There are hundreds of line items and fees on a typical merchant service statement. The purpose of this post is not to get into all the specific fees. Whether you believe you have a flat rate, interchange plus, tiered, pass thru, or a low swipe fee. Our aim in this article and the 3 steps simplified below will at least help you identify what is most important about your credit card processing statement.
As a business owner, you should at least know what your effective or overall rate is. This is your actual monthly rate to process credit cards.
Let’s say, your effective rate is 2% and by knowing this, you know that when you process $30,000 in June you can expect to pay your merchant company $600 (2% of $30,000 = $600)
Let’s now say that the next month when you process $45,000, you know that $900 in fees makes perfect sense (2% of $45,000 = $900)
By knowing this rate of 2% in this example, you can now better price your goods and services to cover your monthly cost, and also, you can now shop for better rates to make sure you have a fair market deal that saves money for you.
3 Easy Steps to Work Out Your Effective Rate
Step #1 Add up your total monthly fees. A good statement will list this bottom line number. However, don’t just automatically trust it. Many statements show you the total fees from the previous months volume. If you are looking at August’s statement, you need to make sure you are adding up the fees associated Augusts Volume. This amount should be debited from your bank account on the last day of August or within the first week in September. So make sure the total that you calculate matches up with the correct debit(s) from your bank account. Be sure to add in any equipment fees or annual fees that you know are coming. Simply divide the annual fees by 12 so that you can add it to your monthly total. Lastly, if American Express debits your account separately, don’t forget to add these fees in as well.
Step #2 Add up your total monthly volume. This should be listed on the first or second page of your statement. Make sure to take the total before refunds were adjusted.
Step #3 Add up your total fees, and divide them by your total volume. This is your effective rate
Do these steps for 3 consecutive months and you should see a pattern with your rate. If there is a large variation in the rates that you calculate for each month, then you most likely have a bad deal and we encourage you to have an expert review your current program.
Feel free to compare your consistent monthly effective rate with 1Quest Payment Rates with examples.