The Australian Small Business Blog

Monday, February 15, 2010

How Do You Charge Your Customers?

We had just finished a meal at a restaurant, which while quite reasonable, was not otherwise memorable. The bill came to a little over $100. I would have normally left a tip of around 10%.

As we were on holidays I wanted to preserve my cash, so I offered to pay by credit card. It was then I was informed, that yes they did accept credit cards, but there would be an extra 1.5% charge added to the bill.

This restaurant was in a resort area (in Australia), and none of the other establishment we had visited had charged extra for credit cards. For them it was just seen as a cost of doing business, with a recognition that people were more likely to buy something if they did not have to pay cash.

As someone ‘in the game’ I like to look at what is done well, and what is not. If it is done well, I like to recognise it, if not, I like to recognise it.

So I made the point that I would have been happy to have paid a 10% tip, but since they were slapping a 1.5% charge on the bill that no other restaurant did, I did not think any further additions were necessary. So they lost 8.5% by trying to recover 1.5%.

These sort of imposts just annoy customers, especially if you are the only one doing it. Phone companies can do this as all their competitors do it, and their margins are nowhere near the size of those of a restaurant and savings on credit card costs are a significant bottom line addition for them. Further, they offer many other payment options other than just cash. Phone companies even charge you for sending you their invoices, because that is the standard. This leaves the field open to a company that offers a service with no extra charges as a point of difference!

For the restaurant, the equation is different. Do they think that they will save more money by applying this charge than they might lose by turning off customers? If they were concerned about the 1.5% credit card charge, why not just put up their prices by 1.5%? Do you really think that someone would cross the street to another restaurant because their prices were 1.5% dearer? Could they even tell, given that the menu was unlikely to be similar enough to compare prices?

At a restaurant, the meal is meant to be an experience. As you leave in good humour, and perhaps a little light headed after a glass or two of wine, you don’t want to affect the tip because you appearing to be cheap (particularly if your average bill is around $100).

Personally, I am happy to take most credit cards in my business, even Amex with its 3% fees! I want it to be as easy as possible for clients to pay me. (As an aside, I used to accept Diners Club, but only 1 person in 3 years ever used the facility, but boy was he excited to find someone who actually took the card. Perhaps I should have charged extra!) I believe these charges are a small price to pay to complete the sale.

Costs are always important in any business, but the way you charge can affect your image almost as much as what you charge.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.
Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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Brackley Industries said...

Thanks for this great read! Although it is definitely one of the greatest determinant of who would stick or who would be disloyal to your products/ services, indeed, making it simple for your customers to pay you is one of the factors that might make you earn more leads.

Bren said...

In fact, it was probably also in breach of the merchant facility's terms of use.

You will probably find in the fine print of your merchant agreement, that although you are entitled to recover the transaction fee (if you are stupid enough to bother), you can not charge more than the bank charges you.

This can vary, but more often than not it is around 1.1% - not the 1.5 - 3% i have seen around.

Paul Cunningham said...

If a business needs to recover the cost of credit transactions, they might be better off incorporating some part of it into their retail price - like they do their labour, rent, electrictity and other costs.


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