dreaded questions in merchant services

Dreaded Questions in Merchant Services – A Comprehensive Guide

So, you’ve finally made a connection with a prospective merchant client and convinced them to move forward. You’ve discussed their business, goals, challenges, and ideal partnership. Now comes the moment of truth – they want to know the bottom line. “Okay, so what will this cost?” Ugh, the dread question. Don’t worry. We have compiled a comprehensive guide for all the dread questions in merchant services that you might face.

I know, every salesperson hates having to give an exact price at this stage. There’s pressure to quote a number that will win them over on the spot, but also set a rate that actually works for both of you in the long run. Figuring out a deal that benefits both the merchant and your business is really more of an art than a science. While you’ve done your homework researching typical rates for their industry and volume, there’s no single “right” answer.

Dreaded Questions in Merchant Services – A Comprehensive Guide

Many sales calls end at this point when the prospect hears a rate they perceive as too high. So you have to give them something, but you also don’t want to leave money on the table for every future transaction. It’s that perfect “sweet spot” that’s the hardest to find. Merchants come in all different shapes and sizes too, from local mom and pops to huge national chains. And their products/services span just about every category imaginable. So there’s no way to give one single rate that satisfies everyone.

Rather than a “take it or leave it” rate, you need to take the time to fully understand their unique business model and needs to craft a tailored solution. Sometimes that means negotiating and compromising to find an option you can both be happy with. Other times it means asking for more details or time to properly analyze their account before committing to a final number.

Don’t feel rushed to give an on-the-spot quote if you don’t feel ready. Be transparent that you want the right deal for both parties. Done right, determining a merchant rate can lead to a long and successful partnership. But if you act impulsively, you could leave money on the table or end up with a rate and contract that proves unprofitable down the road.

Do Your Homework

Every merchant and potential client is unique, so there is no one-size-fits-all rate. The rate you propose should be tailored to each merchant’s specific business model, volume, industry, products/services, client profile, and business goals. Without taking the time to thoroughly evaluate all these factors, you’ll end up with a rate that either leaves too much margin on the table, scaring away the merchant, or one that proves unprofitable if you ultimately win their business.

Some of the key things you need to consider include:

  • Industry standards – Look at typical rates charged in that industry or niche. You want to be competitive but still leave room for negotiation. Some industries like dining and retail tend to have higher rates while professional services are on the lower end.
  • Transaction volume – Merchants with higher volumes usually get lower rates per transaction. More volume means lower risk and costs for you, so you can afford to charge less. Lower-volume merchants will see higher rates to offset your costs.
  • Product pricing – If the merchant sells higher-priced, luxury goods they may be able to absorb higher rates. Those with budget, commodity products likely have tighter profit margins themselves so rates need to be lower.
  • Competitor analysis – See what other merchant service providers are charging for similar accounts. You’ll want to match or beat competitor rates to win the merchant’s business while still ensuring a solid profit margin.
  • Business goals – Merchants with ambitious growth goals may qualify for lower rates, especially if you can grow with them. Slower, more stabilized businesses usually see standard or slightly higher rates.
  • Risk analysis – Rates may be higher if there are things like a lack of financials, limited business experience, shaky credit, etc. More established, stable merchants with a proven track record often get preferred rates.
  • Fees and features – Determine which fees, services, and features will apply to this merchant so the total rate makes sense. Many smaller merchants only need basic rates, while larger clients frequently require value-added services and point-of-sale integrations which increase the total cost.

Doing your homework upfront provides the solid groundwork you need to confidently share a rate with any merchant. With insight into all these factors, you’ll determine a fair rate that sets the right expectations and paves the way for a long, successful partnership.

Consider the Relationship

Beyond the numbers, the most important thing to keep in mind when determining a merchant’s rate is the potential for partnership. Merchants with whom you have the chance to build a long-term, strategic relationship should see your most preferred rates and terms. They represent the type of loyal, high-volume clients that will fuel your business’s success for years to come.

