Processing fees are an unavoidable cost of doing business if you want to accept card payments. But that doesn’t mean merchants are powerless to change the amount they’re spending on those fees. There are strategies you can use to lower those costs and make sure you’re keeping as much of the earnings from the hard work you put into this business as possible. Taking control of those fees starts by knowing how much you’re really paying and what factors are contributing to those processing fees. Keep reading to learn how to calculate your effective processing rate, what to consider when comparing that to the rates charged by other payment processors, and how National Processing works with merchants to keep their costs as low as possible.
How Do You Calculate Effective Processing Rate?
The effective processing rate is the average percentage of each transaction a merchant pays in processing fees. To calculate it, divide the total processing fees you paid last month by the total sales for that month. Then, multiply it by 100 to convert it into a percentage. For example, if you totaled $20,000 in total sales last month and you paid $800 in fees, the math would look like this:($800 ÷ $20,000) x 100 = 4%Your effective processing rate is 4%, even though some transactions might be a little more or less. This effective rate is a useful shorthand for merchants to better budget and plan for the costs of business. The actual processing rate of each transaction depends on so many different variables that it can be hard for merchants to know exactly how much they will pay from month to month. The payment type used, whether or not the transaction was made in person, and even the type of business you run are just three of the variables that can impact how much your processing fees are.
How to Use Effective Processing Rate to Compare Payment Processors
With so much variability in processing fees, it can be even harder for merchants to compare the rates offered by different payment processors. How do you know if you’ll save money or how much if the actual fees are so unpredictable? That’s where the effective rate comes in. Your effective processing rate should be your benchmark rate when shopping for a new payment processor. But to figure out whether or not a new processors rates will save you money or not, you need to factor in a few additional details:
- Transaction types. Do you mostly process card present or card not present transactions? Rates tend to vary for different transaction types. You want to make sure you’re comparing your current effective rate to the new processor’s rate that you’re most likely going to be paying.
- Other fees. Payment processors structure fees in lots of different ways. Even if the rate looks lower than what you’re paying now, you might end up paying more each month because of added fees that you weren’t paying before.
National Processing makes it easy to compare your current costs to what you would pay with them. Using the calculator on their website, simply select your industry and then input your total sales, total number of transactions, and total processing fees paid last month. It will automatically calculate how much you would have paid with National Processing for that same volume and number of transactions so you can immediately see your estimated savings.
How National Processing Helps Merchants Boost Their Bottom Line
Here are some of the top ways National Processing helps merchants save money on fees and keep more of their earnings for themselves.
Transparent Interchange-Plus Pricing
National Processing uses interchange-plus pricing to make it as easy as possible for merchants to know how much they’re paying in fees and where those fees are coming from so they can make the best decisions for their business. Instead of a flat rate that conceals the margin the processor takes as profit, interchange-plus charging charges whatever the actual interchange rate was for the transaction plus a flat rate on top of it that goes to the payment processor. With interchange rates varying from about 1% to 3.5%, that means merchants can pay less when customers use a card that has lower interchange rates. That also gives you a chance to implement some interchange optimization strategies or incentivize customers to use lower fee payment methods so you can save even more on fees.
Secure Payment Processing and Fraud Prevention Tools
For ecommerce merchants or anyone who typically processes card not present transactions, security isn’t just a way to keep you and your customers safe, it’s a way to keep your costs down. By adding in additional layers of security that prevent fraud, National Processing helps merchants avoid chargebacks, which can cost merchants tons of money in penalties but also get them flagged as a high risk merchant which often means higher interchange rates.
A Zero Fee Cash Discount Program
National Processing offers merchants a zero fee cash discount program. Instead of applying a surcharge to transactions that are paid by credit card—a practice that is illegal in some states—it applies a 3.99% discount to transactions that are paid with cash. So all merchants have to do is raise their regular prices 3.99% and advertise the cash discount rate you offer.
When a customer opts to pay with cash, the discounted rate will be automatically applied at checkout. A cash discount program is one of the simplest and most straightforward ways for merchants to save money and eliminate the stress of unpredictable, variable transaction fees.
When a customer pays with a card, they pay the new higher rate that already covers their processing fees. When they pay cash, there’s no processing fees to worry about.
Frequently Asked Questions About Payment Processing Rates
Here are some of the most frequently asked questions merchants have about payment processing rates.
Typical processing fees for merchants range from about 3% to 4%, which includes the interchange rate, the payment processor’s rate, and other fees associated with each transaction. But the actual amount a merchant pays can vary widely and depends heavily on what kind of transactions they process and which payment processor they use.
A merchant’s effective processing rate is the average percentage of each transaction that went to paying processing fees. To calculate it, divide the total amount you paid in processing fees last month by the total amount of sales. Then, multiply it by 100. The result is your effective rate.
While it isn’t legal to pass payment processing fees to customers in some states, merchants can still curb costs by implementing a cash discount program. Instead of a surcharge added to the bill for customers using credit cards, a cash discount program lowers the price for customers using cash. So merchants can raise regular prices enough to cover the processing fees and then set the cash price at your previous lower price.