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Pricing your services to account for processing fees
Pricing your services to account for processing fees
Taryn Rachelle avatar
Written by Taryn Rachelle
Updated over a week ago

Updated April 22, 2024

With our payment processor Dubsado Payments powered by Stripe, we're excited to offer surcharging! This feature allows you to add fees to payments made via credit card to help offset credit card processing fees as much as possible.

This feature is not allowed in some regions. And for some of you, you may not want to surcharge your clients.

Whether you're not allowed to surcharge or simply prefer not to, we've got you covered. In this article, we'll provide you with practical tips and guidance on how to properly price your services while accounting for credit card processing fees. Consider this your go-to resource for feeling supported and confident in your pricing strategies.


Understanding credit card processing fees

Before we dive into pricing strategies, let's take a moment to break down credit card processing fees.

When you accept credit card payments from your clients, the payment processor charges a fee for their services, which usually range from 2% to 3% of the transaction value. Processing fees are part of the cost of doing business, but they are essential! These fees help cover the cost keeping your transactions secure and streamlined for your clients. While these fees may seem small on a per-transaction basis, they can add up over time.

As a business owner, there are two distinct ways you can address these credit card processing fees.

Direct surcharging

Picture this: you're at your favorite coffee shop, and you decide to treat yourself to a latte (you deserve it!). When you hand over your credit card, the barista informs you that there's a small fee for using your credit card instead of cash. That fee is what we call a surcharge.

At this point, you may decide to pay with cash if you’re trying to avoid the extra fee. Or, you might still pay with your card because it’s convenient.

If you pay with your card, the merchant is able to account for the credit card processing fee by applying the surcharge. If you pay with cash, the processing fee isn’t applicable, so the merchant is able to charge you a lower amount. Either way, the processing fee is accounted for. Dubsado’s surcharging feature is an example of a direct surcharge.

Indirect surcharging

Using the same example, if you go to buy a latte and it costs $1.00 more than it did last week, you might ask about the price increase. The barista explains that the business’s costs have increased and so they needed to raise their prices. If you love this coffee shop and appreciate their great coffee and service, you’re likely to continue supporting them as a customer.

In this scenario, the coffee shop’s prices have gone up a small amount - regardless of your choice of payment method.

If you’d prefer not to use a surcharge, or aren’t able to because your region doesn’t allow it, pricing your services to account for processing fees is a great way to implement indirect surcharging.

Direct vs. indirect surcharging

To better understand the difference between direct and indirect surcharging, let’s look at how the different scenarios play out using a starting price point of $100.00 with a 2.9% + 30¢ credit card processing fee.

No surcharge

Direct surcharge

Indirect surcharge

Payment subtotal

$100.00

$100.00

$105.00

Surcharge

$0.00

$3.00

$0.00

Payment total

$100.00

$103.00

$105.00

Processing fee

$3.20

$3.29

$3.35

Merchant receives

$96.80

$99.71

$101.65

In our example, both direct and indirect surcharging result in a great outcome - the processing fee was almost entirely negated with direct surcharging, and the merchant walks away with a little more than the original asking price with indirect surcharging.


Accounting for credit card processing fees

Now that we understand what credit card processing fees are, let's explore how to integrate them into your pricing strategy.

If you’re interested in direct surcharging, check out our article on Dubsado’s surcharging feature to see if it’s available in your area.

If you’re ready to learn more about indirect surcharging, you’re in the right place! We'll break it down into easy-to-follow steps.

Step 1: Calculate your average credit card processing fee

To get started, take a look at your payment processing statements and calculate the average fee you're currently paying based on your transaction history. This will serve as a baseline for your pricing adjustments.

For example, if you book projects that have an average of $2000.00 per payment with a credit card fee of 2.9% + 30¢ (you can check Dubsado Payments processing fees here), your money in hand would look something like this:

Client Pays

Processing Fee

You receive

$2000.00

(US$ 59.80) + (US$0.30) = $60.10

$1939.90

Let’s say you book 10 clients per year at this price point….

Client Payments

Processing Fee

You receive

$2000.00 x 10 = $20,0000.00

$60.10 x 10 = $601.00

$1939.90 x 10 = $19,399.00

For those of you receiving client payments in higher amounts, the fees you're paying will increase with every dollar you make 😱

But, this is where raising the prices of your services come into play - your pricing can prepare you for these fees.


Step 2: Adjust your rates

To help cover the credit card processing fees, you'll want to incorporate the fee percentage into your pricing structure.

