How to Avoid the Invisible Headache

Still, the expression has merit. Take last Wednesday for example.

I organized a DrinkIn, a happy-hour type of LinkedIn linkup. There were two problems. . . 1 -  I organized it at a beautiful venue 30 minutes north of Montreal (oops). 2 - A major snowstorm hit us the day of the event (bigger oops). 

Of the 26 confirmed participants, only 3 showed up. On the surface, the link up was an abject failure. At least, it would have been if I hadn't met Donnie.

Donnie (not his real name to protect his privacy) commiserated with me about the weather's effect on my event while we exchanged business cards. He mentioned that he wasn't a very good prospect for me. I recognized his company and was tempted to agree. I pass his building every day and never once even considered popping in or calling. Most of my clients are B2C or B2B. Donnie was I2I, industrial to industrial or institutional to institutional, take your pick. Either way you look at it, he was probably right.

Me: So you guys don't do any credit card processing?

Donnie: Not really. Credit cards are about one-half of one percent of our sales. 

I was dumbfounded. Donnie's company was BIG. That one-half-of-one-percent was probably a big chunk of change. I didn't think they processed plastic payments at all.

Me: Really? You guys must do at least $300 million a year, right?

Donnie: Good guess. A little over 400 actually.

Me: Well, one-half of one percent of $400 million is $2,000,000. I'd say you do a lot of credit card sales.

Donnie: Yeah, well-- it isn't really worth the hassle of looking into it. I've read some of your posts, you know. We aren't talking about the whole $2 million. We're talking about a little piece of it  -- what?-- 2% of that $2 million? Even less in terms of what we can actually cut? The ROI just isn't there for me to waste time digging into that stuff. 

Me: I hear ya. But, now you know "A Guy In The Business." Talking about ROI, how long would it take you to have someone send me 3 months of statements?

Donnie: I dunno -- less than a minute?

Me: Okay, anything you cut from the middle line goes straight to the bottom line. So tell me. What can you do in the next minute to save your company a decent sum of money every month for the foreseeable future? Now, I'm not making any promises. I don't know how much I can help, or even if I can help. I'm just saying it will only cost you a minute to find out.

Donnie held up a finger (no, not that one) and made a call, "Marie (also not her real name, but it sort of fits with "Donnie"), when you get this message please send the last 3 months of credit card processing statements to Paul at [my email]. Thanks."

Donnie: Done. Let me know if you can do anything. Honestly, I think you're just wasting your time.

Me: That could very well be, but I'm pretty sure it won't be. No way to know until I try.

I admit I was curious 

Donnie's company deals in big-ticket items. I don't mean big-ticket as in household appliances. I mean big-ticket as in installations in the tens of thousands, even hundreds of thousands, of dollars. What was going on plastic?

It was the parts sales counters. 

Just the sale of spare and repair parts added up to a little over $190,000 a month spread over 6 parts-depot locations. Donnie's $2,000,000 estimate was $280,000 short. What's $280,000 between friends? LOL

Rolling up my sleeves

The first thing I noticed was that Donnie was paying an effective rate of just over 3.25%. That's actually not too bad considering Donnie mostly processes corporate cards. They're the priciest things to process. Three and a quarter percent is still too high. 

Donnie was on the tiered pricing structure that I HATE (capitals intended). If your statement mentions "qualified," "mid-qualified," "non-qualified," or "differential," change it now!

Better yet, call me and I'll change it.

I switched Donnie over to a cost-plus model (interchange+assessment+ 0.07%). Now, depending on the card used he'll pay between 1.49% and 2.13%. Based on his statements, he'll average about 1.84%. That cuts $2,679/mos.

Donnie's company does not accept Interac debit. That's strange for a Canadian outfit. Interac works on a fixed cost regardless of the amount. Why pay even 1.84% when you can pay a dime? 

Some existing credit card transactions will migrate to Interac debit, but we have no way to know how many or for how much. Accepting Interac will save Donnie something and it costs nothing to add to the plan, so why not?

To add insult to injury, Donnie also paid $0.50 per transaction. We aren't talking a fortune here. Fifty cents on each of 234 transactions is a drop in the bucket ($117/mos). Why bother worrying about it? Maybe the better question is, "Why bother charging it in the first place?"  It's especially nuts when you consider that Donnie's average sale was $812. It already costs him over $26 per transaction. That fifty cent charge is just silly.

The silliness continues. No one bothered to tell Donnie that his older terminals were no longer PCI compliant. They just went ahead and charged him a $20 monthly non-compliance fee on each terminal. (12X i.e. $240.00/mos). 

Continuing with the terminals, those non-compliant things cost him $50 a month each as rentals. At that price, he could buy new compliant ones every 7 months. I gave Donnie the choice between renting new terminals at $15 each or leasing them at $12.  Donnie is a smart man. He chose to lease them.

Donnie had 2 terminals at each depot but only did 234 total monthly transactions. I think one terminal per location is plenty and Donnie agreed. Six terminals at $12 is $528 cheaper than 12 terminals at $50.

Leasing is often cheaper than renting. You know that.  Here's something no one tells you. At the end of the lease you can buy the equipment outright for a song, OR your lease rate can become a rental rate. Nine times out of ten, you're better off leasing the stuff. Now you know.

The end result

Donnie saved $2,679+117+240+528 = $3,564 a month. That's $42,768 a year, $128,304 over the next three years. 

Not bad for 30-second's work over a beer.