I’m discussing merchant services pricing in this mini-series. Some of you may not know the basics on this subject. Please visit instantquotetool.com and click on the training link. You’ll see a video about How to Read a Merchant Statement which will teach the different cost structures. This will show you actual statements and explain each cost structure in detail.
In this episode get the pros and cons about flat-rate pricing. Find out whether the advantages of this structure balance the glaring weakness. I’ll help you understand how to make it an effective option.
I think flat rate pricing is a good option, especially for smaller volume merchants. However, the glaring weakness is that the rate can simply be lowered. Unless there is technology attached as part of the value proposition, the competition can easily get your client. A rep walks into the business who has a flat rate of 2.75% and says, “I’ll do it at 2.5%. I’m sure that makes sense to you, doesn’t it?” (Notice the use of a tie-down there.)
Square has done a good job of using technology to add value to flat-rate pricing. Their Square register, the little swiper, and their inventory tracking are examples. People appreciate the simplicity of their solutions. This makes them a worthy opponent.
Another advantage of flat-rate pricing is the simplicity for someone who recruits green reps. These are new reps who were selling insurance, cars, or houses before joining merchant services. They can offer flat-rate pricing easily without having great knowledge of the industry. The pitch is, “Okay, we’ll just take your total fees divided by your total volume. Are there any other fees you pay for equipment or anything else?” The merchant is paying $400 and doing $10,000 in volume that month. So, the rep says, “Wow, you’re paying 4% right now. Here’s what I’m going to do for you. Do you see how complicated your statement is? I’m not even going through that with you; it’s just so complicated.” [In reality, the rep has no idea what is on that statement! He/she is too new.] “Instead, I’m going to give you a simple flat rate. You are at 4% right now. We are going to put you at 3.25%. This will save you a ton of money on processing.” [Easily calculate savings. Multiply the difference times the volume.] “You don’t ever have to worry about the flat rate. You’ll be saving money. And the good news is it’s the same every month. No change.”
Remember, though, the glaring weakness of flat rate. If you don’t pair it with technology or reach out to clients to make a change, somebody else will come in and offer that client 2.95%. It is so simple that there’s no way to confuse.
Another weakness of flat-rate pricing is that price increases are more noticeable. Depending on your belief about price increases, that might be viewed as good or bad. This is something of which to be aware. If you are brand new to the industry, ask your processor if they offer a true, absolute flat rate. It is definitely an easier pitch for someone without much knowledge of the industry.
With flat-rate pricing you must be super careful in one area. You will lose money if you price too low to cover the interchange. You and your processor take a lot of risk with your residuals because of this. So, be very, very careful about that. No one wants to be losing money on business! Talk to your processor. Get some guidelines of how to price flat-rate. Make sure you generate a profit.
There you have some pros and cons of flat-rate pricing. This price structure is a great option if used wisely. Hopefully these tips will help you close deals with the best pricing structure. Don’t miss the next episode discussing subscription rate pricing.
Read the previous post: Tier Pricing and Interchange Plus Pricing – Merchant Services Pricing
Read the next article here: Subscription Rate – Merchant Services Pricing