For example, if your average fee amounts to 2.9%, consider increasing your rates by that amount to offset the fees incurred. By doing so, you ensure that your business remains profitable while covering the costs associated with credit card payments.

We want to be very clear - we are not saying you have to raise your prices. This information is here to help you offset processing fees if you cannot or choose not to surcharge.

Things to keep in mind when raising your prices:

  1. You have permission in your business to raise your prices (you are the CEO of your business, remember? 😊). There is no set-in-stone pricing structure for your services, and they can be what you make them.

  2. If you are raising your prices a significant amount, it may be helpful to give your returning clients a heads up about the pricing changes (but again not a “business rule” that is set in stone).

  3. If you are raising your prices to simply offset credit card fees: make sure each increase is dependent on that price point's processing fee.

Pricing adjustment example

Here is a suite of sample packages for a web design business before the package prices have been adjusted. Here, a credit card fee of 2.9% + 30¢ is being assessed.

Package

Client Pays

Processing Fee

You receive

Strategy Call

$497.00

$14.71

$482.29

Logo Design

$2000.00

$60.10

$1939.90

Website Build

$4500.00

$130.80

$4369.20

If you had two clients purchase the entire suite each month, that would be a total of $411.22 you're losing out on - just in credit card fees.

When increasing your pricing, we want to make sure the look of the pricing remains appealing to clients. For example, if we were to simply add on $14.71 to the $497.00 Strategy Call pricing, it would come out to $511.71….not as exciting to look at.

But, if you were to increase the price of the Strategy Call package to $527.00, you would not only cover the cost of the initial credit card fee…but actually feel like you made money!

Here is how adjusting these package prices could look:

Package

Client Pays

Price Increase

Processing Fee

You receive

Strategy Call

$527.00

+$30.00

$15.58

$511.42

Logo Design

$2100.00

+$100.00

$61.20

$2038.80

Website Build

$4650.00

+$150.00

$135.15

$4514.85

After increasing the pricing of these packages, the amount you'll receive is now higher than the original package prices - which more than offsets the processing fees incurred by the original pricing structure.

Yes, you are still paying credit card fees. But increasing your prices just a little bit will help cover the processing fees.

To be compliant with the law - You cannot raise your rates only for credit card payments. You'll need to increase your payments across the board.

Here is an example of an incorrect way to increase your prices:

Current Pricing

Price for CC Payments ONLY

Price for ACH Payments ONLY

Why this isn't allowed

$2000.00

$2100.00

$2000.00

You aren't raising your prices across the board - you are adjusting prices for a specific payment method to avoid higher fees.


Step 3: Adjust as needed

Keep an eye on your credit card processing fees over time. As your business grows and evolves, the average fee may fluctuate. Monitor your statements regularly and be prepared to adjust your pricing accordingly.

Remember, you're in control of your business's financial health, and adapting to changes is part of the journey.

Pricing your services to account for credit card processing fees can seem intimidating, but with the right approach, it's completely manageable! By following the steps outlined in this article, you can confidently navigate this challenge while ensuring your business remains sustainable and successful. Remember, you're not alone in this journey!


FAQ

How much should I raise my prices to help with credit card fees?

Calculate the cost of your processing fee based on your payment processor. Then deduct that amount from your current service price. Once you have that number, increase your pricing to cover that amount (but remember to keep the look of the pricing appealing to your clients).

Can I surcharge my clients to offset credit card processing fees?

It depends on where you are located and whether there are any legal restrictions in place. In some regions, surcharging isn't allowed and you'd need to account for processing fees in your pricing structure. In other areas, surcharging may be permitted, but make sure to consult with a legal professional to ensure you are following all applicable laws.

Can I offer discounts for clients who pay with cash or checks to avoid credit card processing fees?

While offering discounts for cash or check payments may seem like a good idea, it's important to be mindful of anti-discrimination laws. In many areas, it's illegal to offer different prices based on payment method. If you can't surcharge compliantly using Dubsado, or you'd prefer not to surcharge, it's best to incorporate the credit card processing fees in your overall pricing and communicate that openly with clients.

How often should I review my credit card processing fees and adjust my pricing?

It's a good practice to review your credit card processing fees regularly, such as on a monthly or quarterly basis, to get an idea of how much your fees fluctuate. For example, if your business starts taking on a higher share of international clients, your overall credit card processing fees may increase noticeably.

If this happens, it may be time to adjust your pricing to ensure your business remains profitable. Make sure to communicate any changes in pricing with transparency and clarity to maintain trust with your clients.

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