I was recently on an other blog that posted these exact questions. Many on the blog argued that it has a negative impact and the following is my part, a response from a fellow blogger, and then my reply. For some odd reason our blog got deleted, so I am posting it here:
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My Blog:
Since a settlement was reached with Visa and MasterCard in July 2012, small restaurants and all businesses accepting credit cards can essentially pass along credit card fees to the customers. While many of the reasons stated in this blog seem reasonable on the surface, a macroeconomic look at the entire credit card picture would provide a better picture. Putting ones personal feelings about credit cards aside, the use of credit cards has contributed to economic expansion over the past two decades. We spend more eating out, buying clothes, and going on vacations because of credit cards. We do not argue if this level of credit card usage right or wrong, just stating a fact. I am with Sintel Systems. We provide point of sale (POS) systems, so we see sales figures at our small restaurant customers all the time.
What does this mean to the small restaurant?
1. It is the expansion of economic activity that has allowed and continues to allow more businesses including restaurants to open and operate. Without them a percentage of existing restaurants would not exist.
2. On average, credit card customers spend more. This does not mean that every credit card customer spends more, on average they do.
3. Credit card fees a restaurant pays should be calculated as a function of total sales, not just credit card sales. As an example, if a restaurant received 50/50 cash vs. credit cards and pays a 2.00% fee for accepting credit cards, then the cost is 1.00% of total sales. A drop in revenue of only 1.00% for not accepting credit cards would wipe away any savings.
4. Credit card fees generate employment in various sectors. Your customers need to be employed, right?
Bottom Line: Running a small restaurant is not easy and a business owner needs to be prudent; however, if credit card fees make such a difference to your bottom line, you may want to look at the entire business strategy. Focus on the big picture.
I have written several articles on this topic lately specially since the Visa/MasterCard settlement. Sintel Systems has customers calling us and asking how they can add a surcharge for credit card clients. After training them on this function, we advise them to carefully ask: “Should I charge my credit card customers a fee?”
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Response from fellow blogger “Veggo”:
In your item #3, a 1% increase in cost of sales does not have the same impact as a 1% decrease in revenue; higher costs have a more leveraged and more deleterious effect on profitability.
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My Reply:
That is correct and is highly dependent on margins. The better the margin the less the impact. The overall point is to concentrate on the big picture. In the same manner, a restaurant does not necessarily look for the lowest rent or a manager who will accept minimum wage; credit card fees should not be the determinant between profitability and the red-line. Technically, laying off employees would also improve margins instantly. Business seeks value rather than simple cost cutting.
Unfortunately, many times small businesses do not expand resources effectively before or after opening. For example, how many restaurants do a feasibility study to ensure that the type and location of business is correct before entering a long term lease? We refer all our new clients to a research firm (AffiliatedRecon.com) to get this done. While larger operations do, smaller ones fail to see the value and are left scrambling and trying to cut necessary costs. It’s the same when someone asks us “why do I need to spend money on a point of sale (POS) system?” In the longer term the right investment pays back many times.
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I have invited Veggo to reply as he sees fit and will post it.
Questions or comments:
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