As I work with companies in various industries with various annual volumes one thing is clear: It is difficult as a business owner to know if your rates are “too” high. In this article, I am going to give you a quick, intuitive way to figure out whether your rates are too high. We will walk through this in sequence so that we keep it as simple as possible.
1. Determine your Net Effective Rate – This is simply the whole cost of processing your cards each month. It includes monthly fees, processing fees, surcharges, PCI compliance fees, and any others. Here is the best way to do this:
- Take the number at the end of your statement that shows the total of all the fees charged and divide it by the total dollar volume of the transactions that you took for the month. If you get a separate AMEX or Discover Statement, take that out of the volume you use to divide the fees by.
- Example would be: my statement typically says on the last page “total fees” or “amount debited from account” and the amount this month is $400.00. I look at the total volume under the deposit summary or transaction summary and see that I did about $15,500 for the month in Visa, MC, and Discover transactions.
- I take the $400 in fees and divide it by the total volume of $15,500.00 which looks like this:
- $400 / $15,500 = .0258 In order to make this look like the percentages I am used to, I need to multiply this number by 100 which gives me 2.58 or 2.58%
- Typically your net effective rate should be between 2.0% and 4.0% If your net effective rate is lower than 2.0% there is a chance that you are not seeing all of the fees that are being charged to you each month. If your net effective rate is higher than 4.0%, chances are there could be an opportunity to look at how you are being charged or how to improve the way your solution is being put together.
- *Please Note* This method is not meant to give you all the information you need, it is meant to be a quick way for you to determine if it might make sense for you to talk to someone about your rates. Regardless of who you talk to, it is best if you choose someone that you can depend on as a trusted advisor. If you need help in finding a trusted advisor to speak with, see my previous post on How to Find a Trusted Advisor.
2. Check to see if there are any extra fees that don’t match your current solution – Especially if you have had your solution for many years, it is good to keep an eye on extra fees that you might not even need to be charged any more. Here are some common fees that you might be able to reduce or avoid:
- Many providers give you the ability to download a copy of your statement each month rather than having it mailed to you. Can you opt for using the website instead of a hard copy statement and reduce your monthly bill by $5 or $10 a month?
- Are you being charged a monthly “PCI Non-validation fee” of $20 dollars or more? All providers either do or will be including annual or monthly PCI fees. However, if you don’t go through the compliance procedure, it has the potential to cost you even more in non-validation fees. Going through the process to ensure that your transaction environment is secure can potentially save you from being charged those extra fees. If you are seeing non-validation fees on your statement, call your processor to ask about what needs to be done to avoid those in the future. For a basic understanding of what PCI Compliance is, see my previous post regarding PCI Compliance.
- Are you being charged for a service or equipment that you no longer own or use to process your transactions? Make sure that all of the fees that you are being charged each month are connected to something you should be charged for. If you aren’t sure, call your current processor to ask them about the fees and if they can be reduced or eliminated.
More than anything it is important to find a credit card processor that is going to help you establish what your best rates might be and how to put them in place. Low rates are important, but it truly doesn’t matter if your solution isn’t structured to make sure you are qualifying your transactions at that low rate.
Remember, this is only a starting point to help you decide whether you should be spending some extra time looking at your solution more closely. If you need to, find a trusted advisor to help you analyze your statement more closely and what options are available, then make a decision on your own.
Thank you for reading, I hope that this information is helpful to you and your business.
Ben Wallace
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