One important metric you should be tracking each month is your average effective rate. This rate the overall percentage of fees you pay compared to the total amount of donations you bring in during that month.
Knowing this number is important because it helps you quickly understand the rate you're paying so you can compare it to any competitor's rates. Because we offer Interchange Plus pricing, we only pass the costs to you from the actual type of card used to donate.
One of the more popular pricing models is called flat rate pricing, often seen in the format of 2.9% + $0.30 per transaction. While this is easy to understand, since you're not paying Interchange rates, you often overpay for credit card processing fees.
How to calculate your average effective rate
To begin calculating your rate, you'll need your:
- Merchant Statement
- Gateway Statement
Your Merchant Statement
Your merchant statement shows the total number of donations processed with a breakdown of all the fees for each card type. At the very top, you'll see a breakdown of the Total net sales. Write this number down. For our purposes, we'll say it's $118,500.28.
Next, look at the very end of the merchant statement for the line item Total Fees Due, and write it down. For our illustrative purposes, we'll say it's $2778.96.
Your Gateway Statement
Your gateway statement shows the fees for securely storing payment methods and schedules, along with the fees incurred to facilitate processing a transaction online. Near the end of the statement, find the Total Amount line and write it down. For this example, we'll say it's $187.
( Total Fees Due + Total Gateway Amount ) ÷ Total Net Sales
= Average Effective Rate
To calculate your average effective rate, Add the total merchant fees due to the total gateway amount. This represent all of the fees paid to process credit and debit cards online. Next, divide that number by the total net sales. The resulting number will be your average effective rate.
Here's the calculation using our sample numbers:
( $2,778.96 + $187 ) ÷ $118,500.28 = .025029139
The average effective rate for our example is 2.5%, significantly lower than the usual 2.9% and $0.30 per transaction.
An additional note about ACH Transactions
Absent from our initial example is the total amount of donations via ACH or Bank Account transactions. This was intentional since every merchant does not process ACH transactions. Even so, it's important to include these numbers into the calculation if you do.
By default, the gateway fees include ACH if you have them, so the only additional number you'll need is the total net sales from ACH transactions, which is included on your ACH statement. For this example, let's say the total Net Sales for ACH is $39,210.
( $2,778.96 + $187 ) ÷ ( $118,500.28 + $39,210 ) = .018806383
The average effective rate include ACH transaction goes down to 1.88%, which is incredibly low. This is because we charge 0% for transactions processed through a bank account, while others will charge 1% and sometimes higher!
We hope this article helps you see the value in regularly tracking your average effective rate to get a complete picture of your online giving fees and how they compare to other companies vying for your business.
If you have any further questions or would like us to talk with a ministry consultant, reach out—we're always happy to have a conversation!