Content Provided By:Payex

Browse Categories

Recent Posts

How Much Is The Sandwich Already?

August 11th, 2011



We get calls every day from both new business owners needing to establish credit card processing and seasoned veterans who are disenchanted with their current processors. What they both have in common is they are usually looking for the “BEST DEAL”. And to most shoppers, the “best deal” invariably means “lowest rate.”

The approach of these merchants is very understandable. First, this is how most merchant service providers attract customers and promote their services: “Guaranteed lowest rates”, “Rates as low as…,” etc. Second, merchants want to feel comfortable that their money is going in the bank in a secure and timely manner and at a fair price. But settling on what looks like the lowest rate without considering the overall structure of your pricing is only seeing part of the picture or uh… sandwich. I will explain.

Focusing only on the lowest rate is a little like going from deli to deli at lunchtime and asking how much they charge for turkey (or pastrami, or tuna, or whatever you like. It’s a turkey kind of day for me). Once you’ve found the guaranteed lowest price for turkey, you order a sandwich from the winning deli. The sandwich maker behind the counter goes to work building your lunch and every item has a price. She adds the lettuce charge, tomato tax, pickles price, onions fee, green pepper surcharge (don’t like green peppers? Too bad. You’re going to pay for them anyway), cheese charge, bread fee, a service charge for cutting the sandwich in half, the wrapping fee, the bag and napkin fees, and the smile surcharge. Now your lunch with the well-priced turkey doesn’t look like such a good deal anymore. By the way, they charge for mayonnaise too, but it’s called the condiment deployment fee and there will also be $149 annual charge for the privilege of continuing to buy sandwiches for the coming year. And if you decide to buy a sandwich from another deli there will be a $500 sandwich cancellation fee.

Of course every deli and every processor has a cost of doing business and we are in business to make a profit just like you are. Unfortunately, there is no such thing as free credit card processing. Just like there is no such thing as a free credit card terminal (but we will talk about that another time). The point is to understand ALL facets of your pricing before signing your money away. Ask what the REAL cost of processing is once ALL necessary fees are considered. We call this your “effective rate”- the real, bottom line cost of processing.

If you are already processing credit cards, divide your TOTAL fees by your total sales volume. This is your real cost of processing, not what your statement lists as your “qualified” or “Tier 1” rate. If you have a new business and haven’t processed transactions yet, it will take a little conjecture to arrive at your effective rate, but you will be able to get a pretty close idea so as to include that cost in your business planning and budget.

So the next time you are shopping for the “best price”, get a clear understanding of what you are really paying first and ask for an analysis of what the proposed EFFECTIVE RATE will be. That way you are comparing real cost to real cost. But alas, there is more to this story than just price and we will talk about that another time, too.


Rob Maccabee

SVP of Business Development, Payex


Entry Filed under: Advice

Leave a Comment


Required, hidden

Trackback this post  |  Subscribe to the comments via RSS Feed