Find the Cheapest Merchant Account

One of the first items many individuals are surprised to find out when they consider accepting credit cards is that it is not free. Like many aspects of your business, credit card processing is a service and one that costs money.

How much?

Well that all depends, it is a bit of a numbers game but a rule of thumb that I advise small business owners to go by is to look at their monthly statements and take the total amount processed and divide it by the total bill from their credit card processors. If that amount exceeds 2.5% then you are probably overpaying for the service. (Note this rule applies for store front business owners and other merchant who accept credit cards in person. If your business is a card not present environment then you are likely going to be aiming for a number under 3-3.5%)

While a good rule of thumb for business owners to evaluate whether they are paying too much, the rule also gives business owners who are not yet accepting credit cards a fantastic way to gauge whether it is worth adding to their business.

You know your business and your margins on each transaction - if adding credit card processing to your business would likely result in an increase to your profit by more than 2.5% then it is very likely that you should invest in getting a merchant account. If on the other hand you do not believe you could increase your profit by 2.5% then you are probably looking at a situation where your business is not a good candidate or is not yet ready to sign up for a merchant account.

As such it is important that one of the first steps a small business consider is what type of account they plan on having.

Now that you know what type of merchant account you have/are, and a sense of the costs associated with those accounts - now the challenge is to have the knowledge of the fees and services that you should except to see. If you proactively address these items during the account creation set up, you'll be in a much better place than those merchants who find out about these fees after they start getting their monthly statements.

This funny enough is often the sole focus of many small business owners when evaluating merchant service providers.

This makes sense, it is the main thing most merchant service providers advertise on each claiming to offer the lowest rates. Unfortunately it is also the least important number you should concern yourself with. The reason: it is not important what the lowest rate is you get in your contract, what is important is the rates you see on your monthly statement.

There are hundreds of different types of credit cards (along with the different card types, there are business/rewards/debit cards that you will be dealing with). Each of these cards has a different rate associated with it, and each of those rates is dependent on the type of business you have, the type of merchant account, and the way in which the transaction is processed.

When you consider the volume of different cards/types/transaction that go on every day with a different rate associated with each one, why concern yourself with getting a sales representative to negotiate down one singular rate for one specific card/transaction type. In a numbers game negotiating over specific rates is always a losing game for you and a winning one for the merchant provider. Unfortunately when they negotiate down one rate they often increase another, typically on a card type and transaction that your business will see more of.

Does this mean you shouldn't negotiate on rates? Absolutely not, but demonstrates the importance of working with a great company with good rates and very low fews. What is the difference of .01% mean on your monthly statement versus a hidden batch fee?

With so many rates/cards/transaction types, my best advice when it comes to negotiating rates with your merchant service provider is to look for red flags - has the sales representative addressed the impact of different cards types? Have they gone over the changes (in real dollars) of whether the card is swiped or keyed in? Have they mentioned what type of business you are and the impact of your costs due to that business type?

If they haven't I would be very concerned about working with that processor as there is a strong chance they are hiding something and hoping you don't ask.