Some things to weigh include:

  • Growth potential – Merchants with ambitious growth goals and expansion plans deserve lower, more flexible rates. As they grow, so will your revenues from the relationship. Why limit that potential?
  • Exclusivity – If a merchant wants to sign an exclusivity agreement, giving you preferred status as their sole service provider, that warrants a lower rate. Exclusive partnerships reduce your costs and risks while increasing stability.
  • Referrals – Big merchant clients often come with a bundle of referrals and opportunities. Giving them an excellent rate and experience makes them a source of endless new potential clients through warm referrals.
  • Long-term commitment – Longer-term contracts of 3 years or more allow for lower initial rates since the revenue is committed upfront. These long-term deals provide more security and stability for you as the service provider.
  • Volume – Simply put, high-volume merchants should get lower rates per transaction. Their volume helps offset your costs through greater economies of scale. Lower-volume merchants can often afford to pay standard or slightly higher rates.
  • Package deals – Bundling multiple services together at a single, preferred rate for strategic merchant partners makes a lot of sense. They get all their needs met in one place at an attractive, packaged price.
  • Value-added benefits – Provide additional value-added services at a lower combined rate to keep large merchant partners happy and boost their business. Things like POS systems, business loans, marketing services, and more.

While the initial sales interaction focuses on the here and now, the best merchant services providers take a long-term, strategic view. Give preferential rates and terms to those clients with whom you have the chance to build deeper, longer-lasting relationships. They will fuel your growth and success for years to come. With the right partners in place, your business will thrive.

Factor in Contract Terms

The length and details of a merchant’s contract also factor heavily into the rate you should propose. Longer contracts, especially 3 years or more, provide more security and justification for a lower upfront rate. The revenue is committed for an extended period, reducing risk on your end. Shorter contracts, around 1-2 years, typically warrant a slightly higher rate since the long-term partnership is less guaranteed.

Other contract terms to contemplate include:

  • Exclusivity – If a merchant is willing to sign a non-compete or exclusivity clause, giving you preferred provider status, that alone merits a lower rate. Exclusive partnerships eliminate the threat of them switching to competitors or working with other providers.
  • Early termination fees – Strong early termination fees, like 3-6 months of fees, provide extra protection if the merchant were to terminate the contract prematurely. That additional security allows you to offer a lower overall rate. Lack of early termination fees means higher rates to offset the risk.
  • Automatic renewals – Contracts with automatic renewals for successive terms, e.g. 1-year automatic renewals for 3 years, provide more stability than contracts without automatic renewals. Automatic renewals signal the merchant’s commitment to the long-term partnership, justifying a lower initial rate.
  • Service commitments – Longer commitments to use multiple services, e.g. 3 years of payment processing and merchant financing, qualify for lower combined rates across all services. Shorter or less comprehensive commitments would see standard or higher rates for each individual service.
  • Volume discounts – Annual volume increases specified in the contract, such as 10-25% year-over-year growth, can be rewarded with lower rates. Slower, more modest volume projections would keep rates relatively standard. Rapid growth deserves preferential pricing.
  • Bundling benefits – When possible, bundle multiple services together at a single lower combined rate through a long-term contract. Merchant partners get all their key needs met at an attractive package price. And you gain the benefits of increased stability, security, and cross-selling opportunities.

Smart contract terms that provide protection and incentives for long-term partnerships directly translate into justifying lower rates. Be willing to negotiate the strongest terms possible to then determine a rate that suits both of you as strategic business partners. The ideal rate has both numbers and relationships in mind.


Build Margin into the Rate

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As a business, you need to ensure every rate you charge merchants includes a fair profit. After all, the fees and rates you collect from clients are how you make a living and fund operations. Without building in at least a 25-30% margin on most rates, your business quickly becomes unprofitable. Some fees like interchange charges provide little room for markup, so you need to compensate for other rates and fees.

Some keys to keeping margin in mind include:

  • Do your costs analysis – Determine your total costs to provide the services for a merchant including fees from vendors, technology costs, employee expenses, office overhead, etc. Then simply markup those total costs by at least 25-30% to determine your minimum charge.
  • Consider hidden fees – Fees for services like payment processing often don’t seem high individually but accumulate quickly at high volumes. Make sure your total margin accounts for all fees, not just a single charge. Hidden fees can hurt your profits if you’re only focusing on one number.
  • Compare to competitors – Review the rates charged by your direct competitors for similar services and offerings. You need to remain competitive to win business, but also ensure you’re maintaining at least the same or higher profit margins than comparable companies. Lower margins mean sustainability issues down the road.
  • Leave room for negotiation – Know your target margin so the rates you propose still allow room for negotiation while ultimately ensuring at least 25-30% profit. Be willing to negotiate rates to make a client happy, but stay firm on your minimum margin requirements.
  • Charge for value-added services – Leverage additional services to boost margins, such as integrations, reporting tools, business consulting, and more. These types of value-added services have higher margins since they cost less to deliver but can command a premium price from clients.
  • Monitor key metrics – Regularly analyze metrics such as costs, fees, revenue, volume, and margin percentage to ensure you remain profitable. Look for ways to trim costs or increase pricing if margins start to slip. Making adjustments early avoids much larger issues down the road.

