How To Increase Profit Without Increasing Revenue
What if I told you that you could increase your business’s net profit without necessarily increasing its revenue? That with a better understanding of one of your business’s main expense streams, you could end up saving hundreds, even thousand of dollars a year (or month!). I’m not talking about anything fancy. And I’m not just talking to those businesses earning $1M or more annually. I’m talking to mom and pop shops, multi-million dollar companies, and everything in between.
The thing that all of these businesses have in common is that they accept credit cards.
Say whaaaat?! You read it correctly: credit cards, and in any form. Whether your customers pay online, over phone, or in person, it doesn’t matter. Paying the credit card processing fees associated with accepting credits is a necessary evil cost of doing business.
Here’s a little back-story:
I own a small yoga studio in a suburb of Boston. We are entering into our 6th year of business and we have a healthy little operation. Several months back, I decided to take a good hard look at my own business’s merchant processing statement.
Running a small business, as most of you know, is a jack-of-all trades experience. In one fifteen-minute span we go from feeling like the CEO, to the marketing manager, to the cleaning crew. Since the merchant processing had been set up and functioning, I never gave it any thought. The hieroglyphics processing statement would come in the mail every month where I’d try, unsuccessfully, to decipher what each and every fraction of a percentage meant. After several minutes of realizing I processed X amount and they took Y amount, I’d file the statement away and move on to the next task at hand.
It wasn’t until a friend who works in the processing industry offered to give my statement a complimentary analysis to explain exactly where I was being charged and whether there was any possibility to save with another company. Lo and behold, just about 5% of my credit card revenue was going to the processor. OUCH! The crazy thing was that there were fees in my statement that weren’t explained. Here’s something to remember about credit card processing: processors can add in fees when they feel like it. Is it unfair? Yes. Do they still do it? Without a doubt.
As you can imagine, I switched companies and will enjoy the savings of at least $2,000 this year. We are not a large business, so these savings mean a lot to my studio and my family. And guess how long it took me to make all the switches with new hardware, paperwork, etc. Oh, about one hour TOTAL. It was the easiest $2,000 I’ve ever made!
Now, my friend who initiated this whole processing interest also owns a fitness center. About three years ago, he got tired of arguing with the credit card processors about unfair fees so he searched around for the most reputable company he could find and decided to be a rep for them. Now, for his friends, family members, and associates who own businesses, he gives the lowest possible rate. Fitness and credit card processing: it’s an unlikely match but it actually works. It works so well in fact, that credit card processing has become my side hustle as well.
I teamed up with Strategic Payment Systems to educate other business owners about the credit card processing industry and to help them keep as much of their credit card revenue as possible. I know the statements can be confusing to understand, so if you own a business and you accept credit cards in any form, keep the following five points in mind:
- A quick way to calculate the percentage being deducted is to divide the amount deducted (usually at the top of the statement) by the total amount processed.
- Remember that even a fraction of a percentage point can make a big difference, especially over the course of a year, especially if you’re processing a significant amount. It never hurts to get a rate review. Side note: I just helped a company lower their rate from about 2.7% to 2.4%, which resulted in at least $5,000 worth of savings. Who would have thought .03% would make such a big difference?!
- There are often hidden fees for “flat-rate” processing companies. There just plain are.
- There are cost-per-transaction fees. I’ve seen 10 cents, 20 cents, 25 cents, and 30 cents a swipe/transaction. Keep it in mind. How much do you pay to run a transaction?
- Some companies have businesses locked into a contract. If the processing fees will be low enough with a different company, you may actually end up saving more by paying the early cancellation and switching over. You just have to run through the numbers and see what makes sense.