Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.
With all the eating and drinking at the two pubs that are part of Moncton-based Pump House Brewery Ltd., founder Lilia Fraser and her staff swipe thousands of credit and debit cards.
But each transaction comes with a fee that goes to the card companies. Last year, they added up to about $27,000 – too much, if you ask Ms. Fraser. "These fees are coming out of our bottom line," she says.
Ms. Fraser's 50-employee company generated $5.2-million in revenues last year, and the two pubs brought in about $3.5-million of that. While the fees account for less than 1 per cent of restaurant revenues, there are other things she would rather be doing with the money.
"We can direct that money into improving our business – adding employment and equipment, for instance."
Right now Ms. Fraser is paying between 1.75 per cent and 2.25 per cent for each Visa and Mastercard transaction, 3.4 per cent on American Express cards, and 5 cents for every Interac transaction, she says.
Ms. Fraser can't raise prices, which are in line with other pubs in her area, she says. She has tried to get customers to pay in cash, but that ended up angering them – and she doesn't want to send clients to a nearby ATM. "I don't like when I have to do that myself, so I don't want to send them searching for money (either)," she says.
About 80 per cent of her customers pay with plastic, so she'll never be able to avoid processing fees altogether. But she'd like to know if there's any way to have to cough up less. "Most businesses operate on a very low profit margin," she explains. "I know 1 per cent of revenues doesn't sound like much, but it's the bottom line that counts."
The Challenge: How can Pump House Brewery reduce its credit- and debit-card-related transaction costs?
THE EXPERTS WEIGH IN
Dan Kelly, Ottawa-based senior vice-president of legislative affairs for the Canadian Federation of Independent Business (CFIB)
There are things she can do to get costs down. If she's part of a business club or association, they may be able to offer discounted group rates. We offer that, and many of our members have saved hundreds, if not thousands, of dollars a year by using our rates. You'll end up paying a higher rate if you go to the bank alone.
Also, be careful about the card processor you use. Some look like they have cheap rates, but then add large fees on things like exit fees, or extra costs on premium credit cards. When you're shopping for a processor, don't skip the fine print.
Finally, encourage customers to pay by Interac. Most consumers are unaware that merchants have to pay (high fees) for credit-card transactions. Put up a sign and explain what you have to pay for every transaction, and show that Interac transactions cost less. Some CFIB members who've done this say they've saved 60 per cent on credit-card processing fees, though the average is about 20 per cent.
Daniel Baer, Montreal-based national retail industry leader with Ernst & Young
Think about instituting a minimum amount where, below that amount, people will have to pay cash. That discourages people who buy just one drink to pay with a credit card. But she doesn't want to alienate her best customers. They're probably running a $20 or $30 tab, so perhaps make the minimum amount half that, around $10.
Another solution is offering incentives for people to pay cash. Maybe you have a loyalty program where, if you pay in cash 10 times, you get a free drink. You don't want to end up giving a bigger discount than what you're paying in fees, but, if the math works, it's not a bad thing to consider.
John Goodman, founder and owner of Newmarket, Ont.-based TDS Transmission
Until last month, I was paying, on average, 2.79 per cent on every credit-card transaction – I paid about $1,000 a month just to have a machine there.
The main thing I did was switch my (card) processor. They're fairer than the company I used to use on how things get processed. I was able to reduce my fees by $400 in one month. Now my rate is, on average, 1.69 per cent.
The other thing I did was put a sign up telling people what small busines ses get charged. I wanted more people to either pay cash or with Interac – I'm only charged 8 cents per Interac transaction. That alone made a huge difference – about 20 per cent of my customers started using Interac over credit cards. Most people had no idea how charges worked. When they found out, they were more than willing to help out.
THREE THINGS THE COMPANY CAN DO NOW
Join a business club or association
Many associations offer discounted group rates, which are cheaper than dealing with a financial institution yourself.
Bring customers onside to pay cash
Tell customers how much you're paying in credit card fees and how those high costs affect your business. Institute minimum charges for using cards. Offer incentives for paying cash.
Change card processors
Card-processing companies charge different rates. Compare costs and extra fees, and consider making a switch.
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