The processing discount is much like the Cash Discount Programming (CDP) except that instead of the consumer getting the full charge of eating the processing fees the merchant would meet the customer halfway.
For example, CDP works as if the consumer spends $100 and uses cash the consumer would pay the $100 + tax. However, if the consumer pays with credit card an additional 4% would be added to eat the processing fees for the transaction + $100 + the taxes.
Processing discount is setup a little different, but the concept is the same. Instead of the 4% which is the industry standard we take the current processing percentage rate in this example 2.69% flat rate. The 2.69% is divided in-half which leaves the consumer to pay 1.345% and the merchant to pay the other half. It can be looked at an honest way to do business but nonetheless it’s the cost of doing business as well.
Most merchants love to save money and make money. The CDP programming where the customer eats the full 4% for each transaction is pushing the costs to the customer for doing business at that location.
However, like most merchants regardless of industry it is a race to the bottom with the costs and best products. If every merchant is not taking the full advantage of the CDP and your customers may look at this as your business is charging them additional fees. On the contrary this is the complete opposite. It may look like they are paying more but if the merchant sets up a rewards or loyalty program the customer will get all their money back. Merchants have the freedom of setting up their own customer rewards program – for example: if a customer spends $100 they will get $5 off on their next purchase. This is an example of a loyalty program for those that return often.
This is something that all restaurants MUST take into consideration. While your menus typically stay the same price; food prices are fluctuating in price. Look at the heartland of America with all the floods that happened in the mid-west. Many farmers asked government assistance like welfare to help them out due to their lost production.
With the food demand in much greater value the price will continue to rise.
In the year 2016, the weather was steady two-years prior and the food prices were cheap because the demand was lower. Grocery stores do it all the time with the veggies and fruits. The cost for a green pepper currently right now 0.79 but I’ve seen it during the winter where the price is $1.79. If your running a business like the example with the grocery story the food prices can go up and down, but the menu stays the same.
This is bad for business when food prices go up because your bottom line with your profit margins will decrease especially if you have a menu that doesn’t reflect your business costs.
So, the processing discount makes better sense if your looking to not push the entire costs of using a card onto your customers but at least meeting them halfway.
Could you imagine if a grocery store didn’t fix their price and their menu for a green pepper all year every year is 0.79 when during the winter months it could range much higher? How long would they continue to grow and maintain profitability?
If grocery stores change their prices all the time why don’t you get out from that race of following the follower like everyone else in the retail and restaurant business and start taking your business a little more seriously and leave your old way of thinking and reinvent customers that love your business as much as you love it. After all like most business owners they spend well above the average employee at their location then everyone else.