Flat Rate or Tiered Pricing Selling Merchant Services


Hi, my name is James Shepherd. Today I want to talk to you about tier pricing,
or three tier pricing, four tier pricing, whatever you want to call it, and I want to
talk to you about flat rate pricing. So first of all, let’s make sure we kind
of start by defining these two things. In a lot of my training videos, like in our
6 Week Jump Start Program, I use the example of like a hat shop. So imagine you got a shop like Lids, where
they just sell ball caps. So you get these hats in at all these different
prices. One way you could sell those hats to customers
is you could just have a flat rate and say, “Come into our store. All of our hats are $15.” Right? Then what would happen is some of the hats
you’d make a lot of money on because you only paid you know two bucks for them. Other hats from the last you know Super Bowl
champions or whatever, well, then you might not make as much. Right, you might make you know you might even
lose money. Maybe you paid sixteen dollars for that particular
hat, so you lost a dollar, but over all on the average you know you are going to make
money. That’s flat rate pricing. Okay. The other option would be that you could put
them on different shelves and say, “Here is our clearance rack. All hats five dollars. Here is our whatever you want to call the
middle one, that’s $20 and then here is our premium hats for $30.” So you could do them different ways. That would be buckets or tier pricing, right? So you are going to say, “All the hats I
paid only a couple bucks for, I’m going to put them on the clearance rack. All the hats that are kind of the normal hats,
I’m going to put those in this medium one. Then all the hats I paid a lot for, I’m
going to put those in the premium rack.” So you put them like that. Obviously, the last way you could price them,
which is like interchange plus pricing in our industry, or cost plus would be you take
all the hats and mark them up 20%. Right? So no matter what you paid for that, if you
paid $10, you charge $12. If you paid $20, you charge $24. You put it out there. You could definitely do that too, right, that
would be like cost plus pricing. That makes a lot of sense as well. That would be like interchange plus or cost
plus. But for this particular one, I want to talk
to you about tier pricing and flat rate. Now for those of you that don’t understand
this, in our industry there is this underlying cost structure that everybody has, every ISO,
every processor, everybody has a cost structure called interchange and so there are these
interchange rates. There is over 400 different interchange rates. So based on the type of card somebody uses,
the business where they used the type of business they used the card, the way they processed
the card. Is it online? Is it over the phone? Is it swiped though the terminal? All of those factors come into play. Does it have reward points, cash back, frequent
flyer miles? All of these variables come into play and
there is like all these different rates, 1.7% plus 10 cents for this card. Then this one is .05% and 22 cents, all these
different rates. So you know one of the things you have to
look out for of course, if you are trying to make a profitable book of business is you
got to make sure your fees are covering your costs. Okay. Now in our industry historically, one of the
ways that was done especially like ten years ago. I would say ten years ago it was like 75%
of the small businesses I walked into were on tier pricing. So tier pricing is where they would say you
have qualified, mid-qualified, and non-qualified cards. Here is your qualified rate. Here is your mid-qualified rate. Here is your non-qualified rate. Now that pricing structure was interesting. I actually did like it. I sold it for a little while and it was interesting. The way that you would really sell that was
you know you would go in and you’d talk about the lowest rate. So say, “Hey, our qualified rate, which
is going to be most of your cards, is only going to be 1.2%,” or something like that. That’s going to be all your regular check
and debit cards. Then we’re going to have that’s your qualified
check card rate and then here is your qualified credit card rate or whatever. I would do like four tier pricing like that
and again, if you need more information about tier pricing, just go to our website ccsalespro.com. Jump into our 6 Week Jump Start Program, or
even the Pro Club actually would have all of our training and I’ve got some training
on how to read a processing statement that goes through tier pricing and shows you what
it looks like. But lately, the one that’s been gaining
a lot more momentum is flat rate pricing. Flat rate pricing was really popularized by
Square. So Square came out and recognized that merchants
were really tired of you know they have this rate, this rate, this rate, so we’ll just
give them one flat rate of 2.75%. Now in recent months, in the last year or
so, Square has significantly complicated its pricing structure. I think it is actually a big mistake on their
part, but I understand why they are doing it because they need to make money now. So they did their losing strategy for a long
time there with 2.75 and now they have all this complication in there which merchants
hate. That’s okay. They have their technology. They are trying to retain people that way. But the idea is flat rate pricing is actually
still a really, really good idea. So one of the things that you can do that
will really help people is when you go in and see somebody is on tier pricing, normally
what we try to do and kind of our methodology is in our industry we’re trained if we are
going to sell on pricing, that means we are saving them money. Right? So you come in and somebody is on tier pricing. I just saw a statement late week that had
tier pricing and it was ridiculous. They were marking up the merchant. It was like a $50,000 a month merchant and
