To be a successful business owner, you need to know your business inside and out and constantly be looking for ways to lower your costs. If your business accepts credit cards one cost your business accrues every month is credit card fees that go to your credit card processor. With the stress and time involved in running a business, it can be hard to sit down and evaluate how much of your profit is going to your credit card processor and whether it makes sense for you to switch to a different merchant account. Below is a guide to finding your Effective Rate and Effective Markup which makes up the fees you pay to your credit card processor.
- Effective Rate: The effective Rate is the total percentage of your sale that goes to merchant fees. The equation for the Effective Rate is your monthly fee (gateway fees, statement fees, monthly fees, equipment leases, and everything else) by the total sum of your monthly sales (source).
- Effective Rate = ( [total fees] / [total sales] ) x 100
- Effective Markup: The effective markup is a great tool for comparing different merchant account processors. It is calculated by taking your markup fees (e.g. statement fees and additional monthly services) and dividing it by your total sales.
- Effective markup = [markup fees] / [total sales]) x 100 (source).
Different factors can affect your credit card processing rate. They include the volume of transactions you have a month, extra services, the types of credit cards you accept the ticket size and more. To find the best merchant processor for you, you need to do your research and see based what your current effective rate and effective markup is and how they would compare if you switched payment processors.