Understanding Credit Card Processing

Merchant service providers act as middlemen for your business and bank to help process and manage bankcard payments. Regardless of how small your business is, you need to offer card payment services to make it in today’s times. Card payments have become the most common method and so it is essential for restaurant owner’s to make sure they offer convenience to their customers to reap bigger profits.But it is not as simple as that. Credit card processing requires planning, research and complete understanding to make sure you aren't paying higher discount rates than you have to. Following is an explanation of exactly how much you are charged for various transactions:

Interchange

Discount rates are broken down into numerous categories known as interchange. Interchange can include more than 100 different rates that change every year, however, in most cases Independent Sales Organizations (ISO) charge bucket rates to merchants. Bucket rates are an easier way to categorize the dozens of different rate categories into groups to form a simple rate structure comprising of similar interchange levels. Bucket rates include Non-Qualified, Mid-Qualified and Qualified rates.

Qualified Rates

Qualified rates are bankcards that are used on premises. For businesses like restaurants that usually run on a brick and mortar structure, most transactions are done on the premises, via card swipes. These transactions don’t include any reward credit cards like Bonus cash, Flyer miles or other incentives for the customer. Merchants are charged the lowest discount rate in this category which ranges from 1.65% to 1.95%. Qualified rates are usually low because the chances of a merchant getting a chargeback are the lowest and due to the lesser risk for the card and the merchant to absorb the cost of accepting fraudulent bankcards.

Mid-Qualified Rates

Mid-Qualified rates are charged for bankcards where the transactions are made via telephone/email etc. where the cards aren’t swiped. Although for restaurants offering cash on delivery, mid-qualified rates hardly apply. However, in cases where restaurants may accept payments on phone, or via online forms or websites, or are offering reward cards, then mid-qualified rates apply. The risks of fraudulence increase if a bankcard is not present, thus the discount rates are higher and range from 0.85% to 1.29% plus the qualified rate.Reward cards are also charged the same because eventually it is the merchant that absorbs the cost of MasterCard/Visa’s ability to offer reward card incentives.

Non-Qualified Rates

Non-qualified rates include International, Corporate and Business bankcards. These have the highest discount rates among the three and can range from 1.12% to 1.63% in addition to the qualified rate. Multiple factors are responsible for the high discount rates including the following:

• These bankcards of the highest risks comparatively.
• Business and corporate cards have highest limits.
• The processing company deposits the funds into the merchants account upon approval and receives the funds afterwards.
• International cards require thorough verification due to the high risks.
• With international cards, more often than not, the processing company has to calculate the rate of exchange of the currency to the US dollar before withdrawal.
• The non-qualified rates remain the same regardless of whether the card is swiped or not.

Item Fees

Apart from the discount rate, an item fee is also charged on bankcard transactions. This fee is reflected when a merchant receives a bankcard where the merchant has to settle all transactions for the day or needs to obtain approval. The terminal has to dial out to obtain an approval or batch out for the day. For each transaction where a merchant has to batch out or obtain an approval, the merchant is charged a cent. Depending on the type of business, a merchant is charged from 18 to 20 cents per dial out.

Monthly Statement Fees

Merchants are charged for the monthly report of discount fees and transactions that they receive. This statement is provided at the end of each month in order to help the merchant tally their revenue and accounting from bankcard transactions. Depending on the type of business, merchants are charged somewhere between $7.50 and $10 per month for the monthly statement. This monthly statement is also analyzed and reviewed by Independent Sales Agents when consulting with a merchant about converting current ISO.

How to Find the Right Processor

It can be very difficult for restaurant owners to find the right processor for bankcard transactions. There are numerous things that you need to keep in mind to make sure you are not paying higher rates and fees than you have to. Following are a few things to keep in mind when looking for Credit Card Processors:

• Be on the lookout for processors who claim they can ‘save you money’ without having any knowledge of your business and card processing needs.
• Steer clear of agents wanting to check your statements right away. Yes, it is important to check the statement before they can plan your discount rates, but both of you need to get a better understanding of what is needed and what is on offer before jumping to confidential financial reports.
• There is no such thing as ‘whole sale pricing’ as far as MasterCard and Visa are concerned, so if that’s what the sales agent is offering, then there isn’t much validity to their claims.
• If the representative starts offering you rates without understanding the nature and structure of your business, then that’s a red flag waving right at you. There is a huge difference between the rates on a statement and the total cost incurred. In the end, it is the total money you are charged that matters, not the numbers on your statement, regardless of how tempting and pretty they look.
• Service is just as important as the offer at hand. So steer clear of representatives who choose the trickiest of times to ring your bells. A reliable agent will help you find the best deal at the right time and most importantly at your convenience.
• You have questions about matters you don’t understand? Good for you. Don’t let complex, default answer fool you. If you don’t understand what your representative is trying to tell you, then the chances are neither does he/her. And it’s time for both of you to move one and for you to find someone who knows what they are offering and knows how to tell (sell) it too.
• A good processor will stay updated on cost fluctuations or reduction in cost from MasterCard/Visa and will inform you about the changes too. So you need to know that they know what needs are.

