Information on Merchant Accounts,
Ecommerce and Credit Card Processing

October 11th, 2018 by J B

Can you tell if your processing fees are out of control?

Filed in: Monthly Newsletters |

We know how excited you are to receive your credit card processing statement each month. You just can’t wait to open it, stare at it blankly, and finally resign yourself to the comforting feeling of confusion.

Payment processing statements, even simple ones, can seem like hieroglyphics to many, which basically makes them worthless.  Even if you understand your processing statement, with all the different fees and details, can you really tell if your getting a deal your happy with?

Let’s cut through all nickels and dimes and get to the heart of what matters, overall cost.

Effective Rate Review:

You don’t need to spend much time at all on any statement to get a feel for what your merchant account costs you.  Once you have a basic idea of your payment costs you can go a little deeper, but to start let’s look at getting a baseline.  Grab your processing statement, and look for two bits of information.

  1.  Your processing volume – To start total up all of the processing volume that your processor deposits into your account.  For example if you are funded and billed directly by American Express for your Amex sales, you would not want to include that volume as it doesn’t really apply to the fees.
  2. Your Total fees for the month – Sometimes you will need to add the charges from each section of your processing statement, but most will have the grand total listed. One thing to keep an eye out for is daily discounting. If your processor is debiting your processing fees with each batch you will want to confirm that your statement total includes that amount in its totals. If it does not, you will want to add those daily fees on to your fee total. If you have questions about doing this, just give us a call and we would be happy to lend you a hand.

Now it’s time for some basic math. Your going to divide for total fees by your total volume.


Let’s say you processed $20,000 in volume for the month, and your fees were $589.12.

589.12 / 20,000.00 = 0.029456.

Or as a percentage, 2.95%

So now you have come up with your effective cost, and we can start playing with numbers to see what affects your rate the most.

Fixed Monthly / Annual Fees:

Let’s start with fixed monthly fees. Look at your statement and pick out items that you believe to be fixed monthly and annual fees.

Here are a few examples: Statement / Service Fees, PCI Non Compliance, PCI Annual Fees, Equipment Rentals, etc.

Now subtract those fees from you total processing cost and divide the difference by the total volume.  This will give you an effective rate based much more closely to just your processing fees.

Let’s look at a couple examples.

Example 1 (Continuing with the example above):

Volume: $20,000
Fee:s $589.12
Monthly Fees: $30.00
Original Effective Rate: 2.95%

Lets remove those monthly fees:
$589.12 – $30 = $559.12

Here we will use the remaining fees to calculate the effective rate again.
$559.12/$20,000 = 0.027956 OR 2.80%

Example 2 (Lower Volume, same monthly fees):

Volume: $5,000
Fee:s $169.78
Monthly Fees: $30.00
Original Effective Rate: 3.40%

Lets remove those monthly fees:
$169.78 – $30 = $139.78

Here we will use the remaining fees to calculate the effective rate again.
$139.78/$5,000 = 0.2796 OR 2.80%

As you can see both of these accounts come up with the same effective rate based on just the processing fees, however their original effective rate that was based on overall cost was quite a bit different. This illustrates how fixed monthly fees skew your effective processing costs on lower volumes.

With these two effective rates, you can see what your entire account is costing you as a percentage of volume, as well as how much of that is just from processing fees.

On the lower volume account it would clearly be more effective to look at lowering your fixed monthly costs. Whereas with the higher volume, it starts to make more sense to focus on processing fee improvements.

Keep in mind that a lot of times processing companies and sales agents will use a general pricing method to simplify the initial understanding. That leaves room for some businesses to receive an effectively better cost than another. You can use this information to help negotiate for pricing that is more effective for your particular business. That said sometimes you can make changes to your business to help improve your effective rate in a much more profound way than just getting your processing costs lowered.

In our next article we are going to look at some ways to lower your effective rate without having to shop around. You may be surprised how much you can effect your processing costs without even calling your processor.

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