Understand Your Merchant Statement by Understanding the Effective Rate

Are you a business owner that looks at your merchant statement each month and scratches your head as you struggle to understand the variety of fees? Each month your charges may go up or down based on three things: the number of transactions you run, the dollar amount of these transactions, and the type of cost structure you’re on.  With these variables in mind, how do you run a true comparison to see if you’re getting a good deal or to see if you’re getting a better deal than the next processor is offering?

The answer to this is called the “Effective Rate.”  The effective rate is the one number that, no matter what, will show you if you are paying too much.  The effective rate is simply the total processing fees divided by the total processing volume. 

Okay, the total processing fees are going to be the total of fees that you have been charged by the processor.  This should be found at the summary of amounts found on your statement.  You should also be able to refer to your bank account to see what has been deducted.  Then your total processing volume is going to be the “Voluem” for Visa, Mastercard and Discover.  Add these three numbers together (they may be listed as added together and called “Total Volume”). 

Now let’s look at an example. Let’s pretend that your merchant statement shows a total credit card processing volume of $20,000.  And your merchant statement shows that your processor charged you a total of $700 in fees.  Effective rate is calculated by taking the total of fees and dividing them by the total processing volume.  In this case you would take $700 / $20,000 = 3.5%.  So you’re paying an effective rate of 3.5%.

As a general rule if you are paying over 4%, then you are paying too much.  At Trusted Merchant Accounts we try to keep our merchants’ effective rates in the range of 2% - 3%.  We’re able to do this by offering low rates.  If you’re effective rate is above 3%, feel free to send us your statement to dsherman@trustedmerchantaccounts.com.   We’ll do a free side by side, detailed comparison and show you what you could be saving.

For more information visit our website Trusted Merchant Accounts.