Why is the Effective Rate important?

We understand that as a merchant, you are always looking for ways to save money.  It is important to understand that having the lowest discount rate does not always mean you have the best overall value.  Every credit card processor prices their services differently and the discount rate is only one of many fees which, when added up, becomes your total processing cost.  To accurately determine your cost for credit card processing, you must look beyond the discount rate you are paying, and instead calculate the effective rate.  The effective rate takes into account ALL fees paid during the month in relation to the total dollar volume processed.  This is the most accurate measure of what you are paying for your services since it expresses, by percentage, how much you are paying in fees for every hundred dollars you process.  For example, if your effective rate is 2.45% then you are paying $2.45 for every hundred dollars you process in credit cards.  Ideally, you would want the lowest effective rate possible without sacrificing performance and quality of service and support.

You can easily calculate your effective rate by dividing your total processing charges for the month (including the various discount rates paid, transaction fees, statement fee and any additional fees) by the total credit card sales volume for the month.  This calculation gives you an accurate and comprehensive measure of your processing cost as a percentage of sales.  Once you have your effective rate, you can accurately compare multiple offers, even if they have widely diverse pricing.  Knowing your effective rate will give you an advantage in making the most accurate and informed financial decision for your business.