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Education

The profit rules It should generate the same revenue, and the merchant

perceives a win.
Part 1 But remember, a floor is a floor. Don't start any

conversation without setting your floor. This rule helps
you to remember why you set that floor.
Profit rule 2

Reductions in one area should not reduce your profits in
other areas.

This rule seems obvious, but it's often forgotten. You can
be empathetic during these extraordinary times, but you
also have to remember you are in business. If a merchant
is looking for a reduction in costs, consider reducing their
minimum, especially when the minimum has had little
to no effect in previous months. This will help you retain
your merchant long term. Also, look for other areas to drop
their costs. If they haven't completed PCI compliance, see
that they do it now. It would eliminate a cost that has no
impact on you.
Profit rule 3
By Jeff Fortney Pricing perception is 9/10 reality. Listing a fee in the
Signature Payments correct field can increase your revenue without giving
the merchant an impression of a higher fee.
few years ago, I spelled out nine "profit rules"
to provide an ethical approach to pricing mer- All people (including merchants and agents) see and hear
chants, as well as to help ISOs and merchant subjectively. They listen for buzzwords, which often raise
A level salespeople (MLSs) protect themselves red flags during conversations. When selling merchant
from over accommodating merchants, most of whom services, we are all told to avoid those buzzwords to try
listen to radio station WIIFM—What's in it for me? Too not to raise those red flags. Pricing is one area where
many MLSs were giving away processing and then asking merchants think they can either drive the price down or
themselves afterward, "What did I just do?" ask for lower costs. And, unless they prepare for these
conversations, many MLSs will tend to fall back and drop
I find that, given today's challenges, the rules are even fees.
more relevant than they were when I created them. In this
series, I will discuss each rule and how it fits ISOs and However, a good price is a perception. What we see and
agents today. This article covers rules one, two and three. hear again is based on our subjectivity—our perception.
We know that we need to maximize our return, and to
Profit rule 1 do so, we can't immediately drop our price at the first
When adjusting one cost downward placing it below concern a merchant brings up. One way to create favorable
the floor rate normally quoted, an opposite adjustment perceptions is to insure costs are assessed in correct fields,
must be made to other rates to compensate. and structured based on the merchant.

Today, several merchants are leveraging the situation The clearest example is the transactional cost. You can
to negotiate better rates. In many cases, they have new assess at a transaction level, or at an authorization level.
average ticket sizes and smaller volumes. (Note: I am not This would seem to be the same, correct? Actually, no.
talking about the merchants who aren’t processing at all.) The average retail merchant runs 110 authorizations for
every 100 transactions. The average fine dining restaurant
This rule is straightforward. Say you've set your floor at runs 150 authorizations for every 100 transactions.
$0.10 for an authorization. The merchant pushes you to
reduce that rate to $0.08. If the merchant is keyed into this In this scenario, if a retail merchant has a price of 10 cents
auth fee, you have to factor in the 2 cents elsewhere. a transaction, the cost on 100 transactions is $10. If the
merchant has a price of 10 cents an authorization, the cost
If the average ticket is $75, that 2 cents accounts for would be $11. The merchant perceives 10 cents. Yet, you
approximately 2 basis points. If your floor is 20 bps and make an added $1.00 at the same price.
10 cents auth, you would adapt to 22 bps and 8 cents.

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