When you spend your days looking for ways to help business owners grow their enterprises, you are always on the look-out for useful tidbits of information, common recurrent problems, and case studies that reveal insights. Here is an important item that has hit my radar screen multiple times this week (and it’s only Wednesday) that reveals a lesson all business owners should consider.
It started on Monday when a vendor mentioned that he had recently noticed he was ‘losing money’ by allowing his clients to pay their invoices via Paypal. Later that day I visited a local deli for lunch and was greeted by a newly posted sign on the cash register stating that they now required a minimum purchase of $7.50 for credit/debit card purchases. Then last night on one of the network editions of the evening news there was a story about merchants who have minimum charge policies for credit or debit transactions (despite the fact that this violates their terms of service for their merchant accounts).
Don’t get me wrong, I fully understand that there are direct cost impacts for businesses that accept these alternative forms of payment, and I know that depending upon the merchant account yor business uses it can quickly add up to a major expense item.
But the reality is that we live in a convenience-based world and these forms of payment are convenient not only for the customer, but also for the business…
>>For the customer, the convenience comes in the form of the ability to pay quickly, to have a record of their transaction, and to make a (sometimes impulse) purchase when they are not carrying cash.
>>For the business, the convenience comes in the form of direct deposits into your business account that do not require a trip to the bank on your part, not to mention time saved tallying receipts, increased transaction accuracy, and reduced time preparing sales reports.
If you feel that you are losing money by accepting these forms of payment, perhaps you are ignoring the real problem…a mismatch between your costs and your prices, a failure to recognize the lifetime value of your customers because you are too focused individual transactions, or an ineffective sales process that doesn’t provide larger average sales which would help offset the costs.
One thing is certain…the pressures from consumers to use non-cash forms of payment are going to increase in the future. If your business is feeling a crunch today, it will only worsen over time. And if you don’t find a way to accommodate this demand from customers, your sales will decline in the future.
Here are some ideas to consider to help you get a handle on this and to focus your attention on the real problem:
1. Review your costs and your prices…Do you need to make adjustments to your prices to recover the costs you are encountering as more and more costumers use alternative forms of payment? Start here to get a true understanding of the impacts of these non-cash payments and make necessary adjustments to incorporate these costs which are now a part of doing business.
2. Evaluate your merchant account terms…Can you get better terms elsewhere or negotiate a fee reduction because you are using their services more frequently? There are many different merchant account companies out there and you may be with one that is not giving you the best rates…shop around and negotiate to reduce your costs.
3. Focus on the lifetime value of a customer…Estimate the lifetime value of a customer by considering how many times per week, month, or year they come into your business and how much they spend on each visit…focus your attention on doing what it takes to keep them coming back, instead of only on what it costs for their business today.
4. Improve your sales process…There is a reason why the phrase “do you want fries with that?” is so widely known…because it worked to increase sales. Where are the suggestive selling opportunities in your business…the opportunities to get the person to buy something else that increases the total of their purchase? Find them, train your people to make the suggestive sell part of every transaction, and you will see your revenues increase.
5. Create bundles that have a higher average price…The idea of combo meals has long been a staple of the fast food industry…not only does it make the ordering process easier, it boosts the average transaction. What bundles can you create to increase the average sale per customer? How about a bulk purchase program where they get a package of services for a slightly discounted price and use their ‘club card’ for future purchases?
Bottom Line: If you are worrying about the transaction costs associated with non-cash forms of payment, you may be looking at something that is a symptom rather than a cause of the real problem. taking a good look at your cost-price strategy and finding ways to increase sales may yield a much better outcome than putting policies in place that turn customers away.
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