Credit card processing fees can be a big expense for restaurateurs. Fortunately, according to Antara Dutta, business mentor and president of Delaware SCORE, many of these fees are negotiable.

The first step is understanding what’s fixed and negotiable in a processor’s fee structure. That way, you can focus your negotiations on what matters most.

Focus on the Effective Rate

In negotiating with credit card processors, it’s essential to understand how your rates are calculated. This will help you determine which fees are negotiable and non-negotiable. Credit card processors can charge different prices, including interchange, assessment, and transaction fees. However, most of these fees are negotiable.

This graph shows a business’s typical cost distribution before they use CardFellow to negotiate their rates. As you can see, there is significant room for savings. The non-negotiable portion of the costs is mainly the interchange and assessment fees, while the negotiable part is the markup fee charged by the processor.

If your processor charges a bundled pricing model, it can be difficult to determine your true processing costs. This is because the markup and interchange fees are mixed in the same billing statement, making it impossible to separate them. This type of pricing can also be problematic because it is often subject to frequent rate spikes.

Shop Around for the Best Rates

Credit card processing fees are a major expense for small businesses. These costs can be mitigated in several ways, including optimizing your payment processing setup, implementing security measures to reduce fraud and chargebacks, and shopping around for the best rates from different processors.

Interchange rates, set by credit card issuers, are not negotiable, but merchant service providers often offer a range of markup and assessment fees that can be negotiated. It is important to read the fine print on each quote you receive and understand how each payment contributes to the overall cost.

If you find a provider that offers a low rate on one fee but another one is excessive, be persistent in trying to negotiate. Ultimately, the goal is to get your business’s markup percentage as low as possible for the fixed components of your expenses, like interchange and assessments. A good benchmark for a competitive markup is 12% – 20% of total costs. This includes your monthly average ticket size and the type of transaction you conduct.

Focus on Interchange Rates

Credit card processing fees are necessary for many businesses, but they don’t have to be expensive. With the right knowledge and tools, you can choose a pricing model for your business, negotiate a lower rate, and save money each month.

Start by focusing on the components of negotiable credit card processing expenses, like transaction markup and other service fees. Getting these fees down can have a huge impact on your overall cost.

The most important component of your total credit card processing expenses is your processor’s markup, representing a significant portion of the overall cost. The goal is to get your markup as low as possible for the fixed components of your expenses, such as interchange and assessments.

The best way to accomplish this is by choosing a transparent pricing model, such as an interchange-plus or subscription plan. Tiered pricing models are less transparent and can lead to high processing fees, so avoid them if possible.

Focus on PCI Compliance

Credit card processing fees are just another cost of doing business, but they can add up quickly. While they may seem inevitable, you can save thousands of dollars monthly on these fees by negotiating with your processor.

When negotiating lower credit card processing fees, it is important to understand the different components of a merchant’s rate. These include interchange fees, assessment or service fees and markups from the processor. A good way to determine how these fees are charged is by looking at a merchant’s statement. This method makes spotting anomalies or changes in rates and tiers easy.

The most important step in lowering credit card processing fees is ensuring you have the right pricing model. The wrong model will make separating the interchange and the processor’s markup difficult, making it nearly impossible to negotiate low fees. Tiered pricing models, for example, also complicate matters because the rates can change at any time. This means that a merchant who has negotiated low rates in one area may suddenly pay more in another.

Focus on Markup

Credit card processing fees eat into small business profits, making it difficult for them to stay competitive and keep their doors open. A balance of industry knowledge and negotiating guts can help businesses reduce these costs and keep more of their hard-earned money.

When comparing processors, it’s critical to understand the different components of transaction processing fees, including markup and fixed features such as interchange and assessments. It’s also essential to be aware of the differences between pricing models, as tiered and pay-as-you-go processors often add on additional fee components that can significantly affect a business’ overall costs.

The best way to reduce transaction processing fees is to negotiate them with the processor. It is important to remember that several parties, including the business, the banks, credit card networks and payment processors determine these rates. As such, it is challenging to establish accurate average rates. However, focusing on a processor’s markup percentage (the negotiable component of fees) can be a good starting point for negotiations.