Notes About Business

This is a brief introduction to some components of pricing that you should be aware of as a business owner. This article will help you know enough about pricing a merchant account so that you don’t get taken advantage of when you’re negotiating with your merchant service provider on your account.

The first part of pricing that everybody uses to compare one provider against another is the discount rate. Business owners always want to know the discount rate. This is the rate that typically results in the most fees paid by merchants so with good cause is the one that merchants should definitely try to keep low.

Your discount rate will depend on which type of merchant you are. If you’re a supermarket, for instance, you’ll pay significantly less than a website dedicated to travel reservations. You’ll also have a lower discount rate if you process mostly check cards vs. corporate cards, for instance.

You’ll also have a per transaction fee for each transaction. The lower your average ticket or average transaction, the greater percentage of the overall fees the per transaction fee represents. For instance, if your average ticket item is $10, a $.25 per transaction fee represents a 2.5% “effective rate”. If you add a traditional discount rate of 1.3% or so, your total effective rate would be 3.8% which is high, or at least higher than it could be.

If you have a per transaction of $.17, the same $10 transaction would have a 1.7% transaction rate which would reduce your overall effective rate on those smaller ticket items. Your goal should be to get your effective rate as low as you possibly can.

Business owners will typically have a monthly fee, usually in the form of a statement fee, customer service fee, or monthly account maintenance fee. This fee is usually about $10 per month.

Many merchant accounts have a monthly minimum. This is typically priced around $25 per month. What this means is that the minimum amount of discount fees will equal $25. If, for instance, a merchant processes only $1,000 per month with a discount rate of 1.29%, the discount fees would be $12.90. With a monthly minimum of $25, the effective rate would be 2.5% ($25 of $1000). Of course if the merchant processes $10,000 per month at the same discount of 1.29%, the fees would be $129, far in excess of the $25 minimum.

These fees represent the typical fees charged by merchant providers. There are usually other fees that will show up on your merchant account application, so be sure to ask your merchant account sales representative about any fees that you don’t recognize or know. These fees must be disclosed, even if the sales rep doesn’t tell you about them. When it comes to pricing, trust what’s written on the application because this is what you’ll be agreeing to when it comes to processing.

Find a good sales representative that you can trust. Your ability to establish a good working relationship with a reliable, trustworthy account manager will insure that you’ll be able to keep your processing costs low for the duration of the account.