In this hub I am going to discuss the monthly minimum processing fee that most merchant services providers have.

There are a couple things we need to discuss before we dive into the examples provided below. First of all, if you are an existing business with a good track record of sales volume and your sales are consistent throughout the year, this fee is totally irrelevant for you.

You will never see it and in most cases you will never pay it.

And so for probably 80 percent or 90 percent of my clients, the fee never even comes up at all. Some of them have the fee. They are just not paying it because their sales volume is sufficient that it never comes in.

So why even discuss it in the first place if that is the case?

Merchant Account Comparisons

Well, if you're going to make "apple to apple" comparisons in between merchant account providers, using this one fee gives you a good metric to use to evaluate them. It's fairly standard in the industry. Just about every merchant account provider is going to have this fee built into your account.

It is not always transparent to know what you are going to pay, so it is not always easy then to do just a very simple comparison. But, understand that this is pretty much a standard in the industry.

The amount of the monthly processing fee will vary; $25 seems to be about standard. We are less than that, but $25 seems to be about standard.

So what is it for?

Well, that relates to the second point which we're going to discuss now. If you're interested in setting up a new merchant account, then pay special attention to this. Because it trips up a lot of business owners just starting to accept credit cards.

Why? Well, it mainly affects new businesses that do not have a track record of having sales.

And so for instance, what a monthly minimum processing fee means is that even in a given month, let's say you had sales, but it was all cash or check and you processed no credit cards for the month at all. You would still have to pay a processing fee, and what you would pay would be the monthly minimum.

You'll see what I mean as we look at the examples Okay?

Example #1

Let's say that your monthly minimum is $25 a month and your retail and your percentage rate, just to make things easy, because if you have read any of my previous articles, there is never just one processing rate. Ever. And 99% of sales reps are NOT going to mention this to you.

Anyway, rate structures get complicated quickly...

Just as an aside, the rate sheets established by Visa and MasterCard are like 32 pages long. Briefly, I can summarize the rate sheets this way. Three factors that affect your processing rate are

1. the kind business you are and
   
2. how you are going to process the cards and
   
3. the type of cards they are, whether it is a reward card, a corporate card, or whatever.
   

Those three factors affect the rate you're going to pay to accept credit cards. Across the board Every merchant account provider is dealing with the EXACT SAME rate sheet. The only difference is how honest they are going to be in dealing with you.

But, for purposes of the examples, I'll kept all the rates the same. So, let's say you have a $25 monthly minimum and your processing rate was 1.72 %. If you had $1650 worth of transactions that you processed, that was your volume for Visa and MasterCard, your processing rate or your processing free would be $28.38.

If that was the case, the monthly minimum wouldn't affect you, because the actual processing fee is greater than the monthly minimum. So, the monthly minimum wouldn't apply because you actually processed enough that they are not going to hit you with this additional surcharge.

Example #2

In this example we'll assume a monthly minimum of $20 with the same processing rate. And let's say for the month you did $975 in Visa and MasterCard sales. Your actual processing fee would be $16.77.

Now, in this case, because your actual processing fee is less than the monthly minimum, your merchant account provider would add $3.23 to your bill to bring your processing fee up to the minimum of $20.

So, because actual processing fee was less than the minimum, they would add an amount to your processing fee to bring the total processing fee up to the minimum.

Example #3

In our final example, we'll use a monthly minimum of $15. In this case, let's say your processing volume was $725. That means your sales volume for the month was $725 in Visa and MasterCard sales.

In this case, your actual processing fee would be $12.47. For this amount, the merchant account provider would add $2.53 to your bill to bring the processing fee up to the minimum of $15.

Now, hopefully that was clear and I hope that clarified the fee for you. If you would ask me the next question, and a lot of folks do, it would be...

"Well, why do they charge the fee anyway?"

Good question. I'll answer it this way. A lot of the bigger companies, what I call the mega processing companies, they really don't want to deal with new accounts. And there is a reason for that.

If you looked at any statistics from the Small Business Association, you might see numbers that would be a little sobering. Something like 70 percent or 80 percent of businesses fail in the first five years, and that is pretty much a documented fact.

Now, I will say that, doing this business for as long as I have, I watched some of my clients close their doors. It's sad when it happens.

One former client made the best chocolate I've ever tasted. Awesome pastries too. I couldn't get out of his parking lot without eating half of it.

Now every time I drive by his old shop (now a Sprint dealer) it really makes me sad. Because it didn't have to be this way...

The reason for most of them was, primarily, a question of marketing (since I have a web marketing firm as well this is something I can talk about as well)...

I'm going to discuss this on another hub. Let's just say that in pretty much each case they were all good at what they did, had awesome customer service and products/services.

They couldn't get enough people into the door to keep the lights on and pay the rent.

So, because the mega processes often do not want to work with new accounts, their idea of having a monthly minimum is for them to make money. It is a profit center for them.

If your sales are low and you are just getting started, they are still going to make their minimum to make it worth their time to even take you on as a client. That is a fact.

Now, the reason for that is they have call centers they have to keep open, and they pay people for that. They have sales reps, often untrained, that they have to pay to keep them in the field. And so for those reasons, it is more like an overhead issue and a cost of doing business issue. And so they are pretty open about having a high monthly minimum.

I don't know if that answers your question about why these companies have them. It is pretty standard in the industry.

If you are brand new and you are just opening your first business or any other business, you are going to see these fees. So ask about them.

If you have any questions or comments that'd be great. You can leave them here, or visit my website (links are posted above). I'll be happy to answer any merchant account questions.