Credit and Debit cards are very quickly replacing cash and checks as the preferred method of payment in all types of businesses including hair salons and spas. Their convenience for business owner and consumer alike result in many benefits including more efficiency, greater customer satisfaction and increased sales.
But how can you know whether or not you are getting the best value from your credit card processing agent or how to compare one agent to another to make the best choice?
Total Cost: The Only Thing That Counts
If you currently take credit and debit cards, you can quickly determine whether or not your costs are reasonable by calculating your hair salon's Total Cost Percentage for processing services. Take your total monthly Visa and Mastercard credit card processing fees, divide by your total sales, then multiply by 100.
(Total monthly bill / Total sales for the month) x 100 = Total Cost Percentage
This gives you the percentage of sales that is going to credit card processing costs. This formula is very important because it encompasses ALL of your fees collectively. If this amount is more than two percent, you should consider shopping for a better deal.
In the tradition of 'trust but verify,' this article provides some essential background information about the credit card processing industry as well as some advice on how to compare agents before making your choice on who is best for your hair salon.
You Are Buying a Service
Choosing a credit card processing agent is a lot like choosing an auto mechanic. You are buying a service from the mechanic, but remember that he also has business expenses. He has to pay rent for his shop, buy his tools and supplies and pay other bills. When you find a good, honest mechanic, it becomes a partnership that benefits both parties: He recommends the right services and options and keeps your car running smoothly. You, in turn, pay for those values, enjoy a safe and reliable car and lower costs in the long run.
In credit card processing, expansive technical resources and networks must work harmoniously to handle transactions and ultimately put money into your checking account. These are some of the costs your agent will be paying in order to handle your account.
Your choice of an agent has a great deal to do with Total Cost, but you are also shopping for reliability, integrity, access to solid information and advice, and someone who will work with you as your business grows and changes to make sure you have the tools you need.
All agents start with the same rates and fees from Visa and Mastercard. These are called 'Interchange Rates and Assessment Fees' (see Chart). The difference in transaction costs between one agent and the next is the difference between the agents' rate structures. As long as your Total Cost is within an acceptable range, you may choose to pay slightly more for better advice and services such as faster deposits, better equipment, better support, etc., but you should do so consciously.
Interchange Rates = Wholesale
Visa and Mastercard are associations of banks that lend money to consumers. They base their rates on risk and to pay for the perks they offer. Rates are set each April and change by plus or minus .02% per year on average. Rates differ by the type of card to which they are applied ('standard no perks,' 'rewards,' corporate, etc.). Rates also are set by type of transaction (e.g., riskier 'key entered' transactions garner higher costs). You cannot choose which types of cards to accept, but you can control things such as swiping versus manual key entry of card numbers, which can help you manage costs.
The rates structures used by Visa and Mastercard -- Interchange Rates and Assessment Fees -- are publicly available information. The following is a sample of Interchange Rates and how they break down.
Sample Interchange Rates and Assessment Fees
Visa DEBIT Card
MC DEBIT Card
Visa Credit Card
MC Credit Card
Visa Rewards Card
MC Rewards Card
Visa Key Entered
MC Key Entered
'Downgrade,' 'partially qualifying' and 'non-qualifying' are designations Visa and Mastercard use to indicate riskier transactions for which they charge higher rates, and are terms you may see on your statements.
The rates you are ultimately charged break down as follows:
Controlling Transaction Costs
Today's trend is toward more and more 'rewards' cards which have higher rates than standard 'no perks' cards however, approximately 65% (versus 50% just two years ago) of all credit transactions are now debit cards, which can prove to be a real cost savings for your hair salon since debit cards have the lowest risk and, in turn, the lowest rates compared to all other credit cards.
Guidelines for Choosing an Agent
There are a number of quantifiable points of comparison which you can use to help you choose an agent that's right for your hair salon. The credit card processing industry has exploded in recent years, opening up both your choices for getting a good deal and the chance that you could be taken by a clever, but deceptive pricing structure.
These guidelines will help you determine the truth about what a prospective agent is offering.
Buy your own terminals and other hardware from the agent. Don't lease equipment and don't accept 'free' equipment for signing up. In this business,there is no 'free'; you will end up paying for it somewhere in your fee structure. You should not have to pay 'set up' fees or annual fees for card processing, although some specialized equipment, such as wireless terminals, often require a setup fee for their network. Most agents charge a monthly fee (usually around $10). Expect to pay $350 and up for your terminal.
To get started, ask around. Talk to someone you know and trust -- business colleagues, associations of business owners, your accountant, others with whom you have had a business relationship in the past. Find out who they use and what kind of experiences they've had. Then you can begin to talk directly with the agents themselves.
Credit and debit cards have been proven to increase average sales by significant margins and are an excellent customer service as well as an easier way for you to keep track of sales and payments. The right processing agent can be a tremendous asset, contributing to the growth and future success of your hair salonor practice.