When you’re deciding which franchise business opportunity is best for you, you’ll certainly consider the return on your investment. You’ll want to see how much a given franchise is expected to bring in in revenues, and to calculate how long it will take for you to earn back your initial investment.
You can’t just look at revenue, though. You need to be aware of all the costs and look at the profit your franchise will generate, not just the money you’ll bring in. You can ask current franchisees about the expenses they had and create a list of likely expenses, such as rent, staffing costs, inventory, marketing, and supplies.
One of the costs of doing business that you might not think about is the price of accepting credit cards. Modern consumers expect to have options for paying for their transactions and a business that doesn’t accept credit cards will suffer. But you can’t just agree to take credit cards and take down the card information with pencil and paper. You’ll need a Point of Sale system and a payment solution. Some franchise opportunities will include these solutions, and some will not.
There are also ongoing costs.
When you go to swipe a credit card to pay for a purchase, that business will typically pay two fees. One is a base fee for being permitted to accept different credit card types, like Visa or MasterCard. The base fee is one flat rate the business pays per month, not per transaction, so regardless of how many sales they make they need to pay up. The second fee is a portion of the sale, sometimes as high as 8-9%. These fees can really add up quickly and take a large chunk of out of revenue for businesses, including franchise businesses.
Not all businesses pay these fees. Large companies that hold a lot of power can take their pick of credit card processing companies and make them compete for business to the point of not paying some of the fees. For instance, large retail giants like Walmart often don’t pay the markup of a processing fee where they lose a portion of the sale but rather only pay a flat rate. Most franchises aren’t big enough to do this sort of powerful negotiation but some are—when you considering high-cost nationwide franchises with hundreds or thousands of locations you might be able to take advantage of special arrangements for credit cards.
However, very few franchises fall into this category. When you’re looking at different franchises, it’s a good idea to ask about how credit cards are processed and if that portion of the business is left up to you or is part of the franchise package.
Credit card expenses are an unavoidable part of doing business, and they won’t be a deal breaker for your franchise choice. They’re just one of many factors determining whether you can actually generate more revenue per month than all your expenses combined. But don’t forget about them — they’re one of the myriad factors you have to take into account as you make your decision.
