One frequently asked question and how it relates to small business’ revenue and profitability.
At PaySimple, our dedicated employees have the wonderful job of guiding small business owners towards enhanced profitability. As such, one of the frequently asked questions our staff encounters is: “What payment types should I accept from my customers?” Merchants want to know if they should offer ACH (also known as eCheck), credit cards or both. Today’s blog will explore this question. The first criteria we’ll explore is the fee charged for each transaction type. To do this, you must first determine the size of your average ticket. Are your customers buying inexpensive items such as a $5.00 monthly subscription to your newsletter or are they buying $500 digital cameras? Based on PaySimple’s rates of $.55 per ACH transaction and 2.28% + $.24 for a qualified credit card transaction, you would prefer ACH if your average ticket is less than $14.00. This is a very low break-even point which might drive you and most business owners to prefer ACH over credit cards.
But it can’t be that easy, right? The next criteria we look at and question we ask is “How strong is your relationship with your customers and what other options do your customers have?” If you own a childcare center and have a waiting list for students to get into your school, I would say that you have a very strong relationship with your customer and you should require ACH. However, if you own a Web Hosting company and the customer has dozens of other options, then I would recommend you offer your customers as many payment options as possible to avoid lost sales. Another thought to consider is the net revenue gained by offering credit cards as a payment alternative, despite the additional cost. In addition to the potential of losing sales by not accepting credit cards, Visa will also tell you that your average ticket will be higher if you accept credit cards. The statistics show that Visa purchases are consistently higher than those made with cash. Let’s take an example of a typical customer that may spend $40 with your company when paying via ACH, but who may spend $60 when using a credit card. Although your cost for these transactions is $.55 for an ACH and $1.60 for the credit card, your net revenue is almost $18 higher by accepting the payment via credit card. In summary, if you have a strong customer relationship and a high average sale amount, requiring an ACH debit as payment form may be the way to go. In just about every other situation, you are better off providing your customer with multiple payment options to maximize customer satisfaction and your overall profitability.