Credit card processing fees can eat away at your bottom line. Fortunately, many of these fees are negotiable. First, review your last few monthly statements to determine your baseline costs and how much you pay in transaction processing fees.
You also need to know what other recurring fees you’re paying, such as monthly payment gateway and PCI compliance fees.
Know What You’re Paying
Among the many concerns that plague busy small business owners, credit card processing fees take a significant bite out of their bottom line. However, despite their seemingly intractable nature, these fees are negotiable and can be significantly reduced with some know-how and the right negotiation skills. Educating yourself on how credit card fees are calculated, how they differ by provider, and what’s negotiable will help you prepare to negotiate with the best of them.
To start, audit your last few merchant processing statements to get an idea of what you are paying in transaction rates, per-transaction fees, monthly fees, authorization costs, and any other hidden charges on your statement. Then, calculate your effective rate by dividing the total transaction fees charged by the total sales volume:
A transparent pay picture will make it easier to ask your current processor for lower rates. Most will tell you at first that they can’t go any lower, but keep pressing. After all, they don’t want to lose your business. Keep asking until you’ve achieved a deal that works for you.
Know What You’re Negotiating
If you will negotiate rates and fees with your processor, knowing what you’re negotiating is crucial. Review your quotes with a fine-tooth comb and understand each fee and feature before you head to the negotiating table. You’ll need to be able to compare and contrast each quote to make the best decision.
Aside from the non-negotiable interchange and assessments imposed at the card network level, most fees are negotiable. The key is to focus on reducing transaction fees. These fees can add up to a significant amount over a year.
While fractions of a percent may seem like no big deal on the surface of a contract, they can add up quickly for merchants with higher transaction volumes. This is why reducing your transaction fees when negotiating with your payment processor to lowering credit card processing fees is essential. By building market knowledge and having the proper negotiation guts, you can keep more of your business’s hard-earned dollars in your pocket.
Know Your Limits
Fractions of a percent might not seem like much on a contract, but they add up fast and can significantly impact your business’s bottom line. That’s why finding the best processing rates is essential, and that process starts with understanding the negotiating tactics that work and the rates that are realistic for your business.
The first step is auditing your current statements to understand precisely what you’re paying. Look at your discount rate, per transaction fee, authorization fees, and monthly fees to get a clear picture of what you’re paying for processing.
After evaluating your statements, you can start negotiating your fees. It’s important to remember that the first component of your credit card processing fees is fixed, but markup is negotiable. It’s essential to focus on negotiating your effective rate, which is the percentage of your processing volume you pay in fees. This includes the fixed costs of the card-issuing banks and the assessments the brands charge. It also does not include the interchange fees, which are negotiated separately.
Know Your Processor’s Limits
When negotiating with credit card processors, remember that their profit margins depend on the rate they charge for your business. That means you have the power to lower rates and fees. Many companies will tell you from the start that they can’t go any lower, but don’t let them discourage you. Instead, call several companies and ask them to match or lower rates from your current provider.
A great way to determine whether there’s room for negotiation is to look at your processing statements and understand the fees associated with accepting debit and credit cards. Most transparent providers will happily explain these costs and help you save money.
Another important factor is your processing volume. Some processors offer tier-based pricing structures that reward you with better rates as your processing volumes grow. If you’re shy about hitting the next tier, consider encouraging customers to pay with debit or credit cards to earn those lower rates. This will also give you leverage during negotiations because you can point out that you’re not at the cheapest tier.
Credit card processing fees significantly drag most brick-and-mortar retailers and eCommerce merchants’ bottom lines. Fortunately, with the right balance of industry knowledge and negotiation guts, you can keep those rates as low as possible and keep more of your hard-earned profits in your business.
The first step toward negotiating competitive rates is understanding what’s negotiable and fixed. As discussed in other articles, your total cost comprises three components: interchange fees, assessments, and markups. You’ll be able to negotiate on the markup portion of your processing expenses, which makes up about 12% -20 % of your overall cost. So, start by focusing on pricing and then move on to rates and fees once you’ve secured a pass-through markup.