The more you know the easier and more convenient it will be for you to find the right processor. It can be both frustrating and costly to let your processor tell you stories that although take you to fantasy land on paper, end up costing you real time money. Your business is all about you, your costs, your profits and your transactions. So by knowing how credit card processing works and how you are charged for it will help you make a more profound decision. Because in the end, it is very easy to identify processors who work for your best interest, and they are usually the ones that companies have stuck to for longer period of times. So do a little research to find out who the other merchants, especially in the restaurant business, are entrusting their credit card processing with.  

One of the Main Reasons Restaurant Fail

Keeping Up Momentum

New restaurant owners many times fail to realize that no one "needs" a restaurant, in most cases restaurant purchases are discretionary in nature so getting it right from the beginning is so important.

Lack of clarity in the concept is a huge reason for failure, but most of all it’s the mistakes and poor decisions made during start up that cause businesses to go belly up too. The first months of getting a restaurant open is a minefield of leases, permits, licensing, certifications and approvals. Not knowing how to navigate the process can land up costing the new restaurant owner plenty besides time and money. It cost momentum, which many fail to realize is crucial in a new opening. A restaurateur can borrow money, hire and cultivate vision and talent, but its momentum—the energy of progress--that keeps a plan moving forward and into living restaurant. Without the "momentum," the money dries up, visions get foggy and talent moves on. What happens next is that each pause, every stall, affects the momentum of the project. These interruptions wear away at the interest of everyone, partners, investors, prospective hires and anticipated customers. The restaurant is in a bad situation before the first dollar ever hits the till. 

Download our free eBook - "Developing a Winning Concept and Establishing Your Brand" 

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Controlling Costs in the Restaurant - Part 1

Is Your Money Going in the Garbage?

In order to control costs you need to keep a close eye on excess waste and pilferage.  Watching what is going out of your restaurant due to carelessness or by dishonest means can really help to control excess costs for your restaurant.  Here are 4 ways to make sure your profits aren’t getting tossed.

Remove trash cans from the kitchen - Replace the trash cans in the kitchen with 10 qt clear storage containers.  By giving each employee their own container you can easily see if good, useable product is winding up in the trash.  Employee  often get lazy, careless or are not trained properly and this can cost you money. By seeing what your staff has in their bin at the end of the night and pointing out what is excess waste can help educate your staff on best practices and save you money. 

Keep a close eye on your trash can in your dish room and your dumpster - I never forget the morning I brought trash out to the dumpster and discovered at least 3 bus buckets of dirty dishes in the garbage.  In order to get out of work quicker, the dishwashers were chucking the final dishes away instead of cleaning them and putting them away.   This is an extreme but it happens.  It is wise to check the dish room trash at the end of the night; you will be surprised how much silverware and small items “ fall through the cracks.”  

 

Place a video camera on your back door - Small items are easily taken by dishonest employee from your restaurants hidden in coats, purses, backpacks etc.   But to steal larger items such as cases of beer or a case of meat a common tactic is for an employee to take the case out to the dumpster and leave it there until they can sneak it out and put it in their car later.  Having your back door outfitted with a camera will act as a deterrent because employees will know they are being watched  and it will also provide evidence if you feel someone is stealing. 

Make a policy that employees must inform manager when taking out trash - As in the last paragraph, taking out the trash is a typical way in which product can be stolen from your business.  It literally “walks out the back door.”  For this reason it is wise to limit access in and out of your kitchen by your employees.   Employees should not have carte blanche to walk in and out of the restaurant as they please.  This just leads to trouble and if they are outside doing whatever they are doing most times they are not doing what they should be doing inside the restaurant.

The Last Guest of the Night

The right time to end nighttime dinner service is something that is different in every restaurant and for every restaurateur. Do you want to wrap things up and go home by eight p.m., or are you happy with customers still wining and dining until 2 a.m.?

