Credit Card Fee: Which Is A Better Deal?
Are you thinking of accepting credit card as another method of payment for your business or are you accepting one? Probably you have been researching from various banks or other companies that provide merchant accounts. If that is so, then you are aware that credit card fees come various ways. If you have not, perhaps this topic may help you determine which company provides a better deal for your accepting credit card as another method of payment or perhaps they are about somewhat similar in term of getting their fee from you. Either way, I hope this article will help you consider aspects you have not thought before.
Some credit card companies charge a fixed monthly fee (e.g. $15.00) plus a small percentage (e.g. 1.5%) per transaction every time you accept a credit card, while others may simply impose a slightly higher per transaction rate (e.g. 2.75%) with no monthly fee. As a small business owner, how would you know which one is a better deal for your business? Or, should we say which one will cost you less in accepting credit cards? One way to find out is to use a formula that is used often in Cost Accounting: Sx = VCx + FC
S – represents Sales VC – represents Various Cost
F – represents Fixed Cost x – is the unknown amount that we hope to find
Using the above example monthly fee and per transaction rate:
Sx = VCx + FC
0.0275x = 0.015x + $15
0.0125x = $15
X = $1,200
So, what does it mean? It means, when your total credit card sales is at $1,200 in a month, you are paying the same amount in fee (in the above scenario is, $33.00 – calculation not shown) regardless of which option you choose. Therefore, if your total monthly credit card sales exceed $1,200 on average, you are better off paying the monthly fee and take the lower per transaction fee. If however, your total monthly credit card sale is less than $1,200 on average, it will cost you less when choosing the higher per transaction rate and pay no monthly fee.
I hope you will benefit from this topic. As always, please share what you have in mind. I would like to read them.