Effective Rate


Your effective rate is a great tool to help you get a handle on your monthly credit card merchant processing fees.

Before we discuss how to get this, we need to be sure that you recognize ALL your costs on your credit card statement from your Merchant Services Provider (MSP).

Many statements from your MSP will disguise what you are actually paying to them. a very typical way to hid it is to not include a "Paid" cost in a column total. A good example would be all the charges for the various fees are all shown as line items with a total on the bottom of that section. You would "typically" assume that the total at the bottom right was all charges and fees.

However, on many statements, if you look carefully, it may also mention a charge that is shown as "Paid", yet not carried over to the right column and therefore NOT added to the bottom total number.

Believe me, if ANYTHING is marked Paid, you paid it - not the MSP!!!


Once you've studied your statement very carefully for any "hidden" costs, add up all your various charges so you have a total monthly cost to you as the Merchant.

Then, find the highest number of Sales, sold merchandise, etc. Any chargebacks or refunds must be incuded in this total because you are being charged the fee to process a refund, etc. This number will usually be the highest number on your statement.


To obtain your effective rate you will divide the total COST by your total Sales number to come up with a percentage number - your Effective Rate.

Example = Total CC Fees are $423.15 Your Total Sales are $14,267.89

Divide the $423.15 by $14,267.89

Answer = 2.96%

This means that every Credit Card Transaction that your business processes is "AVERAGING" a 2.96% Processing Fee.

This Rate should be verified every month, when your statement arrives. This helps you keep track of any increases or sudden charges. Course, if your annual Fee is charged, it will rise - but, there's a reason for that - and it is only once a year!

Let's face it, no one can really understand all the charges on these statements! They are almost as bad as a telephone or utility statement!!

Another factor to consider when looking at how high your effective rate is will be the number of "Travel & Entertainment" credit cards you get each month and do you have a high percentage of non-American credit card purchases.

A good example would be a "high-end" resort. They will typically have visitors from all over the world and many will use their "Mileage Credit Cards/Travel Cards" to pay you for their stay. That's all well and good - but those cards will have International Fees attached to them for processing, as well as the higher fees you - the Merchant - get to pay - so they can fly free!!

Everyone seems to think the airline is paying for the Merchant to process that "Mileage" credit card. That's the farthest from the truth!!

The airlines have a great thing going for them. The "Merchant" that accepts your "Mileage" credit card is being charged a higher fee to accept that card. The airlines aren't absorbing a cent in the process!!! Quite the deal for them - not the Merchant!

Bottom Line?

All these various incidentals will have a direct impact on your particular "Effective Rate".

The advantage of the "Interchange Pass Thru" really helps you here. At least you are only paying the "extra" fees to Visa/MasterCard -not your MSP also!!

Want some help understanding your statement?

Contact Us and we can go through it with you and explain how it works.

By Bernie Martin 



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