There are 3 types of pricing schemes that you should know about when shopping for a credit card processing vendor:
- Flat Rate – The credit card processor will charge a flat rate (usually around 3.5%) of the total sale on every single transaction (most costs bundled). Intuit does this (QuickBooks) and is among one of the most expensive credit card processors in the industry. They get away with it because they have a captive audience (QuickBooks users). Intuit’s cc processing system is seamlessly integrated with QuickBooks, so, while it is extremely costly, it is also the path of least resistance for harried small business QuickBooks users.
- Tiered- This is a variation of flat rate pricing and can cost even more than flat rate, where the merchant is charged a specific rate based on a tiered approach with a set marker of qualifying factors. This is Intuit’s old pricing strategy, and one which many of its long term clients are on without even knowing that a simple phone call (requesting to be switched to the flat rate pricing scheme) could potentially save them thousands of dollars per year.
- Cost Plus- This is the most ethical, cost-effective, and transparent form of credit card processor pricing. You know exactly what each exchange rate is for each transaction plus a small percent mark up on the pass through rate. You still need to compare mark-up fees between vendors. It is also important to ask for detailed explanations of and to negotiate any additional monthly fees that the individual cost plus vendor charges.
- Cost Plus Plus – I’m not sure if this type of pricing actually exists, but I was told by one credit card processing vendor sales rep that this is the model they use. He was trying to justify his firm’s pricing strategy, and I think he may have made this up, because I can find no entry for “cost plus plus pricing strategy” anywhere on the Web. There is more than a little of the sleaze factor in the cc processing business, so buyer beware, as usual.
In Part 4 of this series I will be discussing the various virtual payment gateways and setups. VPG is a whole industry unto itself, where you can also end up paying too much, or unnecessarily hiring another vendor who will also take his piece of your profits.