An age old question: to fee or not to fee and should you pass on the cost to the customer? Shakespeare didn’t have to make these types of tough decisions!
Funny or not, there is no joking around with your sales and revenues.
We have heard so many stories about this hot topic in the last few years. It can have (and has) serious repercussions if you make the wrong decision. Business has not been usual and many are looking into each and every expense that is hitting the P&L. Credit card and merchant fees are one of them and we are hoping that we can guide you to make the right decision to keep growing!
What is the actual expense?
First steps first. Determine the actual cost of credit card payment processing and merchant services (ideally) from the last three years. This is the best place to start your analysis and as much detail as you have is important. You can’t get around it. Run this fairly simple calculation to look back on past experience. This then can then guide you to making a future decision for your company.
Calculate the true cost of merchant services to determine the overall impact.
Are sales revenues increasing or decreasing?
Look to the trend of your sales revenues.
If you have already incorporated a fee based processing into your merchant service options, you may see a change in sales. Is there an uptick in transactions, then that is great. This is a win-win for you and your customers. However, if you see a decline, you probably have to look further. Something else may have impacted this.
It isn’t an easy decision and you should spend some time to do the analysis for the real reason and root causes.
Sales revenues are not the only trend to consider. If you are a service based business that relies on referrals then you need to keep this in mind, too. A bad experience with a referral can be the end of recommendations from a great source. Talk to the biggest proponents of your brand and let them know what you’re thinking. They may have some insight to share you want to evaluate as well.
Is this a competitive advantage?
If your business is the only one offering a fee-based program? Whether it is a service fee, convenience fee or flat rate expense you may have a competitive advantage. In most cases, the fee, whether passed on to the customer or incorporated into the service or product cost is really the same.
Unless you have a small average transaction amount, then to fee or not to fee is clear. In this case, fees may push a customer to pay cash – which will be fine if they have it on hand. Many younger consumers do not carry cash. Others, although they may have cash, may not have enough on hand to buy as much as they would spend on credit.
The general rule of thumb is that sales go up when a merchant adds credit card options. This figure has varied over time, but is typically double digit growth. On the converse, would your business see a similar, but opposite decline if the decision was to stop offering credit and debit card payments?
Could you absorb this loss – would it be worthwhile? Probably not.
Impact at the register or POS System
Instead of going “cash-only” convert to a system that allows you pass on the expense to the customer. We will share with you that this requires choosing the right program for your local and state regulations.
It also needs you to post signage. We recommend a bit of over-communication. Voided sales is not a positive trend, but what can happen if a customer was not aware of the additional cost of the fee program.
Your restaurant or retail POS platform should have a way to update this and add the appropriate messaging to the receipts.
There is a right answer
Yes, there is a way to determine the right answer when questioning to fee or not to fee. We can help to guide you, but you will need to consider many factors. Reach out to our team to talk through this and help you make an educated, well-thought out decision.