MBA1010 Q&A Wednesday: How can I save money with my payment processor?

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It's time for Dell Tech Day's annual sales event celebrating our customers with fantastic deals and benefits. Perks include Dell rewards, free shipping, premium Support and more. PCs like the Dell 14 with Intel Core Ultra processors will help you do more faster and with a premium suite of monitors and accessories, you can upgrade your whole setup with amazing savings. Visit Dell.com deals. Hey O. Welcome to the $100 MBA show, the business podcast that knows how important your business is to you. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the $100 MBA, a complete business training and community online over at 100mba.net and today's episode is a Q and A Wednesday episode. On our Q and a Wednesday episodes, I answer a question from one of you, one of our listeners. Today's question is from Neil. If you have a question you want to ask, just email me@omar mba net so in today's episode we're going to answer Neil's question and that question is how can I save money with my payment processor? All of us who are in business, who are accepting payments online or or even in our storefront using something like Square or PayPal, they use that little gizmo that allows you to kind of swipe the card and make transactions on your iPad. We all have a way to process payment. These services are called payment processors and they charge a fee, usually a percentage of the sale, along with a standard fee. In today's episode I'll be answering his question and giving you some options on how you can save some money. Depending on what you actually sell, how much you sell it, what kind of product or service, your price point, all that kind of stuff. A lot of people just kind of forget about these fees that they're charged with their payment processor and never really try to lower their fees. I'm going to show you how in today's episode. So let's get into it. Let's get down to business. So Neil asks today on Q and A Wednesday, how can I save money with my payment processor? Before I answer this question, I want to back up a little bit and kind of talk about this whole payment processor. First of all, if you're like me and you started businesses online early on, like, we're talking maybe late 90s, early 2000s, you have a greater appreciation for these payment processors like Stripe, like Braintree, like PayPal. Why? Because before these guys came about, it was very expensive and very hard for you to process payment via credit card online. You'd have to open up something called a merchant account, and they would charge some pretty hefty fees and you would have to apply for it, and sometimes you have to put up collateral. Yeah, I know. Pretty crazy. But as technology has improved and online shopping has become kind of ubiquitous, these companies like PayPal and Stripe and Braintree and others, they really have some pretty competitive pricing. So just to start off, whatever they kind of charge, and they all around sort of the same range, 2.95% when you're getting started, that's 2.95% of the actual charged amount, along with a base fee of like 30 cents per transaction. So I just want to kind of put it out there that that's actually pretty good, but you can get better and you can lower that percentage and, and have more of a competitive rate, which I will show you how in today's episode. But just to say, when you're starting off, you know, 3% to have the convenience of just accepting payment online, with my perspective of starting online businesses back in the day, that's pretty sweet. But having said that, I've negotiated and changed my rate over and over to improve and save some money. But you can't just do this just because you ask. You have to have some sort of leveraging power. And that all depends on two factors. One, how many transactions you actually charge every month and the total amount of money that you're actually processing. So if you're processing, let's say, two to $3,000 a month in total, you're not going to have a lot of leeway when it comes to Kind of negotiating a rate because for them, they're not really making a whole lot of money on the percentage because the total gross sales is not really three through the roof is not a lot of money compared to their other clients. They're kind of making money on the per transaction, that $0.30 thing. But let's say, for example, that business of yours went from $3,000 a month to, let's say, $12,000 a month, $15,000 a month. Now we're talking about something different. That's a pretty decent business, making six figures. And you'll probably notice if you have some sort of sales dashboard that, you know, a pretty hefty amount of money every month is going towards your processing fees. I mean, if we round up the 2.9 to 3%, and you have a SaaS company that's, you know, doing pretty well, but it's not really changing. Let's say, for example, you have a SaaS company that's doing pretty well. They may not be a Fortune 500, but they're making seven figures a year. So they're processing around, let's say, $100,000 a month. 3% of that is $3,000 a month they're paying in fees. So it's not really an insignificant amount of money. But let's go back to the example of $10,000, 12, 15, something like that. Right now, that amount is significant, regardless. If you got that gross sales amount through five transactions or 500 transactions, you might be a business consultancy firm. You might have a service, and you got to that $10,000 because you had five clients at $2,000 a piece. Now, if you show a history of consistency, we're talking about maybe five or six months where you're processing that kind of cash. You can approach your payment processor. You can email them. I've done this with Stripe where I just email them directly and I say, hey, take a look at my last few months. We've had steady growth. We're making X amount of revenue right now. And I like to request a lower payment processor percentage. And it helps if you propose what you'd like. So you might say, hey, I want to bring it down from 2.9 to 2.3. And they can go back and they'll tell you, you know, we can't do this, but we can do that. But at least there's some sort of starting point with the conversation. If you don't suggest something, you're not really starting the conversation. You know, you want to kind of say, hey, I'm A loyal customer. I'm charging a lot of money. I'm making you a lot of money. Can you meet me halfway here and kind of save me some money along the way? In other words, you're just saying, hey, don't charge me the same rate. As somebody who makes, you know, a thousand dollars a month, I find that via email this is a whole lot easier than actually getting on the phone with somebody. Often these companies don't really have a direct phone line number. So in my opinion, you know, just go back and forth on email with their customer support. In my experience and the experience I've heard from others, this works. Most of the time when it doesn't work as if I'm requesting an adjustment to my rate or a discount of some sort too soon, like I just requested one and got one maybe, you know, a few months ago. But it's safe to say once a year you can renegotiate that rate. Especially if your mrr, your monthly recurring revenue, or how much money you're actually charging every month is going up every month. So negotiating your rate directly with your payment processor is one way. Now there's other ways that are indirect. There are many companies that like to bulk their actual payments and this is a good way to save some money. Especially if you have a product and you're thinking about should I go monthly payments or should I go annual payments? You're definitely going to save money with less amount of payments. So if you offer only an annual plan or heck, a one time fee, you're going to save some money on that one time transaction fee. The total amount of money is still the same or close to the same versus going monthly. So you still kind of have that bulk amount of revenue every month that you can negotiate against and say, hey, look how much money I'm making every month. I want a better rate, but at the same time you have less amount of transactions and you're not charged every single time for those transactions like you do with monthly. Another side note, the more payments that you take, the more chances you will have for chargebacks, which is when a customer calls their bank and refutes a charge or refunds. Let's say, for example, I have a software and I have a monthly plan and an annual plan. The monthly plan is $10 and the annual plan is $100. And let's say I have, just for the sake of argument, 100 customers. With the annual plan I'm making $10,000, right? Hundred dollars times 100 customers and, and they're charged One time. Now, with the monthly, you might be thinking, well, I'll be making more because, you know, 12 months times 10 is $120. But every time they get charged, it's a chance for them to ask for a refund. It's a chance for them to charge you back. And you don't know for sure they're going to hang on the whole year. You actually have to win them over month over month, win their business month over month. So there's a bit more risk of you losing that money than, as well as the fact that you're paying to charge them every month. So this is an option? Yes. Having a monthly plan lowers the barrier of entry and may get you more customers. But from a payment processing point of view, you'll save more money in the long run with an annual plan with less frequency of payments.

