Maximizing Profitability in Self Storage

 

In today's episode, we're taking a different approach and discussing the hot topic of passing credit card processing fees onto customers. To shed light on this matter, we have invited Jon Shirey, the COO of ISO Amp, the largest statement analysis company in the United States, to share his expertise. As businesses, especially in the self-storage industry, explore the option of passing these fees on to customers, it has sparked debates and concerns. This episode, sponsored by CCStorage, aims to explore the profitability aspect of this strategy. Let's dive into the conversation and address some common concerns raised by small business owners.

ISO Amp is a company that specializes in analyzing merchant statements for businesses that accept credit card payments. Jon and his team provide detailed breakdowns of processing fees, including the profits made by processors and the actual pass-through costs to the business owners. By analyzing hundreds of statements each day, ISO Amp helps independent sales organizations, banks, and ISVs gain insights into their processing expenses.

The true cost of credit card processing fees varies depending on various factors, such as the type of business, payment methods, and customer profiles. While a quick estimate suggests around 2% as the processing cost, the actual amount can be higher or lower. However, the business owners often end up paying more, ranging from three to four percent, due to additional charges and hidden costs mentioned on their statements.

One common challenge faced by businesses is the lack of understanding regarding the various fees mentioned on credit card processing statements. This lack of transparency creates uncertainty and fear among business owners, particularly when they hear terms like Visa potentially taking action against them. Additionally, there is a misconception that passing fees onto customers is a new practice, whereas gas stations have been doing it for years.

Addressing a comment stating that only big businesses can pass on credit card processing fees, Jon argues that this misconception is incorrect. In reality, all businesses pass on these fees, either explicitly through dual pricing programs or indirectly by raising their overall prices. Every business, regardless of its size, factors in the cost of processing fees when determining their pricing strategy. The question is whether to pass the fees specifically to credit card users or distribute them among all customers.

Dual pricing is a program where businesses display two prices: one for cash payments and a slightly higher one for credit card payments. Contrary to popular belief, Jon emphasizes that dual pricing benefits not only business owners but also consumers. By separating the fees, businesses can maintain competitive pricing while still covering their processing costs. This approach provides transparency to customers, allowing them to choose between cash or card payments based on their preferences and financial incentives.

Accepting credit card payments brings significant value to businesses, including increased customer spending, convenience, and reduced security risks associated with cash handling. However, it's essential to recognize that different card types carry varying fees, affecting the processing costs borne by business owners. Reward cards, for example, may offer benefits to customers but result in higher fees for the merchants.

When discussing whether business owners should absorb processing fees or pass them onto customers, Jon questions the fairness of burdening small businesses with these costs. He argues that passing fees to customers through dual pricing programs is a fairer approach, as it aligns the cost directly with the payment method chosen by the customer.