From the blog Square’s New Pricing Could Make a Big Difference for Your Bottom Line

Merchant services company Square has announced a new pricing structure. The new processing rates take effect on November 1. If your business handles a lot of smaller transactions, there are some details you should know.

Square’s flat processing rate has long been a major draw for coffee shops, bakeries, and other businesses where the average transaction is modest. (After all, how much does a cup of coffee cost?) But the new move signals what some industry insiders interpret as a pivot in focus for Square.

Sellers with larger average transactions get a break on their processing rates. Businesses with lower average transactions—typically smaller businesses—pay more. Keep reading for the details.

The new pricing system will affect merchants of all shapes and sizes, but businesses with low average transaction prices will take the hardest hit.

The breakdown

The old Square pricing fee was a flat 2.75%. This fee was added to all transactions regardless of size or type. It’s easy to see why this was appealing to small business leaders.

If most of your transactions are under $10, no problem. You pay the same fee as anyone else.

But the new Square pricing fee is 2.6% + 10¢. That extra dime might not seem like much, but here’s what that means for businesses focused on smaller transactions. Rather than treating all transactions equally, large transactions will be processed at a lower rate.

Granted, that doesn’t sound like good news. It’s easy to see why Square has come under fire from café and coffee shop owners. Their average transaction amounts are often below the $10 mark.

But credit card processing is complex. Instead of assuming the worst, let’s look at some practical examples.

The shift in pricing will help some and hurt others.

Even if you process high volume in terms of total revenue, if your average transaction size is smaller, you’ll pay more.

Real world examples of Square’s new transaction fees

We’ll cut right to the chase. The most affected transactions are those in the $1 to $5 range, which is the average price for, say, a cup of coffee, a quick snack or a small retail item.

And while transactions over $5 aren’t hit as hard, merchants won’t see savings until the total of a transaction is about $67 or higher.

In other words, if you’re a Square customer and you’re counting on smaller transactions to add up, they will—just not the way you want them to. You’ll pay more in transaction fees for any transaction that’s not at least $67.

Ouch.

Coffee shops & cafés

Square’s swiveling white stands are a big hit at coffee shops and cafés. You can hardly snag a fresh cup of joe at a local shop without running into one. And with the old pricing model, a $5 cup of coffee came with a modest $0.14 fee.

But under the new pricing structure, this fee will rise to $0.23.

Granted, that’s less than a quarter, so it might not seem like much. But it’s actually an increase of 64%. Said another way, if you sell 100 cups of coffee a day every day for a year, the new pricing structure will add up to a total of $8,395 in fees compared to $5,019 under the old pricing structure.

THE VERDICT: Square’s new pricing structure isn’t great for coffee shops & cafés 

Convenience stores

Smaller transactions—purchases in the $1 to $2 range—will face significantly smaller fees than $5 transactions, coming in at about $0.13. But while this is a smaller amount, it represents a larger percentage of the total revenue.

For example, let’s say you sell a soda for $1 even. Previously, Square customers would have paid $0.03 for credit card processing. Not bad at all. But starting November 1, those same Square customers will be paying $0.13.

That’s a massive increase of 333%.

THE VERDICT: Square’s new pricing structure is even worse for convenience store owners

Restaurants & retail stores

What about restaurants and bars, where the typical transaction is considerably higher than $5, but often well below the $67 mark?

Let’s consider a $20 tab. Square’s older fee structure set payment processing fees at $0.55 for that amount. Under the new pricing structure, this will increase to $0.62. That’s a 13% increase, which is far less dramatic than the previous two examples.

If you’re a restaurant or bar owner, that may not seem that bad. But ask yourself this. If one of your food or beverage suppliers decided to increase their prices by 13% just because, would you be okay with that?

THE VERDICT: Square’s new pricing structure doesn’t hit restaurants and bars as hard, but fees will still increase

Big-ticket merchants

Under the new pricing structure, merchants start saving money on processing fees when transactions are $67 or more.

If a significant amount of the business you do results in larger transactions, Square might save you money on credit card processing. To get a true apples-to-apples comparison, be sure to look at the available add-ons, additional services (like customer loyalty programs, gift card plans and inventory management), and customer service ratings.

Cutting costs is great—but not at the expense of other valuable services.

THE VERDICT: Square’s new pricing structure could benefit merchants whose average transaction is $67 or more

So, what should Square customers do?

That depends entirely on your business strategy, ROI goals, and cash flow challenges.

Savvy business owners are always looking for ways to lower costs. But cost isn’t the only factor when considering a credit card processing partner.

Perhaps the single best takeaway from this announcement is a simple one. Remember to periodically comparison shop core business services, like payment processing. Ensure that you’re getting the best deal you can get, including price, customer service and competitive add-ons.

KEEP READING: How to Get Out of a Merchant Cash Advance

Are you ready to grow together?