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Now, I mentioned at the top of the episode, if you have a physical business and you're charging people on your payment processor in your actual point of sale, whether on your iPad or whatever, the same rules apply. The more charges, the more actual time you swipe that card, the more you're being charged. That's why some restaurants or cafes, they just do not allow you to split the bill a million times. Some have a limit of three because, hey, if they just make it unlimited, then unfortunately people are going to abuse that. And when you have a party of 10, everybody's going to want their bill split. And that's 10 separate charges. And that's going to cost the company quite a bit versus three separate charges. Some places will have a service charge that is applied to larger parties to kind of COVID up or to kind of make up for splitting the bill X amount of times. This is all totally up to you because you're gonna have to make these decisions. But the point here is that the same rules apply. The more times you actually run the card or run cards, the more you're gonna be charged. Now, I mentioned chargebacks. Now, if you run a SaaS business, this is the bane of your existence. You know, where people will forget about a service they've signed up for and, and they'll look at their credit card bill and be like, I don't recognize this charge. They call the bank, they say, I think this is a fraudulent charge or I don't recognize this charge automatically the bank will always, you know, side with the actual customer. They're not going to wait to see if this is true or not. They're gonna give em a refund and then they're gonna go to your payment processor, whether stripe, Braintree, whatever, PayPal, and they're gonna say, hey, this is a disputed charge. Immediately what's gonna happen is that you're going to get a warning or you're gonna get a message to say, hey, this charge was disputed. They're going to charge you a dispute charge. And every premium processor is different. Could be $25, $30, $30. And they're going to charge you. Obviously they're going to deduct the amount of money that that charge was immediately. Now you'll get that money back as well as the dispute charge if you win the dispute. But I've been around a long time, I know a lot of people that run really successful SaaS businesses. And your chances of winning a dispute are getting very, very slim. Now. Why am I saying this to you? Well, if you want to save some money and you don't want to deal with these disputes and get charged this dispute charge, which is a lot of money, then it's better to resolve it with the customer rather than with the bank. So if a customer emails you and say, hey, I forgot about this, or blah, blah, blah, I don't want this anymore. And it's better for you to just give them a refund than for them to go to the bank and refute it. But let's say, for example, they do put in the dispute, you can still contact the customer and say, hey, I see that you put in a dispute for this charge. We will happily refund you immediately if you drop the dispute. Now, by them dropping the dispute, you will get the money back and your dispute charge will be refunded. And then you can refund the customer directly. Now, if your customer is a pretty good customer and you've treated them well, they will agree to doing this. But sometimes customers are like, hey, I already have the money in my account. I don't want to deal with this headache. And they just won't do that. They won't comply. But at least you try, you want to try that if it gets to the dispute kind of level. And remember, disputes are not good for your actual reputation. With your payment processor, you want to keep your disputes to a minimum. Too many disputes raises flags. It looks like maybe you're running shitty business, which I'M sure you're not. Okay, well, there you have it. Those are all my best insights when it comes to saving money with your payment processor. I hope that helps you save some money. Neil, to thank you so much for your question. Remember, if you have a question you want to ask and you want me to answer it right here on the show, just email me@omar00mba.net I'll make sure we add it to the queue and get it aired on Q and A Wednesdays. Thanks again for listening and subscribing. If you haven't subscribed yet, you want to hit that subscribe button. No matter what, you use to listen to podcasts, whether it's Apple Podcasts or Stitcher or Overcast, by hitting subscribe, you make sure that you don't miss an episode so the episodes get downloaded automatically. And you also have access to all our archive episodes over a thousand lessons. So hit subscribe right now. All right, before I go, I want to leave you with this I love this question because that means you're being mindful of the costs of your business. You're trying to save some money somewhere, and lowering costs is a great way to really increase your overall profits. It may not seem like a lot like lowering your payment process percentage from 2.9 to 2.6, but it does make a difference. And at the end of the day, it's still money left on the table that you want to take. All right, I'll check you in tomorrow's episode. I'll see you then. Take care.

At Capella University, learning the right skills could make a difference. That's why our business programs teach you relevant skills you can take from the courseroom to the workplace. A different future is closer than you think with Capella University. Learn more at Capella Eduardo.