You Can't Miss What You Never Had

Aug 06, 2015


Even in business-to-business selling the ways costs are presented can lead smart owners to make bad decisions.


Being caught between two parties at work has been a real eye-opener on how people perceive and react to costs.

On one side is a long-standing client – a smart, likeable business owner that we have enjoyed working with for many years. They are in retail and, about a year ago, switched merchant services providers. A merchant services provider is what allows a merchant to process credit cards. In exchange for providing that service the merchant services provider keeps a percentage (anywhere between 2%-6%) of the total transaction and passes the rest along to the merchant.

Because these merchant services fees are on the gross (after sales tax) value even small differences in these rates can have a huge impact on profitability. Smart retailers should review their merchant services deals at least once a year.

Their old merchant services provider was expensive. They kept a relatively big chunk of the transaction value – about 5%. If for example the merchant did $10,000 in sales the merchant services provider kept about $500 and passed the other (approximately) $9,500 along to the merchant.

To save money our client switched to a new merchant services provider, a well-respected and highly ethical company that we have worked with for years and recommended highly.

This company uses a very different model. They work very hard to find the best possible merchant services deals for their clients, evaluating options from countless merchant services providers. All the money, less the transaction fees (about 2%) now flow to the merchant. The company then charges a recovery fee, a percentage of the money that they are saving the client. To provide full transparency they disclose these fees and bill them separately, they don't bury them in the processing fees.

So with the new company that same $10,000 in sales would see about $200 go to the merchant services provider they selected, and the remaining $9,800 being passed along to the merchant, who has now saved about $300.

The company then charges back about $100 for the savings that they have provided. The merchant has still saved about $200.








Passed Through To Merchant



Recovery Fee



Total Retained By Merchant



Savings For Merchant




The savings are absolutely real. While investigating this that was clear – the merchant was going to save a lot of money with the new company.

But they were also going to be seeing money coming out of their account for the recover fee, and getting bills and statements to remind them yet again, and they just couldn't get past that. No matter how much they were really saving all they could see was what it was costing.


You Can't Miss What You Never Saw

With the old merchant services provider the real cost was very abstract. Sales were rung in each day, and a couple of days later money showed up in there account. It was hard to compare it directly to sales because of cut-off times, but one thing was easy to understand: what they got, they kept. It didn't matter that they were getting less – they couldn't miss money that they never saw.

But, under the new deal, they bitterly resented the charges. Even though they were still saving a significant amount of money they were constantly being reminded of what it cost them.


Recovery/Value Billing

Another issue was the fact that it wasn't actually the new company that was the merchant services provider – the fact that they effectively outsourced that to the merchant services provider that gave the best deal.

That is the nature of recovery/value billing. The new company worked hard to secure a great deal and would continue to monitor it, regularly checking for the possibility of even greater savings.

In return, and as disclosed, they charged an ongoing fee for the value they provided. The deal they put in place was saving the merchant a significant amount of money on an ongoing basis, and they were billing a portion of that back in return. This merchant didn't like that.


It was a truly unfortunate situation with good people on both sides.

Tags: Pricing
Category: Selling

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