I just finalized a deal with a self-storage company that uses our software. We set them up on cash discounting through our system. This caused some...
Per Item or Percentage Cash Discount, Which is Best?
Thanks for joining me in this episode of my series “How to Sell Cash Discounting.” I’m enjoying the opportunity to help you understand cash discounting. I believe for 2018, 2019, and 2020, this could be your BIG chance to make that six-figure income! Should you do a percentage or a per item cash discount? […]
Thanks for joining me in this episode of my series “How to Sell Cash Discounting.” I’m enjoying the opportunity to help you understand cash discounting. I believe for 2018, 2019, and 2020, this could be your BIG chance to make that six-figure income! Should you do a percentage or a per item cash discount? My explanation of each option will guide your decision.
Read the previous article here: http://bit.ly/2CUsgjj Consumers React to Cash Discounting – Here’s what they’re doing
Before our industry began selling cash discounting, the norm all along has been a per item fee. Now that we have credit card machines in place, doing percentages is also possible. We need to understand which of these is the better option, and we need to understand what “better” means. There is good and bad with both options. There are some guaranteed principles involved which you should know.
#1. If a merchant has an average ticket size of more than $50, you should always do a percentage. In this situation the per item fee is going to be too difficult. The amount would be very low if paying over $50 with a check card. And the amount could be very high if paying over $50 with a credit card. Thus, for a $100 transaction, a merchant could pay as much as $3 in interchange or as little as $0.24! There is too big a difference. You definitely want to do percentages on that just to protect yourself.
#2. For transactions below $10 to $12, you absolutely want to do per item fees every single time. The percentage in this situation would change drastically from one dollar to the next. It would look ridiculous! A $6 transaction versus a $3 transaction would require a double percentage to compensate. The reason for this is the fixed cost. To process a transaction from most processors costs at least $0.30, no matter whether the transaction amount is $1, $10, or $20. If you do $0.40 to $0.60 cash discount, that will cover you all the way down the scale. Whereas if you did 4%, that would not cover you all the way down.
#3. There are regulations which have capped surcharging at 3.99%. This doesn’t technically apply to cash discounting. But processors are sticking to it. They want to be able to say to regulators, “We did the right thing. We stayed below 4%.” So, you can’t go above that with most processors right now. You will end up losing money on the $3 and $4 transactions.
The rule for cash discounting is per item fee below $10 and percentage above $50. There is no hard, fast rule for transactions between $10 and $50. Whether to use per item or percentage depends partly on the type of merchants and transactions. Make sure you have a good processor who understands the difference and can help you. You certainly need a processor who offers both per item and percentage options. Which option to use in these situations is up to you.
Personally, I think the per item fees are a bit simpler, especially for retail and restaurants. Saying, “We have a $0.50 discount. We will give you $0.50 off if you pay with cash.” makes more sense than “We give you 4% (or 3%) off.” Ask yourself what is best for the merchant; what’s best for the consumer; and what’s best for your profits. Take all three of those into consideration when making the decision. If there is no difference on their side, obviously you’ll want to get the profits. That’s important.
Many processors I know are still stuck on a surcharging model. There are still some not doing cash discounting yet. So, for those of you just learning how to sell cash discounting, you are still at the ground level. I would personally lean more towards the per item fee because some processors won’t be able to compete with me yet. They will take a while to catch up and do the per item fee. There’s a bit of extra edge for you!
Don’t miss the last episode in this series! I’ll complete our in-depth study of cash discounting.
Read the next article here: http://bit.ly/2AIVTyT Cash Discounting – The Opening Pitch and How to Sell It