As a small business owner, you know the importance of slashing overhead costs. That includes credit card processing fees, which collectively cost U.S. businesses $160 billion in 2023 alone. Surcharging offers a way to offset these costs, which can cut down on at least some of your overhead costs.
How does surcharging work, and is it right for your business?
Understanding Credit Card Processing Fees
Credit card processing fees can really add up. One small business owner tells CNBC that they spent $25,000 in 2023 alone. If you’re a retailer, you might be considering ways to cut costs through a surcharge or a dual pricing model. But what’s the difference between surcharging and dual pricing?
Dual Pricing vs. Surcharging: Which Is Better for Your Business?
Both surcharging and dual pricing programs can help you reduce the cost of credit card fees. But which is better for your business? A good merchant services provider can help you implement either plan, but before you do, consider questions like:
- What is the payment preference of my customers?
- How much do I need to cover for my processing fees?
- Does my state permit surcharge fees?
- Can I adapt my point of sale (POS) system for surcharges?
- What is my typical sales volume?
Coffee shops, for instance, might process large numbers of small transactions, each bringing a percentage fee as well as a flat fee of $0.10 per “swipe.” That can be a surprisingly high percentage of your revenue. A surcharge or dual pricing model can cut these costs and boost your profits.
What Is Surcharging?
One way to cover the cost of credit card processing is to simply add on an additional fee for every credit card transaction. This is known as “surcharging” — every credit card customer pays for their goods and services as well as the surcharge set by your business.
So for instance, if a customer purchases a cup of coffee for $5, you might charge an additional $0.10 to cover the cost of the transaction.
Positively, surcharging allows merchants to cover the cost of credit card processing fees. But there are several downsides, including:
- Customers may dislike being charged an “extra” fee
- Not every state permits merchants to use a surcharge
- Credit card providers may have rules limiting surcharges
While surcharging can help you cover (or at least offset) the cost of credit card purchases, it has the potential to negatively impact your business reputation.
What Is Dual Pricing?
Dual pricing also seeks to reduce the costs of credit card processing. But rather than charge extra for credit card purchases, dual pricing creates a second, lower price for cash customers, which is why this is also known as a “cash discount” program.
So if you’re selling a phone charger, you would charge one price for credit card customers but a lower price for those paying in cash.
Granted, a dual pricing strategy can still frustrate customers who prefer paying by credit card. But merchants can also create loyalty programs or other discounts for customers who pay in cash. And when you advertise this policy ahead of time, customers can plan for major purchases and save money.
Additionally, a cash discount program will increase the actual cash flowing into your business. A healthy cash flow will ensure that you have the money on hand to cover operational costs or even invest in business expansion.
Finding the Right Payment Solutions
To implement a cash discount program or surcharge, you’ll need the right company to help you. Simpay, for example, offers a dual pricing/surcharge program known as Simpay Select Plus. It’s fully compliant and easy to integrate into your existing sales strategy. Partnering with Simpay can cut costs and keep your business thriving.
