How to Increase Profit Margins with Surcharging

Posted by Jayme Moss on Oct 31, 2014 4:26:10 PM

Credit card surcharging

For some businesses and industries, adding credit card surcharges to purchases can prove to be a huge help to the bottom line of that business.  Regulated merchants with already low profit margins, such as liquor stores, have historically preferred or even required cash only for transactions involving liquor.  Why? In Ohio the Department of Commerce, Division of Liquor Control caps profits for liquor stores at roughly 5%. Once you add in the expense of credit cards, the margins practically evaporate.To survive, these businesses need to rely on higher margin items such as beer, wine and even candy bars to operate profitably.

One of our clients actually surcharges liquor (on credit cards only – not debit) but does not surcharge on the rest of the items in the store. This novel approach helped him recoup thousands of dollars in fees with almost zero customer attrition or complaints. You see, if the customer does not want to pay a surcharge to get their rewards on the credit card, they can opt to pay with a debit card with no surcharge. Debit cards are less expensive to accept due to the difference in interchange.  

Not all industries will benefit from surcharging, especially within highly competitive markets.  In one famous example, Verizon felt the wrath of its customers when it announced that it would charge customers a surcharge if customers paid with credit cards through the company's website or via telephone. The company quickly reversed its decision after a flood of complaints.

 

Is surcharging a good fit for your business?

Here are 3 traits that may indicate your business is one that would benefit from surcharging:

  1. Competition is low
  2. Margins are thin
  3. Customer loyalty is strong (sometimes due to the lack of competing stores)

Once you make the decision to try surcharging, it is important to understand the rules and regulations about it and how credit card surcharging works.  We have put together an FAQ and instructional guide based upon our experiences here at Solupay that we invite you to download.

Download our eGuide on Surcharging

Topics: Surcharging

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