While swipe fees might seem small, they add up quickly. Combine them with other processing costs, such as card brand assessments and monthly gateway or PCI non-compliance fees, and the total cost skyrockets. Understanding which credit card processing costs are negotiable is critical to negotiating competitive rates. Start by determining your effective rate, the sum of all fees paid for every dollar of processed volume.
Negotiate a Favorable Pricing Model
Many business owners need to realize that credit card processing fees are negotiable. While the credit card networks set the interchange and assessment fees, it’s possible to negotiate markup and other service fees with your processor. First, educate yourself about the different rates and costs involved. This will help you determine which are negotiable and which you should ignore.
For example, some processing companies use flat-rate models with a combination of interchange fees and other assessments. These models are often inflated and leave little room for negotiation since the prices can’t be broken down. Instead, look for a model that separates the interchange fee from the markup to compare quotes and find a competitive rate easily.
Tiered pricing models are also an option, but beware that they can hide transaction costs. This model is usually based on qualified, mid-qualified, and non-qualified rates. This makes it difficult to determine the exact cost per transaction, which may lead you to overpay for services.
Reduce High-Value Transactions
Many businesses are generating lots of revenue and paying their bills but still not getting much profit. These businesses often don’t realize that several things could be killing their margins until they review the numbers at year-end. One of the biggest culprits is credit card processing fees.
These fees are essentially a pass-through cost for all the players involved in helping the business accept payments—the credit card network, the card brand, and the payment processor. The fee combines fixed and percentage transaction costs of the total sale amount. These fees are passed on to the merchant, which can add up quickly. There are several ways to reduce credit card processing costs. First, analyzing your customer base to determine which type of transactions are the most expensive can help you create a strategy for decreasing payment costs. For example, debit card costs are typically less than credit cards, and keyed-in sales are more expensive than swiped transactions.
Look for Alternative Payment Solutions
Credit card processing fees can be a significant pain point for merchants. However, some steps can be taken to lower the costs without altogether abandoning card payments.
For starters, businesses should look for simple, transparent pricing models that don’t hide fees or padded rates. This way, the prices are clear and measurable so that they can be negotiated.
Another option is implementing surcharging when merchants pass payment processing fees to customers. This method has pros and cons, so merchants should carefully consider their situation before implementing it. It’s also essential for merchants to stay up-to-date on evolving state laws and card network regulations before attempting to pass on fees.
Finally, merchants should explore alternative payment solutions. These options, which include mobile wallets, account-to-account (A2A) payments with Open Banking, and BNPL, are growing in popularity and stealing market share from cards. These methods offer cost savings, reduced security risk, and embedded value-added services.
In addition to exploring these options, it’s helpful for merchants to consult with a credit card processing expert. These experts can debunk myths about processing and help small businesses advocate for themselves with their processors. They can also advise on the best pricing structure for their business based on their transaction volume. This can save them thousands of dollars per month in processing fees.
Manage Your Inventory
Many retailers are generating plenty of revenue and paying their bills but still not getting much profit. A common culprit is poor inventory management. If you need more of a popular product, shoppers may go elsewhere to purchase it. In addition, excess inventory on hand incurs additional warehouse and shipping costs. Finally, unsold inventory can result in higher business property tax and income tax bills at year-end.
To avoid these problems, use an inventory management system to track the amount of each product you have on hand and to alert you when it’s time to reorder. This system should enable you to forecast future demand based on sales trends. This helps you save money on costly rush orders and expedited shipping while avoiding over-producing goods that become obsolete.
When receiving inventory shipments, promptly checking the stock against your purchase order and adequately shelving or displaying it is vitally important. During this process, errors can cause faulty product QOH data, leading to over-ordering and false backorders.
Also, storing inventory using the “first in, first out” (FIFO) method can help minimize waste and storage costs by using space more efficiently. This method prioritizes selling older merchandise before bringing in newer products. Keep track of the rates at which each product profits so you can refocus sales resources on your biggest winners.
