Passing Credit Card Fees: Increase Profit by Double Digits

If you are a childcare center owner, chances are you are always looking for ways to make ends meet, and ideally get a fair profit on your efforts. Well, here is one way you may not have thought of: passing on credit card fees to your customers.

Now, we know what you are thinking - won't this upset your customers? Won't they just go somewhere else where they do not have to pay the extra fees? But hear us out.

There are plenty of reasons why passing on credit card fees can be beneficial for your business.

For one, it can help offset the excessive costs of processing payments. And secondly, it can help increase your profit by double digits! We will go through how, but first, why…?

Many businesses are unaware that they can charge their customers for credit card fees.

Often time businesses suffer from low profits due to the costly fees of accepting credit cards, without realizing they can rely on the customers to pay for their transaction costs instead.

By providing customers with the option to cover credit card fees, these businesses are overlooking valuable income that could dramatically reduce overhead and help them stay afloat in a difficult market. With such an easy solution available, it is a mystery why more businesses do not take advantage of it.

Taking this extra step could provide a great boost for any business, especially during economically trying times.

It is common to pass fees to customers.

In recent years, it seems like we can't shop without incurring some kind of fee. From extra costs for late deliveries to hidden fees for using convenience services, it has become almost expected to find a way to charge customers more.

Credit cards are no exception - card companies are pushing companies to tack on service charges in order to make up for approval process fees and other costs.

If your concern is that customers will be scared away by having the credit card fees passed on to them, just bear in mind that it is a lot more common than you may think and they will not even bat an eyelid.

Credit card fees are unavoidable

When you pass on credit card fees to your customers, they are more likely to pay in cash or use other payment methods that don't incur fees. This translates into less money spent on processing payments, which can add up quickly.

Plus, if you don't pass on the fees, you're eating them yourself - and this can increase your overhead costs significantly. An example where this may change the customer payment behavior is they are now discouraged from making micro-payments, which before would cost you financially as well as the accounting challenges and time of having to process more payments.

For our customers, credit card fees average 3.5% of their revenue. To put that in context, food costs are about 5% so although it isn’t one of the top costs, it is significant enough to make a difference.

For Example

Say your center has 50 children whose fees are paid by credit card and their parents pay $250 per week on a weekly basis. And your credit card fees are 3.5% + $0.30 per transaction. Your center is paying $1810 per 4-week month in fees. That equates to $23,530 per year that you would be paying for processing those payments. Or in other terms 75% of a full-time teacher's salary!

Additionally, passing on credit card fees can make customers more likely to spend more money with you. Why? People are far less likely to pay in cash or checks if they know it will cost them extra - so by adding the fees, you're making them more comfortable spending their hard-earned money with you.

This can result in a significant increase to your profit margins. No longer will you have to attempt to “price in” an estimate of what credit card fees you may incur, and your list price can remain competitive and provide full transparency for your customers.

Let them know exactly how much you will be charging for credit card payments ahead of time and offer alternative payment options if possible. This way, everyone is on the same page and there are no surprises when it comes time to pay.

Increased revenue can mean increased pay

And of course, the savings that you make from this process can be passed on directly to your staff which has a snowball effect. Without changing your prices or cost structure you can pay your teachers better, which improves employee satisfaction which in turn improves retention and so on and on.

So, if you're looking for ways to increase profit and offset processing costs, passing on credit card fees may be the way to go. It's a tried and tested strategy that can help you reap the rewards of double-digit increases in your bottom line.

However, not everyone allows you to do this, so confirm with your childcare management software provider whether this is an option. Our customers have found that by employing this minor change, their net profit has increased by upwards of 15%!