Case Study: Why This Convenience Store’s Payment Fees Were Higher Than Expected 

For many small business owners, setting up a merchant account is an essential step in accepting credit and debit card payments. However, the true cost of payment processing can sometimes be a surprise if it’s not carefully analyzed from the start. In this case study, we examine how a new convenience store owner faced unexpectedly high payment fees and how we helped solve the issue.

The Problem: Miscalculated Payment Fees

A new convenience store owner approached us for a merchant account. Since he had just purchased the store, he didn’t have a past merchant statement to provide an accurate breakdown of transactions. Instead, he estimated his numbers based on industry averages. The expectation was that most sales would be between $10 and $15, leading to an overall processing fee of around 2.5 – 2.8%%.

However, after the first week of real transactions, the reality was quite different. The actual average transaction was only $7.09—significantly lower than estimated. This discrepancy had a major impact on processing fees.

Why did this matter?

• Many banks and payment processors charge afixed per-transaction fee, usually between $0.10 and $0.25.
• When transactions are smaller, these fixed costs take up a larger percentage of the total sale.
• Instead of the anticipated 2.5% processing cost, the store owner was now facing an overall cost ofnearly 5% per transaction.

Breaking it down further:

• The base costs (including interchange fees and card network dues and assessments) were already at17% due to the low transaction size and high volume.
• A standard per-transaction fee of$0.10 per sale added another 4%, driving up the total cost significantly.
• This made processing costs far more expensive than anticipated, cutting deeply into the store’s profits.

The Solution: Reducing Costs Without Compromising Service

After carefully reviewing the store’s real transaction data, we identified two key solutions to lowering the store’s processing costs:

1. Lowering the Per-Transaction Fee

One major issue was the fixed per-sale fee, which disproportionately impacted the store’s smaller transactions. For the time being, we were able to lower the per-transaction fee, reducing it from $0.10 to just $0.02 per transaction.

How did this help?

• The reduced per-transaction fee immediately cut down the overall cost to around5%-3.6%.
• While still slightly higher than the estimated 2.5%, this was a much more manageable cost for the store owner.
• It helped improve profitability without requiring major changes to customer pricing or the solution.

2. Switching to a Dual Pricing Model

To further reduce costs, we introduced the option of dual pricing, an increasingly popular approach that allows business owners to offset processing costs.

Under this model, customers were given two choices:

• Pay the listed price in cash.
• Pay4% extra when using a card.

This change provided several key benefits:

• Eliminated processing costsfor the store owner, as the additional fee covered the expenses.
• Allowed customers to choosehow they wanted to pay, keeping transactions transparent.
• Maintained competitive pricingwhile ensuring the business could operate profitably.

Additionally, to help facilitate this switch, we are providing a brand-new, state-of-the-art POS system at no cost to the store owner. This ensures seamless implementation of the new pricing model while also improving checkout speed and efficiency.

The Impact: Increased Profitability and Cost Control

By making these adjustments, the store owner will be able to reduce processing fees and regain control over expenses. The dual pricing model ensures that the business could continue accepting card payments without suffering from excessive costs.

• The ownerno longer has to worry about unpredictable processing fees cutting into profits.
• Customershave more payment flexibility, leading to a smoother checkout experience.
• The businessbenefits from a free POS system, enhancing operations and making transactions more efficient.

Key Takeaways

This case study highlights the importance of accurately assessing real transaction data before finalizing a payment processing setup. Misestimating sales patterns can lead to unexpectedly high fees, which can significantly impact profitability.

If you are opening a new store or buying an existing one, here’s what you should consider:

1. Know Your Transaction Size:The average ticket size significantly affects processing costs. A smaller average sale means fixed fees take up a larger percentage of revenue.
2. Choose the Right Pricing Model:Understanding different fee structures, such as dual pricing, can help lower costs.
3. Work with a Transparent Payment Processor:A good provider will analyze your real numbers and offer customized solutions rather than a one-size-fits-all approach.
4. Leverage Better Technology:The right POS system can help optimize your operations and make new pricing strategies easier to implement.

Conclusion

This case study is a great example of how real transaction data matters when setting up a merchant account. While estimates can be helpful, they are not always accurate, and relying on them could lead to higher-than-expected fees.

If you are in the process of opening or purchasing a convenience store and don’t have a past merchant statement to guide your pricing decisions, talk to us first.  Our team will help you analyze your business needs and structure the right pricing from the start, which will ensure you don’t overpay for payment processing.