Franchises are in a unique situation as they shop for credit card processing options. In this article, we break down the necessary steps for both franchisors and franchisees. You can also check out our last YouTube video for more information, or have a free consultation with a payments expert.
With multiple locations and a high volume of transactions under their control, franchises are very attractive businesses to card processing companies and should take advantage of that. If franchises understand the appeal of their business model, they will have the leverage to negotiate more favorable payment deals. Regardless of the size of your franchise business, we highly recommend hiring a CPO, finding a fractional Chief Payments Officer or consultant to guide you through this process. In the meantime, we'll give you a brief overview.
Before you begin researching how to tackle your payments system, franchisors must decide if they want to earn revenue from credit card processing or offer their franchisees the cheapest option to accept payments. This choice should frame every decision regarding your payment software, hardware, and rates.
To make the first steps in improving your payment options, you'll need to know what software you use to run your business, and whether the payments are attached. Let's break this down into three categories:
There are thousands of payment hardware options including a wide range of point-of-sale systems and credit card machines. As a franchisor, you get to decide which is best for your unique offering. We recommend contacting your provider or fractional Chief Payments Officer to see what is available to your franchise.
Finding the best payment rate solution ties into selecting the best provider for your franchise. In the U.S. alone, there are over 5,000 credit card processing providers. Typically, many of these are resellers of a bigger company. We strongly suggest bypassing the resellers and working directly with the largest providers. Next, you'll get into contract negotiation. A very important part of this conversation will involve rates. You should only agree to one of two pricing structures: cost-plus or flat rate. Cost-plus pricing adds a fixed markup fee to interchange rates. This is the most transparent pricing model in payments with the potential for discounts on the interchange fees. Flat rate pricing is exactly what it sounds like; it offers a fixed rate for each transaction. This is the best option for your franchise if the average ticket size is relatively low.
Let's pull all of these concepts together with an example. If you own a franchise of coffee shops with your own payment software, you should select the payment facilitation method with flat-rate pricing. Because most of your customers purchase small food and drink items, it would be in your best interest to keep a fixed and predictable processing expense each month. As the franchisor, this will ultimately help you budget effectively.
Now let's take a look at the process through the perspective of the franchisees. If you are a franchisee, your first step in this payments journey is going to be contacting your franchise to see if they have a preferred processing relationship or specific payments companies that they have already pre-vetted for you. In our experience, more often than not there is no pre-established relationship and franchisees are on their own to choose a vendor and negotiate their terms and rates.
If there are preferred payment vendors that work specifically with your company, get pricing and contracts from everyone. You have the leverage at this point, and you'll need this information to have the vendors compete on pricing. These payment vendors also do not know of the other partnerships your franchise has established. You can use this to your advantage by obtaining outside pricing from vendors to strengthen your negotiating power when it comes to signing your contract.
If you find out that there are no preferred vendors from your franchise and are told to make the best payments decision, we strongly recommend finding a payments consultant or fractional Chief Payment Officier. As a franchisee, you're not going to want to spend the time to redline the contract agreements or figure out the best pricing strategy alone. This process involves contacting as many providers as possible who have the best combination of hardware and software for your unique franchise. Following this, you would negotiate pricing with the involved players which could take up to several months to settle on an agreement.
At SwipeSum we are your fractional Chief Payments Officer and have helped multiple franchises, through this process. For more information visit SwipeSum.com to get started. Our consultation will come at no cost to you.