Likely it’s somewhere in between—and if you have a separate bar area that’s a factor--but whatever your preference, it’s crucial to have a firm line on your late night service policy that’s completely clear to your staff and your customers, and that everyone’s on board. Here’s why:

Entice them in, don’t rush them out

Last Saturday, on a lovely early-summer night, I went out to dinner with a friend at 9:30 p.m. Late, yes, but the doors were open, the place was still full, and the hostess was welcoming. So far, so good.

But midway through a delightful meal, our plates still half full of tasty food, the waitstaff seemed to start a kind of rush-and-hover that made my dining companion and myself suddenly feel like they couldn’t wait until we left. The staff began to run around as if they were in a big hurry to end the night. Three times servers tried to take away our plates, which still had food on them that we were still savoring. The third time my fork was poised toward the plate, and I had to tell the server that I’d prefer to enjoy the last bite.

One of the traits of a great server is being able to sense when patrons are finished with their food. No one likes to have their plate or drink snatched away before they’re done with it. Servers may think they’re being subtle and the customers don’t notice, but if they start sweeping and vacuuming or are moving around double speed, it gives patrons a message that they want them to leave. Not only is it likely to lower the tip, but it may make customers consider another place to eat next time.

Everything on the table

You want people to have such a good time at your place that they never want to leave and can’t wait to come back, but clearly you and your staff need sleep (not to mention, a life after work). So figure out an ending time you can live with, for you as the owner, for the kitchen, for the bar, and for the waitstaff, and everyone needs to be on the same page. Restaurant owners don’t have to stay until the last pot is washed, but everyone needs to know what time the kitchen closes. If there are parties who want to prolong the delight of your fine atmosphere and their happy tummies with another drink and linger awhile, you need to decide how to handle that and instruct your servers accordingly. Sweeping and vacuuming near guests who are still eating is not only unappetizing but sends a clear signal to them that may not be the cordial message you want to convey.

So consider specifying on your menu what time the kitchen closes, and ask your hosts to alert latecomers to that. If you’re not present that late in the evening, then designate someone to be in charge and make sure no one is rushed out the door, or they just might not rush back.

Foodstagramming

Do you know about Foodstagramming?

It’s when customers take pictures of what they are eating and post it on their social media sites. Foodstagramming is really popular right now! People use sites like Instagramming, TwitPics and Facebook to post their images. It may be annoying for those of us whose friends are constantly sharing more of their life then we need to know, but it sure can benefit your business.

Some restaurants have actually chosen to ban the practice calling it distracting and impolite. Bad idea! I say encourage it! Every time someone mentions your business or shares a photo on a social media site your brand is being promoted with no cost to you. Social media is the new word of mouth marketing and word travels fast. People rely on the opinions of their friends, family and co-workers. Aren’t you more likely to go to a place for the first time after someone you trust recommends it? Your customers are just like you.

You may have hesitations about Foodstagramming because of the stress it puts on your business to always put out the very best dishes and provide great service. But isn’t that your goal in the first place? The feedback you receive from social networks will keep you and your staff on their toes and in the long run result in a better dining experience and more customers.

A Restaurant Can Not Live by Facebook and Twitter Alone - You Need a Website!

I was asked just the other day by someone opening a restaurant, "Do you really think I need a website?  I have Facebook & Twitter."  I felt bad because I  jumped on his case!  I made it very clear that  I think it is a BIG mistake not investing in a website.

Customers become more and more brand-centric everyday, and your website is a big part your brand.   Your website is no doubt  the best way to portray to potential customers the type of experience they can expect when they come to your restaurant. Why would you want to miss out on that? By not having a website you are doing your business a huge injustice.

Don't get me wrong, Facebook and  Twitter definitely have their place but they should be used as an extension of  your website.  The fact that they are free is a bonus and they should absolutely be incorporated into your marketing strategy, but as a way to enhance it but by no means define it.   One of the major problems with just having a Facebook and/or Twitter account is that in order to be successful you need to have followers.   It  make it very difficult to connect with new users and convince them that your restaurant has something unique to offer.  Every Facebook page uses the same template and it is very hard to standout from your competition. What Facebook is well suited for is  connecting with your existing customers and keeping them engaged in your special events, promotions and menu changes.   It is  very difficult using Facebook and Twitter alone to portray your brand and to set the tone of your restaurant, not to mention all the potential customers you are missing out on who do not use Facebook or Twitter in the first place.
The bottom line is that you need a website.  Even a small budget friendly website can establish your brand and help you leverage the power of the internet.

Need help?  Give us a call.  Our design team is waiting to hear from you to help you get started.
Note: Setting up an evaluation of our website solution is free with absolutely no obligation.  We set a demo site for your restaurant and walk you through so you can see how it works.  The rest is up to you.
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