One of the best decisions you can make as a salon or spa owner is taking credit card payments for your business. Since most people don’t carry cash or write checks these days, they instead expect businesses to accept payments by credit or debit cards or Apple pay. And because these are convenient ways for consumers to pay for products and services, they tend to spend more on their purchases.
For example, one study by Dun & Bradstreet found that people spend 12-18% more when using credit cards instead of cash.
McDonald’s once reported that its average ticket was $7 when people used credit cards versus $4.50 for cash — a 55.5% increase.
In another example, the average value of a cash transaction was $22, compared to $112 for credit transactions. That’s a 409% increase – according to a study by the Federal Reserve Bank of Boston.
Basically, you increase your potential for earning more in your business simply by taking credit cards.
In addition to the convenience and potential increase in consumer spending, other benefits for payment processing include the ability to take deposits, run a preauthorization, and offer e-gift cards and contactless payment processing with a card-on-file feature.
All About Processing Fees
Naturally, the convenience of taking credit and debit cards comes at a cost in the form of processing fees. It’s not just the payment processing company involved in determining your processing fees. Although we’re not going to bore you with the details, just know that are many players involved – each taking a small cut in exchange for their part in the service.
In simplified terms, processing fees are the costs that a merchant or business owner —in this case, your salon or spa — pays to accept credit or debit card payments. These fees can add up quickly. Plus, navigating your credit card processing options and their costs can be confusing. That’s why it’s essential to understand what’s involved in determining how much you will ultimately pay for the convenience of payment processing.
When it comes to fees, there are three main types involved in accepting credit cards: transaction fees, monthly processing fees, and incidental fees.
Transactional fees include the interchange rate, the assessment fee, and the payment processor markup, which you’ll pay for each credit or debit card transaction that you process. For example, a rate of 2.55% + .10 cents refers to credit card transaction fees of 2.55% of the overall sale plus 10 cents for the transaction. So, for a $100 sale, you would pay $2.55 plus ten cents, or $2.65 total, to process the payment.
Monthly processing fees are what you’ll pay, typically monthly, for using the services of a merchant services provider.
Incidental fees are charged by your payment processor or merchant account provider due to instances such as chargebacks.
Understanding Your Merchant Statement
Although some of these fees depend on what your business qualifies for based on volume, it is essential to understand what you’re paying for and what should or should not be listed on your monthly merchant statement. With all of that in mind, here’s what you need to look for:
You’ll see a line for Sales Discount Rate, which is the actual percentage of the ticket amount you pay for your credit and debit card processing.
If your rates are different based on credit or debit or card types, such as Visa, MasterCard, or American Express, you might see individual line items for each. That may also be the case based on how you entered the card, whether it’s swiped in person or entered manually. Payment processors usually charge higher rates for manually entered transactions as they feel there is a higher chance the card could be stolen, which would end up costing them.
If you see a qualified, mid-qualified, or non-qualified discount designation on your statement, understand that they are based on a tiered pricing structure that processors use to assess credit card processing fees. Deciding which transactions and card types are considered qualified, mid-qual, or non-qual depends on the card type and the way the transaction was entered, whether it was face to face or entered manually.
It’s also not uncommon to see a flat rate per transaction fee listed on your monthly statement as well. In the case of the example I mentioned before, it was the 10 cents per transaction.
In addition to the transaction fees, you will also see chargebacks should any of your clients dispute a transaction. These are all normal line items to have listed on your statement.
You may also see a line for batch fees, which are charged each time you batch out, usually at the end of your day. Batch fees are much like a transaction fee but are for the number of batches you close for the month. It’s not uncommon for a busy salon or spa to have 28-30 batches per month.
And then there are monthly processing fees, which I mentioned earlier. These are usually flat-rate fees that you may pay just for the opportunity to use the services of a merchant services provider. You would typically see a monthly fee like this for a business that does not have a large volume of credit card processing each month.
Statement fees are another red flag. They involve a monthly fee that some payment processing companies charge you to grant you access to your own statements. These are unnecessary fees, so make sure you are not charged for them.
You may also see a PCI Validation fee, which some payment processing companies charge if your business is not PCI compliant.
PCI compliance refers to the Payment Card Industry Data Security Standard ( or PCI DSS), a set of security standards designed to ensure that ALL companies that accept, process, store, or transmit credit card information maintain a secure environment. To become and stay in compliance, your business simply needs to fill out a questionnaire as required, ensuring that you are running your business in accordance with the standard. If you stay in compliance, there should be no reason to pay these extra fees. Unfortunately, 9 out of 10 companies are still charged this fee anyway, so be aware.
Finding the Right Credit Card Processing Solution
So, when it comes to payment processing, how do you know if you’re getting a good deal?
It comes down to your Effective Processing Rate, which is the true cost you are charged for processing each transaction. Your Effective Processing Rate is figured based on your total fees divided by your processing volume for a given period of time.
A standard rate from your credit card processor is ideal for if you’re an independent contractor, like a booth or suite renter, or you own a smaller salon processing around $10K or less per month.
Using a standard rate, in this example, let’s assume you have 100 tickets with an average of $100 per ticket per month. That makes your monthly volume $10,000. To calculate your Effective Processing Rate, divide the total monthly cost by the total monthly processing volume. In this case, your effective processing rate is 2.65%.
Standard Rate (2.55%) = $255 (2.55% x $10,000)
+ Per Transaction ($0.10) = $10 ($0.10 x 100)
Total Monthly Cost = $265
Total Monthly Cost $265
Processing Volume $10,000 (Assumes 100 tickets of $100 each)
Your effective processing rate = 2.65%
So, how do you know if you have a desirable Effective Processing Rate? Basically, anything within 3% is considered good.
For a salon averaging in the $40K a month range or higher in processing, an Interchange Plus agreement may be a better option. It provides a lower interchange rate and comes with a few basic monthly charges, which average back out to make for a lower Effective Processing Rate.
Here are a few examples of payment processing using an Interchange Plus rate, if you wish to take a look:
Contracts & What to Know
Nobody likes to feel locked in. That’s why it’s a good idea to know if there is a long-term contract with your current payment processor, how long the contract is for, when the renewal date is, and what it might cost to terminate the contract earlier. If possible, try to avoid long-term contracts, so you have the option to shop around as desired.
It all comes down to the higher your volume of payment processing, the better your effective processing rate can be.
Credit Card Processing Solutions
If you want to….
- Place a value on your time and cover expenses by taking deposits
- Offer a seamless checkout experience with easy credit card storage
- Effortlessly track & manage gift cards, packages & monthly memberships
- Access integrated payment reports to keep financial information in one place
- Rely on a support team that knows your needs and understands how credit card processing integrated into your software
Then you are already in the market for credit card processing, and you should consider RosyPay to avoid the junk and hidden fees that we discussed earlier. This PCI-compliant, contract-free payment processing saves you money and integrates seamlessly with Rosy Salon Software for both behind-the-counter and online experiences.
No matter how you run your business, whether it’s for a busy front desk, front desk-less, completely mobile for wedding parties, or you want tap-to-pay options and more, learn how much you can save with RosyPay. Get your free, no-obligation statement analysis at save@RosyPay.com call 877-346-7679 Ext.4.