Understanding Merchant Services Pricing Structures | w/Rich Norton

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The Importance of Offering a Variety of Pricing Models

One of the key aspects of success in selling merchant services is being well-versed in multiple pricing models. As Rich Norton explains, when representatives enter the industry, they’re often presented with just a few simple options, like dual pricing or a single terminal solution. However, the truth is there’s a range of pricing structures available, and it’s crucial to understand each one to tailor recommendations to the merchant’s specific situation.

A few key pricing models you’ll encounter are:

• Interchange Plus
• Flat Rate Pricing
• Tiered Pricing
• Cash Discount and Surcharge Programs

Interchange Plus: A Flexible, Transparent Approach

Interchange Plus is one of the most transparent pricing models, where merchants pay the interchange fee (set by card networks like Visa or Mastercard) plus a small markup. This model allows flexibility and is suitable for merchants who prefer transparency and want to understand exactly what they're paying for.

As Rich notes, the key is to focus on the "bottom line"—what the merchant is actually paying per month in fees. For instance, if a merchant is paying $1,200 a month in fees on $20,000 in processing volume, switching to an interchange-plus model could offer substantial savings, especially if the representative can negotiate better margins.

Flat Rate Pricing: Simplicity at a Cost

Flat rate pricing is often used by companies like Square, which makes it easy for merchants to understand what they’ll pay per transaction. While simple, this model can sometimes lead to higher overall costs, especially for businesses with a higher percentage of debit transactions. As Rich explains, merchants who process many debit card transactions are likely overpaying when using flat rate models.

By offering a cost-plus pricing structure, representatives can help merchants save money by lowering rates on debit card transactions. For instance, a merchant might be paying a flat rate of 2.6% on all transactions with Square. By switching to a tiered or interchange-plus system, they could reduce the cost of debit transactions to 1.25% or 1.5%, significantly improving their margins.

Tiered Pricing: A Traditional, Yet Viable Option

Although less common today, tiered pricing is still useful in certain situations. This model separates transactions into tiers based on factors like card type and risk level—qualified, mid-qualified, and non-qualified transactions. Some merchants, especially those with a high volume of lower-risk debit transactions, can benefit from this system.

As Rich points out, many merchants using popular providers like Square are on a two-tier system. Offering them an alternative with more flexibility and lower rates for debit transactions can be an effective sales strategy.

Surcharge and Cash Discount Programs: A Growing Trend

Surcharge and cash discount programs are becoming increasingly popular, especially in states where they’re allowed. In these models, the merchant passes on the processing fee to the customer, either as a surcharge on credit transactions or as a discount for cash payments. This allows merchants to offset their processing costs entirely, while remaining compliant with regulations.

Rich emphasizes the importance of offering compliant solutions, like Payroc's "Reward Pay" program, which adds a 3% surcharge on credit transactions while maintaining a compliant structure. Programs like this are currently allowed in 47 or 48 states, making them a great option for merchants looking to minimize their costs without absorbing processing fees themselves.

Key Takeaways for New Representatives

For new representatives entering the merchant services industry, the key to success lies in continuous learning and adapting. As Rich says, “You need to keep improving, keep your attitude positive, and never give up.” Here are a few tips to help you grow and succeed:

1. Learn the Basics: Understand the differences between pricing structures—interchange plus, flat rate, tiered pricing, and surcharge programs—and know when to apply each one.

2. Analyze Statements: When a merchant hands you their statement, be ready to identify areas where you can save them money. This shows expertise and builds trust.

3. Keep it Simple for the Merchant: While you might understand the nuances of pricing, break it down in simple terms for the merchant. Show them how much they’re currently paying and exactly how much they’ll save with your recommended solution.

4. Don’t Be Afraid to Ask for Help: If you’re unsure about a statement, send it off for analysis. As you gain experience, you’ll become more comfortable handling these situations yourself.

5. Stay Positive and Consistent: The only way to fail is by giving up. Keep learning, stay motivated, and maintain a positive attitude.

Conclusion

Mastering pricing structures in merchant services is critical for providing value to merchants and closing sales. By understanding the various models available and learning how to apply them effectively, you can tailor solutions that save your clients money and build lasting relationships. With the right knowledge and a positive mindset, you'll be well on your way to becoming a successful representative in the payment processing industry.