The card-fee audit nobody runs

Every store that takes cards pays to do it. The fees arrive on a monthly statement, often several pages long, written in a vocabulary that doesn't invite reading. Someone in finance pays it. Nobody compares it with last year, or with the store down the road.

When we built the card-fee audit for a multi-store operator, that was the starting point: card fees were buried in monthly statements nobody compared. The idea was simple. Line every store up against its own brand, then put a yearly cost on the difference.

Start with one number per store

The effective rate is total card fees divided by total card sales, for the same store over the same period. It ignores the pricing model, the tiers and the line items. It just asks what you paid for every dollar you took.

Say a store takes $100,000 on cards in a month and its statement shows $2,800 in fees. Its effective rate is 2.8%. Another store in the same brand takes $90,000 and pays $2,300, about 2.6%. On their own those numbers mean little. Next to each other, they're a question.

Every figure in this post is a made-up example. Your rates depend on your processor, your contract and the cards your customers use.

Use several months, so one odd month doesn't decide anything. Include every fee on the statement: per-transaction charges, monthly fees, equipment rental, compliance charges. The small fixed lines matter more than they look, especially at a low-volume store, where the same monthly fee is spread across fewer sales.

Compare stores with their own brand

Comparing every store against the whole company is misleading. A coffee counter with lots of small tickets will usually pay a higher rate than a sit-down restaurant with large ones, for reasons that have nothing to do with the contract. So compare each store with the other stores in its brand, which sell similar things at similar prices.

The card-fee audit plots each brand's stores on a strip with the median marked, then lists the highest-rate stores with what the gap costs per year. The median is the normal rate for that brand. The stores well above it are the ones worth a phone call.

Putting a yearly cost on the gap is what makes it useful. Say a store runs 0.4 points above its brand's median and takes $1.2 million a year on cards. That's $4,800 a year. Across a handful of stores, it's a number leadership will look at.

Check the data before you trust it

Fee data is messy. A store changed processors halfway through the year. A month's statement is missing. One location's fees are billed to another's account. Any of these makes a store look cheap or expensive when it isn't.

Look for months with sales but no fees, and for a store whose rate jumps around more than its neighbors. The card-fee audit flags stores where the fee data looks incomplete before anyone draws a conclusion. Fix those first. An audit that accuses the wrong store loses the room quickly.

What to ask your processor

Once you have the outliers, the conversation with your processor gets specific. Instead of asking for a better rate in general, you can ask why these stores pay more than those. Some useful questions:

• Which pricing model is each store on: a flat rate, tiers, or the card networks' cost plus a markup? Are all stores on the same one?
• What is your markup over the card networks' cost, per transaction and as a percentage?
• What fixed monthly fees does each store pay, and what is each one for?
• Are any stores being charged for compliance paperwork that wasn't filed, or for equipment they no longer use?
• Have any rates changed since the contract was signed, and where was the notice sent?
• Can every store be moved to the terms of the best-priced store?

Bring the list and the yearly cost. A processor can explain a rate. It's harder to explain why one store pays more than its sister store across town.

Run it before the renewal

The best time to do this is a few months before your processing contract renews, while there's still time to act on what you find. You don't need software for the first pass. A spreadsheet will do.

1. 1.Collect three to six months of statements for every store.
2. 2.For each store, add up card sales and every fee, then divide.
3. 3.Group stores by brand and find each brand's median rate.
4. 4.Flag months with missing or odd data, and fix them before going further.
5. 5.Put a yearly cost on each outlier's gap and sort by cost.
6. 6.Take the top of that list to your processor.

With the card-fee audit, leadership went into the processor renewal with a list and a number. That's the goal: specific stores, and what each one costs, on one page you can hand across the table.