[TachiFigures] Payment processor negotiation for a brick-and-mortar spa business

This analysis was produced as a part of my TachiFigures Agency and has been altered with the permission of the client before reproduction.

You can't score if you don't shoot.

That's the mindset you should have when you renew payment processor terms.

If you are a brick and mortar business. Every year, you should take your current payment processor term contract, shop around, and negotiate.

There are multiple payment processors for a reason. Each has a different way of thinking about rates, transaction fees, and debit vs credit fees.

A brick-and-mortar luxury spa (we'll call them "GloWorks") enlisted TachiFigures to look through their 2022 vendor list and figure out ways to reduce costs.

We noticed GloWorks had used Chase Paymentech for several years and did not investigate whether their rates were still competitive.

Here's how we reduced GloWorks's total costs by 2.4% (reducing payment processor fees by 15.53%) with just 3 hours of phone calls.

1. Gather historical sales transactions

We exported GloWorks's transactions for the previous 6 months. Transactions were filtered by card brand and by debit vs credit.

2. Talk to other payment processors.

We shared last year's Chase Paymentech proposal with 5 other payment processors. The salespeople will send you a friendly-looking term sheet like this:

Keep in mind this is one page out of an eight page proposal.

Many will get intimidated by a sheet like this and call it a day. How on earth would one be able to compare the total impact of Term Sheet A vs Term Sheet B if they all have hundreds of rates and fees listed?

The answer: it's just math.

3. Do some math.

Calculate what your fees would have been given the transactions you had. Do this by applying the new term sheet rates to your sales from the past 6 months.

4. Negotiate. Rinse and repeat.

Information is power. Let the vendor know where they need to become more competitive on rates. For example, GloWorks had more Mastercard transactions than average, so we were looking to negotiate with vendors who could produce a good rate with the Mastercard brand.

Before each new vendor conversation, we were transparent about the total transaction fee we were looking to beat and the math behind it.

Here's the final math:

The TachiFigures Recommendation

Payment processors are not the only vendors to employ the use of complex contracts to lock in their customers.

Phone carriers have notoriously confusing wireless plans so that even the carrier companies' executives don't understand their own fine print.

Yes, cost reduction requires some tenacity. But if you're running a business, you already know it's more about resilience than intelligence.

It took a total of 3 hours to talk to the vendors and 5 hours to calculate the total transaction fees GloWorks would incur with each vendor.

The recommendation here is simple. We've concluded the total transaction fees under each vendor. And in this, we've determined that Square has the overall lowest fees for GloWorks:

Note that this analysis will be different for each business. GloWorks's past sales transactions (credit vs debit, volume, card brand) were distributed such that Square's terms happened to be the most competitive.

Thanks for reading! If you didn't know this already, let it be known that all contracts in life and business are negotiable. Bank loan contracts, asset purchase agreements, life insurance contracts, salary contracts - try it out!

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What is TachiFigures?

Need analytical firepower for a pitch, valuation, or business decision? TachiFigures is a consulting agency that builds financial and operational analyses. Find out more here.