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Want to know what you are really paying?
Calculating what you are paying for your merchant account can be pretty confusing. To make it worse, you get tons of offers and solicitation saying, “we can save you money” and “we have the best rates”. So, who and what do you believe?
Many merchants fall into the trap of only looking at the advertised “teaser” rate when they establish a merchant account. Later, when the statement arrives, it is covered with multiple fees adding up to much more than the advertised rate. Trying to calculate each line item and card type is almost impossible.
The simplest and most accurate method used to calculate the costs starts with something called the EFFECTIVE RATE (EFR). The term effective rate is used to calculate how much your business actually paid for processing with ALL rates and fees included. This is the single most important cost factor when you’re comparing merchant accounts!
If a business processes $10,000 in NET credit and debit card sales and its total processing cost is$350.00, the effective rate of this business’s merchant account is 3.50%. The qualified discount rate on this account may only be 1.50%, but surcharges, monthly fees, and service charges bring the total cost over two full percentage points higher. This example illustrates perfectly how focusing on a single rate when examining a merchant account can prove to be a costly oversight!
It’s pretty simple to calculate the effective rate for an existing merchant account. Simply, divide your gross fees by your NET sales for a given month and then multiply that number by 100. For example:
$350 in fees / $10,000 in NET sales * 100 = 3.50% (EFR)
If the effective rate ends up being substantially greater than your qualified discount rate, odds are you are getting a lot of downgrades and additional charges and it’s time to examine your account.
With Omega Bank Card Services, we offer the interchange plus pricing model which passes through the exact cost of each card type and has one flat rate as an additional cost of processing. This gives merchants the lowest possible Effective Rate. When everything is over, what matters is how much money you actually paid, regardless of what rate is promised to you. Call us today to get a free cost comparison to our Interchange Plus pricing model and start lowering your cost!