to a portfolio raking in only four figures monthly.

As the monthly revenue of a portfolio increases, the multiplier used in calculating the portfolio’s value increases alongside it. For example, a portfolio that generates $50,000 in monthly revenue will use a multiplier from around 35x to 50x to calculate its value. A portfolio that generates $3000 in monthly residuals can hardly have a multiplier as high as this.

Residual Portfolio Size

Another important factor that drives the value of a merchant portfolio is its residual size, meaning the number of merchants in a portfolio.

To a certain degree, a portfolio with the majority of its overall revenue generated by just two or three merchants is considered riskier than a portfolio that has a larger number of merchants contributing to its overall revenues.

Investors or buyers worry that during situations of unfavorable rates of attrition, some merchants might want to jump ship. With a portfolio that has fewer merchants contributing to its overall revenue, one or two merchants leaving could translate into a major loss.

When monthly residuals are spread out across a healthy number of merchants —ideally, hundreds— a considerable drop in the portfolio’s revenue will only happen when a good number of these merchants decide to leave at once. This is usually unlikely.

Rate of Attrition

An ISO’s rate of attrition is usually calculated on an annual basis. This metric represents the number of accounts that leave an ISO’s portfolio.

Various factors may cause an account to leave an ISO’s portfolio. Jumping ship to a competitor’s payment processor and a halt in operations are common reasons why this can happen. Whatever the case may be, a high rate of attrition is bad for business and can be a red flag for buyers or investors.

A merchant portfolio with overall monthly residuals of $40,000 contributed by 200 merchants can easily be valued at $1,200,000. However, the portfolio’s valuation can be significantly reduced when this portfolio is discovered to have had a monthly residual of $50,000 in the previous year.

This 25% decline can be perceived as an inherent risk that, thereby, influences the valuation of an ISO’s portfolio.

Merchant Activity

Merchant activity is measured by the consistency of merchants’ sales. As explained earlier, ISO valuations are calculated using the value of its monthly revenue. In a business year, certain businesses may have periods where they don’t operate. This is not uncommon as there are seasonal businesses like pool installers or golf courses— which would also contribute to an ISO’s portfolio.

The only downside to having these types of merchants included in an ISO’s portfolio is the fact that these merchants are not taken into consideration when a portfolio’s value is calculated. This is irrespective of how much contribution these merchants make to the ISO’s portfolio.

During an ISO’s valuation process, inactive or seasonal businesses are excluded or may be heavily discounted while only active merchants are taken into consideration. Active merchants are simply ones that operate all year round. This includes businesses that have little sales during a certain period in the year such as costume stores. Hence, consistency is considered during the merchant portfolio valuation process, and this can increase the multiplier used to determine a portfolio’s value.


The bulk of a merchant portfolio’s value is dependent on the multiplier used in calculating its value. The factors highlighted in this article are important in determining how much an ISO’s portfolio is ultimately valued. Building on these factors an ISO’s portfolio can significantly increase in valuation. Merchant portfolio owners can also utilize these metrics to determine how much their merchant portfolio is worth.