A common question often asked is “What’s a good rate on a merchant account?” The question seems simple and straight forward but in actuality depends greatly upon the average sale amount of the merchant.
The reason for the dependency has to do with the way in which merchant account rates are applied. There are two components that make up the charge total for each transaction completed by the merchant. The first component is a percentage charge and the second is a fixed per transaction fee.
Both the percentage amount and per transaction fee can be negotiated with your merchant service provider. Knowing your average sale amount gives you the ability to determine which component of the charge total is most important in keeping your costs down.
Let’s look at an example to see how a merchant’s average sale affects their total processing costs. In the examples listed below the sales volume for the month is $10,000.
Analysis of these two graphs tell us a couple of things. If your business has a low average ticket then savings are most abundant through lowering your per transaction cost. On the other side, as your average ticket grows (great than around $80) savings are going to be greatest through a reduction in the percentage component of your overall rate.
Knowing how your average ticket amount affects your total processing cost is helpful when considering a merchant services proposal. This is a very good example of why shopping for the lowest advertised rate will not always result in the lowest processing costs.