How to reprice when you can no longer surcharge
From 1 October the surcharge becomes your cost. Whether to absorb it or raise prices, and the trap that stops most businesses shopping around.
The surcharge ban is going to be a dilemma for a lot of businesses. What you were passing on to the customer, you now carry. From 1 October it is a cost, not a line item.
So the question every business owner is asking me is the same one: do I absorb it, or do I put my prices up?
It’s a tough one. It’s a tough question. And it’s really a question only you as a business can answer.
But here’s my short answer, before I go through the working. Put your price up by roughly what you were surcharging — your customers were already paying that amount, so it’s fair and reasonable to pass that cost on. What isn’t fair and reasonable is passing it on without first doing the work to see whether you can get a better deal. So get your payments repriced first, then reprice what’s left.
That’s the whole thing in two sentences. Here’s why, and how to work out your own number.
How hard this hits depends on your average transaction
This is the first thing to get straight, because it’s why two businesses hearing the same news have completely different problems.
| Average sale | Surcharge at 1.4% | What a price rise looks like | |
|---|---|---|---|
| Mechanic | $500 | $7.00 | $500 → $507, or round to $510 |
| Cafe | $6.50 | 9c | $6.50 → $6.60 |
If you’re a mechanic, this is easy. A tyre rotation and a general check-up that cost $500 now costs $505 or $506 or $507. Nobody is walking out over that, and nobody is even going to notice it. Large average transaction sizes absorb a percentage almost invisibly.
If you’re a cafe selling coffee at $6.50 and you were surcharging one to one and a half per cent, you’re looking at about ten cents. Are you going to push a coffee to $6.60? That’s the awkward one, and it’s awkward for a reason that’s got nothing to do with the ten cents.
Hospitality prices don’t move in ten-cent steps. They move in fifties and dollars. A $6.50 coffee goes to $7.00, because that’s where the price points are and because the till, the menu board and the customer all expect it. So a business carrying a 9c cost is often choosing between wearing all of it or making a 50c move that’s five times what it needs — and the 50c move is the one the customer notices and remembers.
So the real small-ticket problem isn’t the size of the cost. It’s the size of the smallest price rise that looks normal.
Can you absorb it?
That depends on your margin, not your turnover.
We’re in a cost of living crisis. Customers are already watching every line on the receipt, and for some businesses a price rise right now costs more in volume than it recovers in margin. And for some there’s simply no room to wear it.
What I would say is this: work out the number before you decide. Take your card turnover, multiply by what you were surcharging, and look at the annual figure rather than the per-transaction one. Ten cents a coffee is nothing. Ten cents a coffee, three hundred coffees a day, is $11,000 a year.
Your customers were already paying it
And here’s the bit I think gets lost.
If you don’t pass that cost on, your customer is now paying less for your product than they were before. The surcharge was never free money — it was part of what the transaction actually cost them. So putting your price up by roughly what the surcharge was isn’t opportunism. It’s the same total price your customer was paying last month, just arranged differently. In that sense it’s very fair and reasonable to pass that cost on.
I’m not the only one expecting most businesses to do exactly that. I had a chat with the head of one of the national retail associations, and he believes everyone’s going to put their prices up — and not just by the surcharge amount, by more than the surcharge amount. Because if you’re going to make a price move, you may as well make one worth making.
We’ll know by November.
What isn’t fair and reasonable
What I don’t think is fair and reasonable is passing that cost on without doing any additional work to see whether you can get a better deal.
If you’re about to put your price up, you owe it to your customer to go and check you’re not paying too much to accept a card in the first place. And it’s a great time to do it, because every provider knows their whole merchant base is looking at their pricing this month. The leverage is briefly on your side — and the interchange caps are being cut on the same day, which gives you something concrete to ask about.
Do that first. Then reprice what’s left.
The trap: you may not be able to shop around
This is the part nobody’s writing about, and it’s why some businesses are in a much worse spot than others.
A lot of merchants can’t go and get a better deal, because they aren’t just buying payments. They’re locked into a point-of-sale and payments combination — Lightspeed, Square, Oolio and others like them — where the terminal, the till, the menu, the reporting and the card processing are one product. Leaving the payments means leaving the POS, and leaving the POS means retraining staff, rebuilding your menu and your reporting, and living through a changeover in the middle of trade.
