Have you seen those advertisements for Square on TV and online?
Were you wondering if this might be a good option for accepting credit cards at your business?
If so, we’ll explore the true cost of using Square versus a traditional merchant account, as well as outlining which type of businesses might be a good fit for Square.
Merchant account fee overview
Traditionally there are three types of fees when it comes to having a merchant account. They are:
- processing fees
- transaction fees
- monthly fees
Now, square seems to simplify all that by only charging a set processing fee, which is:
- 2.75% per swipe
- 3.5% + 15¢ per transaction for manually entered transactions
The question for you is, does this seem like a good deal for your business?
Here’s a sample comparison for you to check out…
Let’s say your monthly processing is $1,000 per month. If your average transaction was $20 per swipe, your fees with a traditional merchant account might be*:
- $17.50 for processing (1.75% swipe rate)
- $7.50 for transactions ($0.15 per transaction)
- $5.00 monthly statement fee
That comes out to roughly $30 per month.
*Note: the fees used to calculate the cost for a “typical” merchant account could vary from those used in this example.
With Square you would pay $27.50, saving you $2.50 per month.
Let’s say you had $2,000 in credit card sales for a given month. With a typical account you could pay $55 ($35 for processing, $15 for transactions and $5 for monthly service fee). With Square (assuming you didn’t have to manually enter in any transactions) the fee would be $55.
As you can see, the more you process each month the less you would save with Square over a traditional account.
Of course, costs and fees could vary from our example.
But the fact remains that Square is best used for very small business which only process a few transactions each month. It is also useful for businesses that need to process transactions at their customer’s location or at craft shows, etc., provided the average dollar amount per sale is low.
Signing up is free and the square card reader and application are too. There’s no contract and once your account is set up you are ready to roll, anywhere you have signal.
So which option is better?
However, there are other considerations for you to think about.
For example, with Square:
- is processing PCI compliant?
- no receipt to give your customer
- the reader is small and easily lost
- rates are too high if your average transaction is > $100 per swipe or > $1000 each month
For a traditional account:
- avoid any credit card terminal leases
- does the company offer any free wireless terminals?
- do they offer mobile processing through your cell phone
- avoid any “early termination fees” should you sign up with a merchant account provider
For the typical business (especially retail) there is little question about which option is more flexible or useful.
In addition to processing credit card payments, you can also offer gift cards and loyalty programs for your customers as well. And since many companies are now offering free equipment applying for a standard merchant account just makes more sense, provided you avoid some common pitfalls (like those outlined above).
Does that make sense to you?
I hope you found this information helpful. Please feel free to share your comments below.
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