How do I pass a transaction fee to a customer on Square?

Passing Transaction Fees to Customers on Square: A Simple Guide

Square, while offering a streamlined payment processing experience, still charges transaction fees. For businesses aiming to maintain profitability, understanding how to pass these costs onto customers effectively is crucial. While Square doesn’t offer a built-in surcharge option, you can easily calculate and apply a surcharge manually. This article explains how to do it transparently and accurately.

Understanding the Calculation

The key is to understand the percentage of each transaction you actually receive after Square deducts its fees. This is often referred to as the “net” amount. To calculate the surcharge, you’ll need to know Square’s transaction fee rate. This rate varies depending on your plan and the type of payment processed. You can find your specific rate in your Square account dashboard.

Let’s illustrate with an example. Suppose Square charges you a 1.9% + $0.10 transaction fee. For a $100 sale, the fee would be ($100 * 0.019) + $0.10 = $2.00. This means you only receive $98.00. Your “keep rate” is therefore 98%. However, to account for both the percentage and flat fee, a slightly more complex calculation is necessary for accurate surcharging.

The Accurate Surcharge Calculation:

Instead of using the simple keep rate (98%), we’ll use a more precise calculation that accounts for both the percentage and the fixed fee. For our example, the process is as follows:

1. Determine your net keep rate: This involves considering both the percentage and fixed fees. In our example, let’s say your total fee for a $100 transaction is $2. You retain $98 out of $100. Your keep rate isn’t exactly 98% because it would under-estimate the effect of the fixed fee at lower transaction amounts. To improve accuracy, we’ll use a formula.

2. Calculate the adjusted price: To find the price you need to charge to cover your costs, use this formula: Adjusted Price = Original Price / (1 - (Percentage Fee + (Fixed Fee / Original Price)))

Let’s apply this to our example:

Adjusted Price = $100 / (1 - (0.019 + ($0.10 / $100)))
Adjusted Price = $100 / (1 - (0.019 + 0.001))
Adjusted Price = $100 / 0.98
Adjusted Price = $102.04

Therefore, you should charge $102.04 to cover the $2 transaction fee, resulting in a $2.04 surcharge.

3. Transparency is Key: Clearly communicate to your customers that a surcharge is being added to cover credit card processing fees. This can be done on your menu, at the point of sale, or on your receipts. Be upfront and avoid hidden fees.

Important Considerations:

• State regulations: Be aware of your state’s laws regarding surcharging credit card transactions. Some states have restrictions or require specific disclosures.
• Customer experience: While passing on fees is necessary, aim to present it clearly and professionally to avoid alienating customers.
• Pricing strategy: Consider your overall pricing strategy and how a surcharge might impact your competitiveness.

By utilizing this method, you can accurately pass on credit card processing fees to your customers while maintaining transparency and complying with relevant regulations. Remember to always check your Square dashboard for the most up-to-date information on your transaction fees.