And they know it. They know you can’t easily leave. So it’s not like they’re going to drop their prices or come to the party just because the surcharge got banned — they know there’s a barrier to exit sitting in your back office.
And these are often the ones carrying the biggest hit. Merchants on integrated platforms have commonly been surcharging one and a half to two per cent. Absorb two per cent on a million dollars of turnover and that is twenty thousand dollars straight off your bottom line.
A million dollars isn’t a big business. Plenty of cafes and small retailers turn over a million dollars. Twenty grand is a wage, or a refit, or the difference between a good year and a bad one — and it lands on 1 October whether they’re ready or not.
They’re the ones I feel sorry for, because the advice everyone’s giving them — go and get a better price — is the one thing they can’t easily act on. If that’s your situation, it is worth getting someone to look at the whole setup rather than just the rate, because the answer usually involves the POS side of the contract and not the payments side.
The fees that are already appearing, and why they’re a mistake
I’m already seeing it. Point-of-sale companies in particular are starting to look for ways to make the number back — a software cost that wasn’t there before, an additional servicing charge, a fee attached to something that used to be included.
Dodging and trying to skirt the rules has been around forever and a day, and it isn’t going to stop because of one reform. But I think the RBA will start closing that gap, because the whole point of the exercise was to get the cost out of the receipt.
Leave the regulator out of it for a second though, because there’s a better reason not to do it: customers aren’t stupid.
Me, as a customer, I’d far rather see a business put its price up and pay it than see some software fee on my bill. Because once that starts, where does it stop? I’m at the cafe, and the next thing I’m looking at is a fuel levy. What am I paying a fuel levy for? Someone had to drive to work? Every one of those lines makes a business look like it’s playing games, and you carry that impression long after the fee is gone.
I don’t like paying weekend service charges as it is, especially somewhere the meals are already expensive and there’s clearly margin in it for the owner. A card fee wearing a new hat is going to land the same way.
Put the price up. It’s cleaner, it’s honest, and I reckon it’s what your customer would rather see anyway.
What to actually do
- Work out the number. Card turnover × what you were surcharging, over a year. Decide with the real figure in front of you.
- Get your payments repriced before you touch your own prices. Do it this month, while every provider is expecting the call.
- Check whether you’re locked in. If your POS and payments are one contract, find out what leaving actually involves before you conclude you can’t.
- Then decide: absorb, or move. If you move, move to a price point that looks normal in your category rather than adding a percentage to everything.
- Don’t invent a fee. It’ll get closed off, and your customers will notice before the regulator does.
- Separate the timing. If you’re going to raise prices, don’t do it in the same week the surcharge vanishes. Give it a few weeks so it reads as a price change and not as a swap.
If you’re one of the locked-in ones and you want someone to look at both halves of the contract, give us a call. That’s the situation where an outside look is usually worth it.
FAQ
Can I just put my prices up to cover the surcharge?
Yes. The ban’s on card surcharges, not on your prices. You can price wherever you like. What you can’t do is keep a fee that only shows up because someone used a card, under a different name.
Is it fair to raise prices when the surcharge ends?
Your customers were already paying that at the till, so putting it in the price leaves them about where they were. What’s harder to defend is doing that without first checking you’re not overpaying to accept cards in the first place.
How much does absorbing the surcharge actually cost me?
Card turnover times what you were surcharging. On a million dollars of card turnover, 1.5 per cent is $15,000 a year and 2 per cent is $20,000. Work out your own number before you decide anything.
What if I’m locked into my POS and can’t switch payments?
Find out what “locked in” actually means in your contract — how long is left, what it costs to get out, and what’s really bundled versus just sold together. It comes apart more often than people assume, and the answer changes how much leverage you’ve got.
Can my provider add a new fee to replace the surcharge?
What a provider charges you is its own pricing, and it can change that subject to your contract. What it can’t do is hand you a way to charge your customer a card fee under another name. I’d expect the gap between those two to get narrower, not wider.
Should I raise prices on everything or just some items?
Selectively, usually. An across-the-board percentage gives you odd prices and hits your cheapest, most price-sensitive lines hardest. Move fewer items to the next natural price point and you get the same money back, and it reads as normal.