Answering the Question “What is Your Rate?”

Today, I did some prospecting in my local area. I met four new business owners and three of them asked me, “What is your rate?” That is a very common question which deserves an answer. You can’t say, “I have no idea what my rate is because I do interchange plus pricing; I need to see a statement first.” Although you do truly do need to see a statement first, let me explain what the merchant means by this question. Then I will share my answer to it.

When a customers asks, “What is your rate?” 95% of the time they are referring to the discount or qualified rate on three or four tier pricing.  You’ve probably figured out by now that most merchants are on tiered pricing with a “Qualified,” “Mid-Qualified” and “Non-Qualified” rate, or they are on flat rate pricing with one “Discount Rate” and a bunch of surcharges. When the customer asks this question, you should realize that no knowledgeable merchant services professional has ever explained how the pricing really works. If the client had proper knowledge the question would be “What are your rates?” rather than “What is your rate?” This happens because most processing industry sales people don’t understand the pricing and because of the emergence of new players like Square that talk about their single rate. Most credit card processing sales people talk about the Discount or Qualified rate without mentioning the Mid-Qual or Non-Qual rates. Merchants think they just pay 1.7% or 1.9% or whatever, plus a bunch of other fees that they don’t understand; they don’t believe they can do anything about the fees. Thus they ask, “What is your rate?” If you don’t understand this yourself, make sure you watch my latest video series, “How to Read a Statement.” So, how do you answer this question?   Here is how I answer the question, depending on the cost structure you are pitching.

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For Interchange Plus Pricing I answer:  “We mark up each transaction just below a half of a percent at 0.40% with an eight cent transaction fee. For instance, let’s say that one of your customers swiped a Visa credit card.  The bank that issued the card is going to charge you about 1.5% for that transaction, so we would charge you 1.9%. Right now it sounds like you are on tiered pricing. Our cost structure is totally different. We basically provide wholesale pricing directly to the business owner rather than retail type pricing, which is what you have now. We just pass through whatever the banks and Visa and Mastercard charge for each individual transaction plus 0.40%. Would you mind if I swing back by in a couple days to provide you with a free cost analysis spreadsheet which breaks down all of your costs and shows you exactly what you would save by switching over.”

Client: “Sure, you could do that.”

You say: “Great, the only thing I need from you is a recent credit card processing statement so that I can do an apples to apples comparison. Do you have one handy or should I swing by another day to pick that up?” If you get a customer who seems more interested in how the pricing works, don’t be afraid to explain it in more detail. Customers may ask, “So how is your cost structure really that different?” Following is a sample conversation to answer that question:

Me: “Well, let’s take your rate that you pay right now. What is it, 1.7% or so?”

Customer: “Yes, it is 1.7%.”

Me: “That means all of your transactions that are qualified (a standard credit card is billed to you at 1.7% plus a certain transaction fee), any idea what your transaction fee is?”

Customer: “I think it is $0.25.”

Me: “You have all these transactions coming in at 1.7% cost to you. What you don’t realize is that the cost to the processor for each transaction is different. Many of these cards, such as check cards and debit cards, come in at a total cost well under one percent. On these cards you are getting marked up almost a full percentage point. Other cards come in closer to one and a half percent; on these you are getting marked up a little less than a quarter of a percent. Basically this is similar to your paying retail. The processor gets the wholesale rates, puts them all together in one category, marks them up and passes them on to you. What we do is pass the wholesale rates directly on to you from Visa and Mastercard and charge one flat rate mark up of 0.40%.  Overall, this saves you a lot of money because it reduces the profit the processor gets on the lower cost transactions. Does that make sense? It will really make much more sense once I show the free cost analysis spreadsheet which will break everything down and itemize your current costs. Do you have a statement here I could take a look at?”

I hope this helps. I just wanted to give you some verbiage you can use in the field to explain our pricing platform to prospects.

James Shepherd