For smaller businesses, the cost of payment processing can be a financial burden. However, the FTC cautions against extremely low credit card processing rates that can be a sign of a scam. To help you check whether your business is paying too much for your merchant account, you can calculate the effective rate.
The effective rate is a combination of the interchange rate, credit card processor’s markup fee, and other fees. It can be calculated by the total sum of your processing fees divided by your total sales volume.
This is when you add up the amount of all the credit card processing fees you pay divided by the total sales volume found on your credit card processing statement.
This usually involves three key factors:
To get the effective rate expressed as a percentage, multiply the end figure by 100. Ideally, you should see a rate of somewhere between 2.5 and 3.5%.
If your effective rate is much higher or lower than the average amount, there may be several reasons why:
If your effective rate is cutting into the bottom line of your business, it may be time to shop around for a more competitive provider. To help you find the best credit card processor for small businesses, reach out to us at Processing Card today.
Allen Leone is an expert at data gathering. His ability to gather and analyze data has helped lots of clients in opening merchant accounts.
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