With the proper analysis and oversight, you can confidently determine rates that win new business while still achieving healthy profit margins of 25-30% at a minimum. Building margin into all pricing helps ensure the long-term sustainability of your merchant services business. Never sacrifice margin for growth, as that often proves short-sighted in the end. Keep both numbers and relationships in mind for the rates that keep your business thriving.

Provide Options and Negotiation

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Seldom will a merchant accept the first rate you propose for their business. Be prepared to provide alternative rates or fee structures to give them options and help move the numbers in a productive direction. Some things you can propose include:

  • Volume discounts – Offer lower rates if they commit to higher volume/spending thresholds, e.g. 10-25% year-over-year growth. Merchants love the prospect of saving money as their business grows.
  • Bundled rates – Provide a single, bundled rate for multiple services instead of individual rates for each service. Merchants get all their critical needs met at one attractive price point.
  • Tiered rates – Give the option of a standard rate plus tiered rates at higher volume levels, e.g. first $200K at 2.5%, $200K-$500K at 2.25%, $500K+ at 2%. Lower rates as volume increases motivate merchant growth.
  • Package pricing – Propose package pricing that bundles related services at a lower combined rate, e.g. payment processing plus bookkeeping services. Merchants get integrated solutions at savings.
  • Longer contracts – Suggest a lower rate in exchange for signing a longer contract, such as 3 years vs 1-2 years. Longer contracts provide more stability and security, justifying a lower upfront charge.
  • Value-added services – Highlight additional services you offer at a marginal cost that drive more value for merchants, e.g. implementation consulting, reporting tools, business loans, etc. Additional services boost the overall solution while enabling a lower base rate.

Be willing to negotiate in good faith based on the merits. Come in with reasonable rates and margins, then be flexible in moving numbers around when appropriate to meet the merchant’s needs. Some things you can compromise on include:

  • Slightly lower margin on volume – If volume grows substantially over time, a lower start-up margin may be justified. Higher future margins then make up for it.
  • Larger volume discounts – Increasing volume tiers or lower percentages at higher tiers motivates more rapid growth, even if slightly less profitable in the short run.
  • Bundling at lower combined rates – When bundling multiple services, larger combined discounts can win over merchants even if lower margin on any single service. The whole can be more profitable than the parts.
  • Longer grace periods – Giving 3-6 months or longer before early termination fees kick in provides more flexibility and reassurance for a merchant, even if slightly higher fees if they terminate early. Peace of mind goes a long way.

With options, negotiation, and compromise, you can often say “yes” to even the toughest merchant rate requests while still ensuring acceptable margins. Keep the big picture in mind and be willing to meet in the middle to build a strong partnership built to last.


 In merchant services, few questions instill more dread than “What will your rate be?” There are good reasons to avoid giving an on-the-spot quote – determining the right rate is complex with many factors to weigh. However, providing an attractive yet profitable rate is the key to winning new clients and building long-term partnerships.

With the proper approach and information, you can master even this tricky question. Some final keys to keep in mind:

  • Do your homework. Analyze the merchant’s business specifics, volume, industry, products/services, and goals to craft a tailored solution. Generic rates rarely satisfy real-world clients.
  • Consider the relationship. View any rate not just as a single number but as the foundation for an ongoing partnership. Your most strategic partners deserve your best rates and terms.
  • Factor in contract details. Elements like length, exclusivity, termination fees, renewals, commitments, and more directly impact the rate. Stronger terms mean more stability and lower risk so lower rates can apply.
  • Build proper margin. As a business, you need to ensure at least a 25-30% profit margin in all rates after accounting for costs and fees. No rate should be given without this minimum requirement in mind.
  • Be willing to negotiate. Few merchants will accept the first rate offered. Provide options and alternatives and be willing to compromise when reasonable to meet their needs while still achieving your margin requirements.
  • Monitor and adjust. Regularly analyze costs, revenue, volume, margin, and key metrics to ensure you remain profitable. Make rate changes as needed to offset any issues, but don’t sacrifice long-term partners for short-term gains.

With practice, the rate question loses its power to induce anxiety and dread. You build expertise in determining the numbers that not just win clients on the surface but cultivate deep, rewarding partnerships for years to come. Focus on mutual benefit, not just an initial sale, and balance will follow. Profitable rates have both current value and future return on investment in sight.


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