How To Cover Your Credit Card & Merchant Fees (Without Breaking Rules)

Credit card transaction fees, nerds. We've all got to pay them. Anytime somebody whips out that piece of plastic, you know a little bit is coming off the top. It is what it is. It's a cost of doing business. And like all costs of doing business, you have to cover for it somehow or else your cost of doing business will quickly become zero because you will no longer have a business. But how do we cover for these fees? Well, the first thing that comes to most people's minds is to just charge a credit card fee. So whenever somebody wants to pay with a credit card, you. You charge them approximately what you get charged as a merchant, something around 3%. And that certainly is the simplest solution. And a lot of times the simplest solution is the best one. This is not one of those times. There's a few problems with that method. The first one being that it's illegal in a lot of states, not all states. I'll see if I can find a list and if I can, I'll put it in the description down below. But if it's not illegal in your state, it's probably still against the terms of service of your merchant services, because of course it is. That's in their best interest. It's important to the survival of their company that the credit card companies like them and want to continue doing business with them. So they don't want you doing things. That's going to discourage people from paying with credit cards. And the other problem with it is it just tends to piss people off. Who wants to pay a fee? I don't want to pay a fee. Do you want to pay a fee? I don't believe you. You're a liar. Credit cards are just. It's just how people pay for things now, especially when you're offering high ticket services. Very few people are going to pay cash for your H Vac install. The choices are kind of just card or check. And let me just let you in on something. As a millennial homeowner, I've never written a check in my life. I do not have and never have had a checkbook. In my 31 years on this earth. These hands have written none checks. So if you come to my house and you tell me it's going to be an extra fee to use my credit card, I'm just going to pay the fee, but I'm going to be mad about it. It doesn't create a good feeling. It's bad for your customer experience. Now, one possible way around this is to offer a cash discount instead of a Credit card fee. Personally, I'm not a fan of this either. I don't want cash. It's cumbersome, it can get lost, it's the most susceptible to being stolen. I just don't really think it's a good scalability idea to encourage a lot of your customers to pay you with cash. If you're trying to grow, that's going to become a problem at some point. Okay, fine. So then what's the correct way to deal with this problem? Well, if you ask about this on any community forum, you'll be met with a chorus of just raise your prices. But that's not really that helpful, is it? Raise them by how much? How do I know that I'm covering this fee? And that's what I'm here to show you today. I'm going to show you step by step how to figure this out. And by the way, what I'm about to show you, it's the exact same process for like financing merchant fees. Okay, so this is what the formula looks like. It's your average processing fee times the average percentage of your payments that you take as credit cards. Okay, so then the first thing we need to figure out is our average processing fee. We need to know that as a percentage. Now, we're going to find that information in the portal for whatever merchant service handles our credit card transactions. Now, if you happen to be a service item user using service Titan Payments, then this is the payment portal that you need to access. It's called Translink. That's the only one I have access to. So that's the one I'm going to be demonstrating here today. Ah, look at this place. A marvel of modern web design. So once you're in, you want to come down to this statement section and then we need to pick a month and year. I'm going to choose April for this example and I'm going to say create report. Okay. And that generates this report for me. So I'm going to scroll all the way to the bottom of this report. I'm interested in these two numbers, discount and fees. Discount, despite the name, is also a fee. They're a little different. Like one of them comes through the card network, but one of them comes from. I don't really understand the difference, to be honest with you. But for what we're doing here today, it doesn't really matter. You just need to know that both of these are part of the fees that you're paying. Okay, so the total amount deducted was this number right here, $6,954.71. So we're going to save that number. Then we're going to scroll up and we need to find our deposit total. So that's the total amount of money that we collected from credit cards in this time period, and that's that number right here. So then we need to say the amount of fees that we paid divided by the total amount of money we collected from credit cards. That's going to give us our average fee for this month, expressed as a decimal. So, 0314. To convert that to a percentage, we're just going to move that decimal two places over. So that is a 3.14% average fee. So I'm going to write that down. Now, I happen to know that the data I'm looking at here, these are mostly keyed in credit cards, meaning that when somebody hands the technician out in the field a credit card, the technician is typing in the credit card number or maybe using the camera on their phone or tablet. That still counts as manually keying it in. Manually keying in credit cards universally with every merchant service incurs higher fees than using a credit card reader like one of these Bluetooth credit card readers. So this 3.14% fee could be lower if these credit card transactions were not being keyed in. Just a quick little pro tip for you there. Now, when you're doing this for yourself, it's really best to then go back and repeat this process for like every month out of an entire year so that you can really get a blended average that's especially important for seasonal businesses like H vac. But for this example, just so this video isn't super long, I'm going to just run with this number. So. So I'm assuming that my average fee for April is the average fee over a full year. Okay, so looking back at my formula here, the next thing I need to know is what percentage of my customers are paying with credit cards. So this information I'm going to pull from Service Titan. If you're not on service titan, sorry, you're on your own. This is the only one I know. Okay, so we want the all payments report. It's this one right here. Now, when you get in here, you might have this credit remaining column already filtered. So if this little icon here is blue like it is for me, then that means that that column is filtered. And for what we're trying to do here today, that's going to cause a problem. We don't want that. So we're going to click on that and we're going to hit clear. Great. Now we need to choose the same time period here that we did in our other portal. So for me, that was April. So I'm going to put that date range in April 1st through April 30th. Make sure you have all three payment statuses selected here. And then I'm going to hit run report. All right, great. Now I'm going to scroll to