Since my last post on credit card processing and pet sitting software companies, I have gotten lots of questions about how credit card rates are determined. I know it is a taboo topic we don’t often talk about. The purpose of writing this is to be able to use it as a resource again and again.
I take personal responsibility for everything I publish, and genuinely want to help every business become educated on a messy and confusing topic.
That’s why I haven’t written this alone.
I am not the authority on merchant services, also known as “credit cards” in our Facebook forums, so I decided to go straight to the experts I know, like, and trust.
Tiered Pricing vs Interchange Plus Pricing?
Since the post of my recent blog where I shed some light on what was happening with credit cards and one pet sitting software, I was asked a few questions. The most popular was, “Do the people I work with offered a tiered pricing program or do they use the Interchange Plus Pricing model?” This pet sitter was hearing that the Tiered Pricing Model wasn’t the best choice.
I thought it was a great question so I reached out to my contacts and spent 20 minutes on the phone learning about what determines credit card rates and taking notes for this article.
I am going to tell you what I discovered, but first, I am going to explain the two. If you are like me, I didn’t know and I really didn’t care as long as I was in love with my rate (which I am, of course!)
This is when a company creates buckets and all cards fall into one of the buckets. Each bucket has its own percentage and that is what the card will be charged. Some buckets make the credit card company more money and some buckets make the company less money. The customer who is charging the cards will only see as many rates on their bill as how many buckets their cards fell into.
Interchange Plus Pricing
This is a system where it acknowledges that there are thousands of cards out there. On your statement, you will see a different fee for all cards including the upcharge that the company decided to add onto it. This statement might be a little harder and confusing to look at as the customer but allows cards not to be grouped together.
There are advantages and disadvantages to both models.
To answer the question I received: The company I work with uses both.
It is why looking at people’s statements is so important to see what cards they are already currently charging and then find the plan that best fits them. They gave me an example that a donut shop might have different types of transactions than a hotel and that made perfect sense. Different volumes, amounts, and probably types of cards.
You actually might remember that person who I just helped save $8700! She would have saved some by taking the flat 2.9% offer but ended up double because she had the negotiating power with many companies and chose against the software that would lock her into a higher rate of 2.9% causing her thousands of dollars.
You Could End Up Paying a Lot More In Your Credit Card Rates Than What They Courted You For:
What a certain software system is trying to claim “you could end up paying a lot more than what they courted you for” is actually true! Many merchant services operate like this. They bait you with a great rate and then switch or raise you as time goes on. In fact, the one you are with right now, might actually have raised your rates already and you have been too busy to even notice. After all, your payments are probably on auto-deduct, right?
What this software company says is true….. if you don’t know where to go.
How Do You Know Which Is Best For You?
Different businesses will have different trends like the hotel and donut shop I mentioned earlier.
It all depends and this is why it is SO important to have someone that you can know, like, and trust walking side by side with you. They should be able to explain credit card rates and fees and even re-evaluate things with you as your business grows. I can easily see how a dog walking company would vary differently than a pet sitting company simply because of the spending habits of their different clients.
What’s My Motive?
It is to help you. I have spent ten years in this industry looking through your profit and loss statements, looking where you could increase profits and cut costs. We have agonized on how to pick the best rate to charge so you can achieve your personal financial dreams. We have celebrated and cried together. A business coach with no successful clients isn’t a good business coach at all. So what I am trying to do here is make you successful. Make you keep some of your hard-earned money. I am trying to encourage you to not procrastinate a horribly stressful and confusing task that every business owner needs to pay attention to at least once a year and let you know that there is help.
I am begging you to not just say OK when someone gives you a flat rate without fully understanding the implications of what that really means. It might be good. It might be bad. My motive is to arm you with an education so you can make the best choice for you and that you can literally take to the bank.