12 Oct Calculating Average Credit Card Processing Charges
One of the first things a business owner learns about credit card processing is the fact that there are fees charged to the merchant account every time a card is run. These fees need to be taken into account when figuring out the retail price of an item as they directly impact how much profit is made. Fortunately, figuring average charges is easy math as long as the merchant becomes familiar with and memorizes the percentage rates and processing fees.
The first step to calculating average charges is to become familiar with the fees themselves. How much gets taken out by the merchant account provider depends on the type of account the business has. A retail merchant is going to have a much lower rate than an Internet merchant. The other factor that comes into play is floating percentage rates. Some merchant accounts have rate tiers that go lower with higher volume. However, a floating rate does not necessarily make things more difficult. It simply requires more attention to detail when averaging processing fees.
Before moving on to the math, it needs to be noted that it is OK to round the percentage up to an even number to simplify and speed up the equation. The idea is to find an average, not the precise amount. Precision is to be saved for reconciling the charges every month, while the average is used for general information.
The percentage comes first in the equation as the processing fee is always the same and is always listed as the second charge in a credit card processing fee table. Start the calculation with the expected retail sale price of the item. For example, the retail sale of a piece of merchandise is $10 and the average percentage rate is 2 percent plus a .30 transaction fee. Multiplying $10 by .02 comes up with a final number of .20. The actual math looks like this: 10.00 x .02 = .20. Add in the .30 transaction fee for a total of .50, giving the merchant $9.50 from a credit card transaction.
The previous example is using average charges for the math. It could be that a merchant provider is actually charging 1.9 percent per transaction. However, it is a one cent difference to round to 2.0 percent and does not make a major impact when doing average figures. The penny is taken back during the actual accounting to come up with an accurate figure.
Calculating average charges is a handy tool when sourcing out merchandise wholesale and determining their final retail price. Having an idea of how much the credit card fees are helps set the final price of the item, allowing for a reasonable profit.