How to Keep Credit Card Fees from Cutting Profit - Modern Distribution Management

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How to Keep Credit Card Fees from Cutting Profit

Brent Grover on how to avoid losing profit to credit card processors.

Many distributors are seeing an increase in credit card usage, according to Evergreen Consulting's Brent Grover. Customers are becoming more aware of the fact that they can not only get frequent flier miles as a reward for using their cards, but can in some cases get cash rewards, he said at the recent distribution-focused Advanced Profit Improvement Conference.

Grover said 2.5 percent is a typical cost for running a credit card, “a leakage of profits that’s going to credit card processors.” Some distributors think there’s nothing they can do to combat this; they feel they have no choice but to accept credit cards and the fees that go with them.

There are ways to reduce or recover credit card processing expenses, Grover says. One is to encourage customers to use electronic funds transfers by creating a loyalty program that rewards them for this method of payment.

Another is to partition prices to cover processing fees. He says some distributors boldly charge an additional fee to customers for credit card usage. While some credit card agreements don't allow for this additional fee, he says, lumping the processing fee into the product cost avoids this issue and ensures that if customers pay with cards, the processing fees won’t cut into profits.

Grover is the author of several books on management and strategy for distributors, including The Little Black Book of Strategic Planning for Distributors, available from MDM, and Strategic Pricing for Distributors: Tools and Rules for Building Higher Margins from the National Association of Wholesaler-Distributors. 

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