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Merchant Account Pricing | What to focus on

Posted by Alex Neir on Fri, January 13, 2012 @ 11:08 AM
Merchant Account Pricing

Merchant account pricing can be confusing in that there are quite a few moving parts that determine the overall cost month to month. This post is intended to explain how merchant account pricing is set up and give your business specific direction when considering alternate pricing plans.

There are three pricing models used to establish merchant account pricing.

  1. Interchange Plus – Transparent pricing in which you are assigned an exact markup over interchange
  2. ERR (Enhanced Rate Recovery) – One advertised rate with disguised downgrades
  3. Tiered Pricing – Multiple tiered prices depending on how credit cards are accepted

Regardless of the pricing model there are two components that make up the majority of your merchant account cost. The percentage of the sale and the per-transaction cost.

Most merchant service providers will have a preferred pricing model which is used to quote merchant account pricing. It is up to the business requesting an account to specify which pricing they prefer. The most cost effective pricing is Interchange Plus.

Specific direction when considering alternate pricing plans

Rule 1 – request interchange plus pricing. If the provider you are speaking with tells you that your business does not qualify for Interchange Plus pricing, look for another provider.

Rule 2 - Understand how your business’s transaction size and frequency affect your merchant account costs. First, determine your average sale amount. Take the total amount of sales for the previous month and divide them by the total transactions. Second determine the total number of transaction you are likely to conduct month or month.

With these two figures you can do a simple calculation to determine where you need to focus when negotiating your rates. If you have a higher average sale amount and lower transactional volume you need to negotiate a lower percentage of sale. If you have a lower average sale amount and I high transactional volume you need to negotiate a lower per transaction price.

For example - If your pricing is 1.59% and $0.25 per transaction:

  • A $1.00 transaction will cost $0.27 or 26.59%
  • A $100.00 transaction will cost $1.84 or 1.84%

Would you like more guidance on how to negotiate your merchant service pricing? Download our guide on questions to ask when looking for a merchant account.

Tags: ERR Pricing, Tiered Pricing, Interchange Plus Pricing, Merchant Account Pricing

The 3 best price structures for credit card processing | ERR Pricing

Posted by Alex Neir on Thu, August 26, 2010 @ 03:58 PM

The 3 best price structures for credit card processing | ERR Pricing

Best price structure for credit card processing
There are many ways to set up the pricing structure for a credit card processing account. We will discuss the 3 best price structures for credit card processingand give a detailed explanation of each.
  1. ERR Pricing: One rate
  2. Tiered: Two to five rates
  3. Interchange Plus: Every rate

The first price structure for credit card processing is called ERR (Enhanced Rate Recovery) Pricing. ERR pricing is often referred to as the simplest pricing structure as there is only one rate that is associated with the account.

This ERR rate is negotiated with your merchant service provider. We will use 1.69% as the ERR rate for illustrative purposes.

As a merchant business with an ERR rate of 1.69% for your merchant account, you will be charged 1.69% for any transaction that qualifies on The Interchange Table at 1.69% or below.

(The Interchange Table is the rate table set up by Visa, MasterCard, Discover and American Express to facilitate the acceptance of plastic as a form of payment. There are currently over 180 different interchange rates that can apply. The rate is determined by how the card is transacted – swiped vs. keyed and the type of card that is transacted – debit card, check card, rewards card, corporate card, international card) More information on interchange fees

For transactions that qualify above 1.69% on the interchange table you will be charged that rate, in addition to a surcharge determined by your merchant service provider.

For our example transactions below we will use 0.50% as the surcharge.

Transaction Amount = $100

Interchange Qualification

Interchange Rate

ERR Rate

Surcharge

Cost

Check Card, Swiped

1.65%

1.69%

0

$1.69

Rewards Card, Swiped

1.90%

1.69%

0.50%

$2.40

Check Card, Keyed In

2.35%

1.69%

0.50%

$2.85

Rewards Card, Keyed In

2.45%

1.69%

0.50%

$2.95

The ERR pricing structure for credit card processing is most advantageous for merchants that are transacting lower volumes.

What pricing structure is right for my business?

Tags: Interchange Fees, Pricing Structure for Credit Card Processing, ERR Pricing, Credit Card Processing Fees