they were marking up the merchant about $900. They had like $900 a month in margin on this
account. You take that tier pricing. You move them over to interchange plus. Interchange plus is really transparent. You know you are not normally going to have
these big price gouges in there. It’s usually going to be less than one percent
mark-up, or at one percent, something like that. So maybe you do something like that. You could do something like that. Okay. Or the other option is you could tell them,
you could make the pitch about simplification. What you could do is you could say, “Look,
I’m sure you’ve seen commercials for Square and these other companies that claim to have
true flat rate pricing. Well, a lot of times, if you look at their
website, you see it is actually not true flat rate and they only work with certain business
types, but what I’m going to do for you is this. I’m going to actually take a look at your
statement and I’m going to go ahead and create a flat rate program for you at a specific
rate, so you always know what you are going to pay. It is always going to be X percentage of your
total volume.” If you can work with your processor, or your
ISO to do a true flat rate program, which means you have to eat all of the monthly fees
up, right? So there is a five dollar monthly fee here,
ten dollars here. You have to eat those costs as part of your
come out of your residual, right? But you are going to give them a true flat
rate where literally at the end of the month, they know exactly what they are going to pay. A couple things about that, it is actually
tricky to pull that off. You have to talk with your ISO or your processor
to get a true flat rate deal in there because they are going to have to exclude that merchant
from their monthly fees and their annual fees and all that kind of stuff. They have to do that, right? That’s important to make it true flat rate,
but if you can get it, merchants really do like that. A lot of times you can make the sale without
even really cutting the price that much. Somebody that’s got a pretty good price,
you know you’d say, “Look.” Let me give you the pitch. The pitch is basically this. Let’s say I have somebody that’s got you
know interchange plus and they’ve got a pretty good rate. I would say, “Look, you know, I’m looking
at your statement here. You do have pretty good pricing. Okay, but here let me make this presentation
to you and tell me what you think about this value proposition. Okay. Right now you are the one taking all the risk
for the different types of cards that you run. In other words, you have some months, I’m
sure you’ve noticed this. You have some months where you are paying
you know 2%. You have some months where you are paying
three and a half percent. You’ve got a lot of variation right now
because there is different card types that are coming through. Some months you get more rewards cards than
others, right? So what I would like to do for you is this,
what if I take on that risk. Now of course, it costs a little bit of money
because we got to make sure we have enough you know margin in there to make it work. Right? But instead of you going from two to three
and a half percent, what if I put you at 2.7%? So you are going to be at a flat 2.7%. You always know it is 2.7%. Basically, you never have to worry about credit
card processing ever again. You never have to look at a proposal from
somebody else ever again because you are at a flat rate. You are 2.7. You never have to wonder about it. It’s always going to be same thing. I have no monthly fees, no per item fees,
nothing. It’s just 2.7%.” Again, that percentage is out of thin air. You know depending on the merchant type and
all that. That’s a really good pitch. It’s a way to maintain margin, but at the
same time while you are maintaining that margin, the pitch you are making to the merchant is,
“I’ll take on the risk,” because what that means is you tell them say, “Look what
that means is there is going to be months where I’m going to lose money. You know, but there are some months I’m
going to make money. I’m going to take the risk of that over
a period of time.” Now of course, in reality, they are already
marked up a good bit, so you want to sell them so that even in a month where they have
you know a lot of rewards cards, you are still going to make maybe 20 basis points, but you
are going to make maybe 20 to 80 basis points depending on that spread that they go through. That can be very powerful because again, merchants
love simplification. If you need any proof of that, look at Square. You know that’s their whole marketing proposition. That’s what they do, right? They were very successful getting merchants
on board with that. So my advice to you today is this. I think tier pricing has really kind of run
its course. It is interesting. You could still, I still think there is some
value in taking people from interchange plus back over to tier pricing, again, for simplification,
but if it’s like if you are going to do that, why not just jump over tier pricing
and go straight to flat rate because now with tools like instantquotetool.com, where we
can easily with an algorithm predict what the cost is going to be. There is really not a huge amount of risk
to go ahead and just do the flat rate. People used to not want to do that because
of the risk of like, “What if we lose money?” But if you use instantquotetool.com, it’s
going to have all that in there. It’s going to show you the cost. So I think it’s time now where you could
just skip over tier pricing and either do interchange plus for your larger merchants,
or flat rate for your smaller ones and you’ll find with that simplicity and agreeing to
take on the risk, you are going to get a lot more people to buy and you are going to maintain
your margins a little bit higher, if you do it the right way. My name is James Shepherd. Thanks for watching and listening.