The most common reason business owners give for not accepting credit cards is because of a scary word known as “fees.” There is no doubt that if you are not careful, you will pay more in processing fees than someone who is. How much more? That depends on a couple of factors, and the difference between a good rate and bad rate is usually no more than 2%. We could get into the nitty-gritty of fee types (I may in future posts) but I calculate what I call the “average cost” because it's easier and gives a better overall picture.
The average cost looks at all the fees that are included in your merchant service fees and combines them together to look at the average cost percentage. It's important to look at merchant account rates as an average cost because every company structures their fees in different ways. Some charge high monthly fees and some don't, some charge different rates for different types of transactions and some don't, and it goes on like this forever. This can can make comparing merchant account providers very difficult.
Calculating the average makes things easier.
So, how do you calculate the average? Generally, it's only possible if you are already accepting credit cards. Take three of your most recent statements and add together your total credit card sales and then add up the total fees you paid. Finally, divide the total fees paid by the total sales and multiply the total by 100. The final number is your average cost of accepting credit cards for your credit card sales. (Example: $350 in fees divided by $10,000 in credit card sales multiplied by 100 equals an average rate of 3.5% or, $350 / 10000 x 100 = 3.5%).
Keep in mind that the percentage we just calculated is only the cost of accepting credit cards for the credit card sales, not the cost of accepting credit cards for the overall sales. To get a better picture of the actual cost, calculate your overall sales, including cash and checks, then divide the total by your merchant account fees. Obviously the average cost will drop significantly for most businesses.
Why is it important to look at it this way? If a business does an equal amount of cash and credit card sales, most estimates say that a business would lose half of the credit card sales it had made had it not accepted credit cards. This is because the only other option for the customers would have been cash and most people don't carry much cash nowadays. Not taking credit cards actually costs much more than accepting them. When a business does most (or all) of its sales through credit cards, the average rate becomes much more important. A difference of 2% can add up to be a pretty substantial number.
You might be surprised to find out that your average rate is much higher than the rate your agent quoted. If this is the case, it's because your agent only quoted the “qualified” rate and conveniently forgot to mention the “mid-qualified” and “non-qualified” rate tiers that are much higher. He also probably forgot to tell you that 50%-75% of all your transactions will be charged in those tiers.
Businesses are charged at the higher “mid-qualified” tier whenever they run a card with rewards, like miles or points. If they run a business, corporate, or foreign card then they're charged at the even higher “non-qualified” tier. The only way to avoid these other tiers is to get “interchange-plus” rate pricing which on average has a cost of 1.5% – 2.5%, depending on the type of business.
About The Author
In the late 2000s, as a broke college student struggling to make ends meet, I was contacted by a merchant services company after uploading my resume to a job listings website. This company promised substantial commissions and ongoing residual income for simply persuading businesses to accept credit card payments. It seemed straightforward enough—after all, what business doesn’t need to process credit card payments? Following a phone interview with a persuasive “sales director,” I found myself embarking on what I believed would be an easy job that would significantly boost my bank account with reliable monthly income and large sales commissions. However, the lessons I learned would profoundly change my life in ways I could never have imagined.
After completing my sales training, I hit the ground running, eager to make sales. This broke college student was determined to improve his financial situation! My first attempt at a cold call, with no prior appointment, ended with a burly man in his 50s yelling at me to leave, claiming he had been “totally robbed” by someone like me before. As I hastily exited, puzzled and intimidated by his reaction, I couldn’t help but wonder what he meant. Throughout the day, I encountered similar hostility from other business owners, all expressing disdain for the industry I had been so excited to join that morning. Confused and curious, I decided to shift my approach from selling to listening.
I quickly uncovered that the merchant services sector was riddled with unethical practices, including hidden fees, deceptive marketing, fine-print traps, and much more. It dawned on me that I had nearly been tricked by a dubious company into selling overpriced services under contracts with long-term commitments, all without being fully aware of what I was promoting. Outraged, I resigned from that company but learned that there were indeed ethical credit card processing companies that treated their clients fairly. Over the next four years, I worked for one such company, assisting hundreds of businesses in securing cost-effective processing solutions. Yet, I also met many more who had been misled and trapped in onerous service agreements. Determined to help people steer clear of these unscrupulous providers, I launched this website in my spare time, dedicating myself to researching and sharing my findings on every merchant account provider I could investigate.
Gradually, more and more business owners began to discover my articles. As word spread, search engines started to rank my content highly, amplifying its reach. My efforts were making a difference! Eventually, the website garnered enough traffic to enable me to leave my job and focus on it full-time, a journey that has now spanned over a decade. This path has not been without its challenges; unscrupulous company owners have tried to intimidate and sue me into silence on several occasions. Yet, I have stood firm against each threat. Here I am, continuing to publish reviews and articles, hoping to safeguard others from the pitfalls of the credit card processing industry.
If you believe in my mission and wish to contribute, please share my articles on your websites and social media. Thank you for visiting!
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