Merchant Service Fees Eating Up Your Profits? Here Are 7 Tips To Minimize Them. Follow these tips to maximize your profits.
By Dr. Steven Ghim Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Like most businesses, you may accept credit cards as a form of payment from your customers. This also means connecting with a merchant service provider to complete your transactions. They are the intermediary who can transfer money from credit card companies to your business account. These merchants charge for a vast range of situations and services, from chargebacks to statement fees, and every charge can eat away at the profits you're trying to build. Here are some tips that can help you minimize these fees.
1. Be Fast
Merchants can usually offer you a better interchange rate if you settle transactions within 24 hours. Some even have specific programs to reward speed or other types of consistent account behavior by waiving charges. Although you still want to review transactions yourself, automation can make this timeline easier to achieve. You might have to apply for the program, which typically just means submitting a form to the merchant, so they can verify that your method for handling transactions qualifies for approval.
Related: How to Select the Right Payment Gateway and Payment Processor for Your Ecommerce Business
2. Guide Customers in the Direction You Want
The cost for a merchant to process a transaction is dependent on the perceived risk involved. For instance, credit cards are more expensive than debit cards. An easy way to cut costs is to direct customers toward the best transaction type for your company. Possible incentives could be anything from early access deals to discounts on paying in full, so the trick is to get engaged with the customers and figure out what motivates them. Providing a payment gateway is another easy way to encourage customers to pay in specific ways, and you can brand it to look like your own portal rather than a third-party service.
3. Find Anything but a Tiered Pricing Plan
Merchant services providers can use a range of models, such as flat rate, interchange-plus, membership, and tiered pricing. Of these, tiered pricing, which categorizes your card transactions as qualified, mid-qualified, or non-qualified, is usually the worst for businesses. Despite its commonality, this model makes it harder to see what markups the providers are charging. Finding the proper method will depend on different variables, such as company size or number of transactions. The bottom line is to evaluate models carefully between providers and seek out transparency. Once you know your markups, you can often negotiate them.
4. Skip the Long-Term Contract
Long-term contracts can offer predictability, but when it comes to merchant services, they might lock you into fees that could be avoided down the road. Find a provider that allows for short-term or even month-to-month service and doesn't charge for early termination.
Related: How to Manage Credit Cards for Your Small Business
5. Go All-In on Your Equipment
Merchants routinely lease or rent equipment, such as card readers, that lets you complete your transactions. However, it can ultimately be more costly to rent equipment than to purchase it altogether. If you buy what you need on your own, you'll have better control long term.
6. Look at Your Overall Operations
The more mistakes in your transactions, the more your merchant services provider will need to help. Guess who pays for that help? You do. So, do whatever you can to ensure that your transactions are error-free. Reviewing your operations can also help you spot potential customer conflicts early and resolve issues before they turn into chargebacks.
Related: 9 Crucial Tips to Protect Your Small Business From Credit Card Fraud
7. Tap the Right Information
Including your customer service contact information in your transaction details makes it easier for customers to identify your business and get in touch with you if they've got a concern. Like improving other areas of your operations, this early communication can reduce your chargebacks. But it goes the other way, too. If you verify customer addresses with an Address Verification Service (AVS), for example, you can get a lower interchange rate and reduce instances of fraud that can translate to chargebacks.
Merchant service fees don't have to diminish your earnings. By utilizing the tips above, you may be able to hold on to those profits. For optimum savings, assess your company's unique needs and features, and apply these strategies accordingly.