the bottom and I need to see this number right here. I see that I have 271 total items on this report. So that means in the month of April, I collected 271 total payments. That's payments of all payment methods, credit card, check, cash, whatever. So I'm going to Write that down. 271. And now I need to filter this payment method column to only credit cards. I'm going to click this little filter icon here and I'm going to say filter is one of. And then I'm going to select credit card and I'm going to select filter. Okay, so now I filtered this down to a list of only my credit card payments. And I see that now I'm looking at 204 total items. So that means 204 out of my 271 total payments were paid with a credit card. That gives me 0.75, which expressed as a percentage is about 75%. So in the month of April, 75% of my payments that I collected were through a credit card. Now again, I'm only looking at one month here. Ideally you'd want to average this out over like a full year. So I got 0.75 there. If I repeated this 11 more times for the rest of the months of the year, I would add all of those numbers up together, divide it by 12 because I ran it for 12 months and then that would give me my blended average. But again, for this example, I'm just going to run with the one month number, which means I am ready to run my formula. So that is my average processing fee expressed as a decimal. So for me, that's 0.0314 times the percentage of my customers paying with credit cards, which for me is 75% or expressed as a decimal 0.75. So that gives me 0.02355. So to convert that to a percentage, I'm just going to move that decimal place over two places. So 1, 2, that gives me 2.355%, which I'm just going to round to 2.4%. So for the example we just looked at I would need to raise my prices across the board to 2.4% in order to cover for my credit card transaction fees. Now, notice we're raising our prices less than the fee that we're charged. We're charged 3.14%, but we're only upping our prices 2.4%. That means that when a customer pays you with a credit card, you are still going to end up with less gross revenue than you would have gotten had they paid with cash and you had not raised your prices. But when somebody pays you by check or cash, they're paying 2.4% more, which makes up that difference. So it evens out. Now, a few further considerations. It might be a good idea to separate out service stuff versus install stuff, or depending on your trade, just like low ticket stuff versus high ticket stuff. It's not completely necessary, but it could help you get a little bit more granular, because, for example, doing that can help ensure that drastically more or less of your customers aren't paying with a credit card for installs versus, like, service work. Like in my example, everything blended together. About 75% of my customers were paying with a credit card. But if I looked at just installs, well, maybe I would see a different number. Maybe I would see that 90% of my customers are paying for installs with credit cards. And if that were the case, then that would mean that I would want to raise my install prices a little bit more than I'm raising my service prices in order to appropriately compensate. You might also be having a conundrum where now you're like, man, now everybody has to pay this higher price to cover credit cards that not everybody's doing using. And that's true. And I understand how that might not feel like the best thing to do for your customers. Ultimately, it's your business, and it's totally up to you how you handle this. But what I can tell you is this. This is really an issue of psychology. Paying a fee just feels bad. You see that there's this number, and then you see that you could have been paying that, but now you're not. You're paying this higher number. So if you charge a fee, generally you'll be punished for it more than if you just raised your prices. Because when that price is just the first price they ever saw, it's not like they're comparing it to this lower price that they could have paid. It's just a gut feeling thing, asking your customer to like, fully wrap their head around all of this stuff that goes into Calculating prices is just asking too much. This is also pretty standard business practice. It's not like this is something new and diabolical. Literally anytime you've paid with a credit card and not paid a credit card fee, this is how it's being compensated for. It's just blended into the overall price that everybody pays. Anyways, I've got my number, 2.4%. So let's take this a step further and let me show you, at least in Servicetitan, how to actually apply this. So the best way to do this, in my opinion, is through dynamic pricing. Those are pricing rules that you just set up one time and then all of your prices are automatically updated as material prices change and things like that. So to access that, you go to price book, you click on Pricing Builder here. Then we need to click over into this dynamic pricing tab and I'm going to edit my service rule here and I'm just going to add a surcharge. I'm going to choose percent and I'm going to put in 2.4%. Now again, you could also repeat this process for calculating what you need to do to cover for financing merchant fees. And then whatever conclusion you come to there, you could add that into the surcharge as well. Although maybe you would only want to do that for an install related dynamic pricing rule. Typically most of the financing is going to end up going through that department. But again, it's up to you and that gets a little bit beyond the scope of this video. But anyways, that's really all I need to do here so I can hit continue. And then on this next page I can click Preview here to kind of see a example of how it's calculating. So I'll just select a random service here. So I can see this service has 0.75 hours assigned to it times my labor rate. That gives me that. And then it applies my material markup rule, which gives me that. So both of those together is 208.63. And then it applies that 2.4% surcharge, which adds an extra $5.01, giving me this total price. Now, if you're not using dynamic pricing, first of all, I think you're making a big mistake. But I'll show you how to do it without dynamic pricing. Anyways, so here we are on the office side in the main price book, looking at all of our services. I'm just going to toggle over here into edit mode for this example. Let's say I'm doing all of my services so I'm just going to check off this master checkbox here to check off literally everything. Then I'm going to go over here to the static price. If you're not using dynamic pricing, you probably won't even see this column. I'm going to click into that and then I'm going to say increase. I'm going to choose by percentage. I'm going to say 2.4%. I could choose to round to the nearest dollar if I wanted to do that. And then I hit apply. I get a confirmation box. I say I'm sure about that, so I want to apply, give it a couple seconds and then boom. All of my static prices have been increased by 2.4%. Anyways, that's all I got for today. I hope this video was helpful. Be sure to hit like if you like this video and found it valuable, be sure to subscribe to my YouTube channel. If you haven't done that already, hit that bell icon so that YouTube notifies you anytime I upload a new video. Appreciate it. Peace. Sam.