How businesses burn dollars saving dimes

fire.jpg“A Scout is Thrifty.” This Scoutmaster will ask that you notice that while “thrifty” is part of the Scout law, “foolish” or “leaves money on the table” are not.

One of the sad things I see when I visit some businesses is the lack of flexibility when payment time arrives.

One of your primary goals as a business owner is to remove any and all obstacles that might make it more difficult to buy, or to give the customer a reason or excuse to buy later, much less to leave.

Yet many business owners do just that – give their customers a reason to leave, or worse yet, a reason not to stop.

It’s especially prevalent with restaurants, probably because they feel that the credit card merchant fees eat into their small transaction sizes. I’ve seen numerous restaurant employees and EVEN THE OWNER act as if they are offended or annoyed because someone asked if they took credit or debit cards.

Nice introduction to the customer, wouldn’t you say?

In many cases, the ability to use a card is what provokes someone to choose your place over someone else’s.

In a tourist-driven economy like we have here in Montana, you’ve just got to be nuts not to take them.

People are traveling, they have limited cash (not your problem), they want to save their cash for places that only take cash and for emergencies, and so on. They want to use their credit or debit card.

Yet all they get is excuses like these…

  • I don’t like to use credit cards.
    (It isn’t about you, it’s about the customer. Repeat after me: “I am not my customer.”)
  • I don’t want to give cash back from debit cards.
    (That’s your choice)
  • Debit cards scare me, because someone’s bank account might be empty.
    (Debit authorizations occur “live”, ie: right now. Soon as your system says “pay me” that money has to be there)
  • Credit card users can issue chargebacks, return goods, and find other ways to steal from us.
    (Yep. Cash and check users can do similar things. If there’s a 4% theft factor as a cost of doing business…why not do MORE business and keep more 96%’s?)
  • The fees are too high.
    (Card-present transaction fees are as low as they’ve ever been, usually less than 2%. If someone left a $100 bill on the ground and charged you $1.78 to pick it up and keep it, would you? Debit fees are MUCH lower.)
  • It’s a hassle.
    (More so than making change? More than counting the register? Gimme a break.)
  • My people will steal from me.
    (Psst. They already do. Cards wont make that any easier, and in fact, might make it more difficult.)
  • My current point of sale / cash register doesn’t work with credit / debit cards.
    (Even a receipt pad works with credit cards. Either you ring them through your cash register or point of sale system, or you use the magnetic stripe card reader/charge hardware and then ring it up.)
  • People use fake and stolen cards all the time, I’ll lose money.
    (You still take cash and checks, right? What’s the difference? At least with a stolen card, you have a chance of getting your money from the credit card people.)
  • My bank doesn’t offer credit card service.
    (Most small banks don’t. Not a big deal, they just farm it out like most of the big banks do, so just go direct.)
  • I’m worried that I might get in trouble if someone gets a customer’s card number from our records.
    (Follow the card information protection/security rules. Sure, it can happen, but usually it happens because someone isn’t behaving securely.)
  • The bank keeps your money too long, like 30-60 days.
    (A bank whose merchant account service does that wont be around for long. Most merchant systems transfer the $ to your business account within 48 hours. Certainly there are bad merchant account systems out there. They are one more reason not to use fly by night merchant account vendors, check references, ask fellow business owners who they use, etc. There’s bad hamburger out there too, but you still eat burgers. Don’t throw out the baby with the bathwater. Do your due diligence, my friends.)
  • We don’t have a business checking account (or state business license/DBA, etc)
    (That isn’t advisable no matter how you get paid. Cross the T’s and dot the I’s. Come back when you have your act together. Operating a business out of a personal account is a really bad idea. Seems fine when things are going well. Seems really stupid as an afterthought when things aren’t going so well.)
  • I don’t know anything about it, they might take advantage of me.
    (Didn’t stop you from going on a honeymoon or riding a bike, did it? Don’t be a wuss. Ask questions. Be diligent. Use your nose. Do they pass the “smell test”?)

And so on. Got a new excuse? I’d love to hear it (use the comment area).

Look, it isn’t as easy as taking cash (real cash, not funny money), but it is one more reason why people will stop at your business rather than your competitor’s place. Seems interesting that even McDonald’s and similar take them these days – and have stopped taking checks. McDonald’s, like the Russians, doesn’t do anything without a tested plan.

Yes, we need to talk about the fees. Ok, if you have $4500 days now and half of your purchases come from credit cards (and none from debit), you’ll pay somewhere around $40-50 for the ability to collect $2250. Less than 2% if the majority of your transactions occur where someone hands you the card or swipes it through the reader right in front of you. Less than 3% in every case I’ve ever seen, even if you do business by phone, mail or internet. The fees do change depending on what kind of card it is, but a discussion of all that is beyond the scope of a blog. They’re still under 3% no matter what.

Debit cards are the dirty little secret. Their fees are typically 35 to 55 CENTS and there’s NO percentage of the transaction charged like there is on credit transactions.

Yes, it is cheaper than taking a credit card – because the money is being moved from the customer’s bank to yours, rather than adding more risk to the credit card holder (Visa, Mastercard etc) by virtue of increasing the customer’s credit card balance. As such, it costs far less to process a debit card. You do have to have a pinpad – without it, the debit card is processed as a credit card, even though the money is being taken directly from the customer’s account – you pay the credit card fees.

Think about that. How many businesses have you been in where they ask “credit or debit” and say nothing else? They havent been trained to encourage use of debit vs credit, or their systems are all credit no matter what – which means they need to get up to date. Funny thing is, getting up to date will save them $ on transactions that end up using debit instead of credit. It’s that slight edge again.

Hard numbers on the fees: If you collect all $4500 in cash, you’ll pay nothing if the cash is all legit. Likewise, checks – if they are all good. that isn’t the point, however. The extra business as a result of additional convenience to your customer is the point of all this. People still run out of cash, forget their checkbook, didn’t make time to go by the ATM, etc.

Your ability to take a card, credit or debit, can save them time, money, embarrassment, inconvenience and more.

Maybe you get a new customer who is traveling on an expense account. Credit cards / debit cards make their life easier. They save time when expense forms are filed. Time is money.

Maybe a family stops in more often because they don’t have to visit the ATM that’s down by the other restaurant.

Maybe you do more business. What if you just turn one more table at your pizza joint per day because of credit cards? That’s somewhere around 300 pizzas (say $4500), 50 beers (about $200), 50 salads (about $200) and 500 other drinks (about $550) in your cash register. Using a very rough guess, you added about $5900 to your annual gross sales by taking credit and debit cards – and that’s just for 1 transaction a day.

One more transaction per hour seems far more reasonable. That’s almost $60,000 using my guesswork numbers. Even half that is a nice increase for the typical small, family-owned restaurant – especially given the investment.

Oh yes, the investment. A $50-75 magnetic stripe reader, or a $300-350 pinpad/swipe combination (pinpad is required for debit).

Hardly seems fair to your competitors, eh?