As a business owner, I understand that there are fees associated with running a business. There’s always a cost to doing business and those costs can generally be written off at the end of the year. Those costs are yours and in my opinion don’t always need to be revealed to your customers. Based on that thought, imagine my surprise when my daughter’s dance studio let us know mid-term that all credit card transactions would now carry a 2% “convenience” fee. I wouldn’t say I got pissed off by this but that’s only because it helped me realize that setting up a recurring check payment from my bank would fix the glitch of the studio not having automatic recurring billing as an option for us. Incidentally, I would have been more than happy to pay a fee to set up recurring billing just because I think we spend too much time paying bills as it is.
Obviously changing pricing in the middle of the year without notice is far from being a convenience and some might argue that it breaks any contracts we have previous entered in. I’d have to consult the paperwork we did have to sign at the beginning of the season to know for sure. The fact remains that with a child on their competition team we’re already paying over 250$ per month for tuition. The 2% fee would come out to be over 50$ per dance year not counting the costs outside of the normal monthly tuition like costumes, competion fees, et cetera. In my eyes, this is their cost of doing business and if they wanted to pass the “convenience” on to us, it should have been stated as such at the beginning of the year and any changes to that would have been addressed before the start of the next year.
Every retailer that accepts credit cards has fees. Those fees are baked into the pricing of their goods and services and in some instances the merchant will refuse to accept a credit card if the transaction amount is too low (which I think may actually be illegal?). Yes, I’m aware that many gas stations do offer separate pricing depending on if you pay with cash or credit. I undertstand their plight but the fact remains that this business practice carries it’s own burden when customers end up becoming irate when they find out they were duped by the large blinking cash-only rate only to find out they are paying a nickel more a gallon at the pump. Those types of situations ultimately lose you customers because now they feel deceived.
So where am I going with all this? My point is that the fees should already be built into your pricing and never exposed to me, I shouldn’t have to think about your business because I have my own to worry about. Let’s take the nice round 250$ price point and instead of tacking on a 2% fee for the customers paying with credit cards (5$ per month) we simply raise the cost by 5$ to 255$ across the board. Why impose this rate hike on everyone? Three reasons: first, because you potentially alienate a group by imposing a fee on them. This actually came up when a parent spoke out about the fee and was shut down because “no other parents had an issue”. I can’t speak for anyone else but myself, but let’s be honest this blog post is to express my disagreeing thoughts on the matter.
The second reason to raise the rate on everyone a small bit is to make it easier for your customers to pay you. What is a customer that always pays with a check forgot their checkbook and would like to pay with a credit card? Now they have to pay a fee, a fee that they potentially can’t afford. Some people are paycheck to paycheck and 5$ could make or break them for the next few weeks. Granted, it’s going onto a credit card and could be deferred, not if they are using a debit card. You can argue that raising the rate across the board carries the same set of problems but the fact is if the price is set in stone for the year most educated adults will run their budget around that number. Anything additional could potentially sink the ship.
The third reason is something I’ve never actually seen before but heard about it from a buddy of mine while discussing this very topic. He was telling me that some merchant agreements he’s seen actually state that the transaction fees cannot be passed along to your customers directly. Obviously raising the rate to compensate for the fees is passing the fee onto the customers but it’s done is such a way that it’s just baked in and the customer isn’t aware of it. If anyone has has any experience with this, let me know in the comments.
Let’s take a look at this extra 5$ we raised the rate by. The resulting transaction amount now goes up to $5.10 from 5$ resulting in $249.90 in revenue on the transaction. Wait, but the increase didn’t cover all of the fees and I want to force my customers into paying that additional dime?!~! Yeah you could do that, but there’s a better chance that it’s a complete wash (if not in your benefit) because you will have some people that will always pay with cash or check and will float part of the burden for those paying with a credit card. Even if it doesn’t fall that way, eating 10¢ per transaction is a far cry from eating 5$ per. This all is actually a slippery slope for me because I don’t feel I should be paying taxes to keep a welfare system afloat, but I can rationalize the same system applied to eliminating my knowledge of a business’ credit card fees.
Now these numbers were all hypothetical and in reality a business owner should be able to look at their books and tell you what percentage of their revenue is coming from cash, check and credit card transactions and come up with a sensible, across the board increase to cover their costs. An across the board rate increase (or decrease) can and should be considered each year just to adjust for rising (or falling) costs but never in the middle of the year (fiscal or calendar) in recurring payment situations. I understand that your merchant account may have contract on a different calendar, but that boils back to being your business problem, not mine. If nothing else, break your year into smaller chunks and communicate that with your customers. That’s what car insurance companies do, every 6 months like clockwork.
This all begs the question, if your fees are so high that you’re considering passing them along to your customers I would like to think that you’ve considered renegotiating your terms with the provider or shopping for a new one entirely. In that situation the business itself is the customer and I would think they should be fighting a similar battle upstream to get into a rate that they are comfortable with. The fact remains that accepting credit cards is a convenience for the business, not for the customer. If it were for my convenience, Square would be charging me 2.75% per transaction to buy some grub from a food truck and not the other way around.