What is cost plus pricing when it comes to credit card processing?

What is cost-plus pricing in terms of merchant accounts?

Cost-plus payment pricing is a pricing model whereby the processor discloses the cost of each transaction and card type and adds a markup based on a business’s total sales and or transactions.

Cost-plus is a popular form of pricing because it is transparent and can be a tool for reducing merchant costs, depending on their exact situation.

In a nutshell, payment processor costs are set by the credit card associations and payment networks. Nearly all processor costs are consistent nationwide regardless of the processor – give or take some very small line items. Their “costs” are made up of hundreds of line items, mainly based on the credit card companies’ interchange rates. Interchange is the rate that a credit card “acquirer” must pay the “issuer” of the card.

In a cost-plus model, the processor fully discloses their cost for each transaction and card type and simply adds a very small markup based on your total sales, often as a percentage and small per-transaction fee.

For example, if a high-risk payment processor offers “cost plus 129 basis points,” this means the only percentage markup for customer service, annual IRS reporting, overhead, employee compensation, insurance, loss prevention, and profit is “sales volume multiplied by 0.129. ”

Because merchants receive a monthly detailing of every single line item associated with the processor’s costs, some of which are bank or platform-driven, many merchants mistakenly think cost-plus is overly “complex.” In reality, it is a relatively simple pricing model once you understand it.

If you have any questions and would like to speak to a high-risk payment processing expert, please reach out to us any time.