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#398 - Should We Start Passing Along Processing Fees To Our Clients?
00:22:35
Are you tired of those pesky credit card processing fees eating into your profits? Wondering if passing them on to clients is the right move for your business? This episode was inspired by another question from a listener, and we're diving deep into...
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What is up? And welcome back to the Thriving Stylist Podcast. I'm your host Britt Siva and our annual Leadership One Week Bootcamp kicks off next week. We have already got hundreds of salon owners registered and so excited to modernize their hiring, compensation and team retention strategies. It's not often in our industry that there is a training where in just a week you can gain a whole new perspective on what your salon could look like with tools and calculators and examples to make it all make sense. And we host these leadership workshops just once a year to give all industry leaders a chance to dig in and gain some confidence as a business owner about what the fastest growing salons are doing to beat out their competition. Plus, this will be the first preview of our updated Thriving Leadership system. Nobody has seen it before. It's the turnkey salon leadership solution we've all been waiting for. With our new digital dashboards, you're going to get access to our compensation calculators, our booth rental rate calculator, our handbook template. It's literally everything a salon owner could ever need and I just cannot wait for this to get out into the world. If you want to learn more about this one week digital training, head to thriving stylist.com rapid growthbootcamp thriver society members. You register for free directly through your learning portal. If you're not a Thriver Society member yet, you can go directly to thriving stylist.com Rapid Growth Bootcamp Boot Camp is kicking off on August 18th and I can't wait to see you there. Do you feel like you were meant to have a kick ass career as a hairstylist? Like you got into this industry to make big things happen. Maybe you're struggling to build a solid base and want some stability. Maybe you know social media is important, but it feels like a waste of time because you aren't seeing any results. Maybe you've already had some amazing success but are craving more. Maybe you're ready to truly enjoy the freedom and flexibility this industry has to offer. Cutting and coloring skills will only get you so far, but to build a lifelong career as a wealthy stylist, it takes business skills and a serious marketing strategy. When you're ready to quit just working in your business and start working on it, join us here where we share real success stories from real stylists. I'm Brit Siva, Social media and marketing strategist just for hairstylists and this is the Thriving Stylist Podcast. What is up? And welcome back to the Thriving Stylist Podcast. I'm your host Breceva, and today we're talking about processing fees or surcharges and passing them on to your clients. And if that's trending and if we should do it or if we should skip it and all the things, I just kind of want to have an open conversation about it. And this topic was not my doing. This was another very inspired episode. Thanks to Hannah. Elizabeth K. So Hannah left a rating and review on itunes, which is the best way to get a podcast episode suggestion into me. And what she writes is, hi. I've been thriving since 2019. When I found you, it was like you were speaking my language for the first time. I was hearing someone speak the values that were in my heart. It was validating and I learned how to turn them into action. Hannah, that makes me so happy. It's an honor to work with you. Then she says, I was wondering, as the consumer behavior is changing about charging clients the processing fee. I know this is a hot button topic, but it's also becoming the norm. It feels tacky, but at the same time it seems like most clients don't care. Disclaimer I haven't implemented this, but I'm trying to weigh from a business standpoint, it makes sense. I could do a lot more for my staff with that money. But I also wonder what it does to a stylist's tip. For example, a lot of salon owners in my area have implemented this and say they have lost zero clients. They're also owners and I believe in trust. I'd love your insight. Thank you. Great question. I want to give some context. So when we're talking about processing fees, we're talking about, you know, how when you swipe a credit card, there is a percentage that goes to the credit card processor. So it's anywhere from usually 2 point something percent to 3 point something percent, depending on who your processor is. And you as the business owner or service provider have to pay that. There's a deduction that's taken care of, right. As part of that processing fee. So if you ran $100,000 in service transactions as a business owner, you're going to pay, you know, call it $2,500 in credit card processing fees or whatever. We have some salons who do a million dollars in business, so now you're talking more like $25,000 in credit card processing fees. I mean, it adds up. So I don't know, you know, what this owner is doing in revenue. But no matter what, 2 to 3% is a significant portion So I get it. I pay it. We run our entire business on credit card transactions. There is no cash element to our business. So we're paying this at scale. And, you know, I totally get it. I completely understand. We always say, like, oh, it's tax deductible, which is nice. It reduces your. Your tax implication, which we talked about in a previous episode and how all that works. But still, money in your pocket is better than pretty much anything in business. And so what she's asking is, you know, what should I do? Should I pass this fee on to my clients? How does that work? What's the norm? What do I suggest? Is that going to negatively impact gratuity potentially? Couple things she mentioned. I want to dissect that last part. A lot of salon owners in my area have implemented this and say they've lost zero clients. There is not a salon owner in the world who has lost zero clients in the last three months. Like, that's not a real thing. The best, the highest performing, highest retaining salons retain it somewhere between 90 and 95%. So when you're looking at the best, the epitome, the can't be any better salons, they're losing 5 to 10% of their clients at every single year. The best. So when somebody says to me, we've lost no clients, well, then you just don't have good record keeping. So are we living under the assumption of we didn't lose any clients because of this policy? And then if that's true, how do you know that? So as I say that, please don't take that as, oh, see, she doesn't want us to charge the fee. That's not what I'm saying. What I'm saying is, whenever anybody hears from anybody, oh, I've done this and I've lost no clients, it's immediately not true. I lose clients every year. You lose clients every year. That's just business. Every business loses clients every year. Every year. And generally speaking, we don't have really solid data on why the vast majority of our clients walk away. So I just want to add that for context. I'm certain that the owners who are charging these fees are happy about it because money in your pocket is great. What I want to explore is if it's a good strategy long term, if there are other strategies that are better, and is this legal? And those are kind of the questions I want to come to the table with today. And then you can make an informed decision based on that. Sounds fair. Okay, so first of all, if you've ever heard me talk about passing on the surcharge of credit card processing fees to clients in the past, I've always been adamantly opposed. And one of the things I said for many years is it's actually illegal because it used to be. So the practice of surcharging was outlawed forever. And then in 2013, there was a class action lawsuit that permitted merchants in several states to implement surcharges in their business. Now, that wasn't a federal law at the time, but it's been expanded. So because of that 2013 lawsuit, there was a chain reaction and lots of states have adopted a pro surcharging stance, but not all of them. And so this, I think, like anything else, is trending for sure, like a trending topic. It's one of those random things that's like, oh, everybody's doing it. Well, everybody can't possibly legally be doing it. But I think it's one of those things where as small business owners, we're always looking to keep a bigger piece of our own pie. And if this is an opportunity for us, maybe it makes sense. So let's just look at it from a legal standpoint and then we can dig in a little deeper. So the states in which it is illegal to pass on credit card processing fees to clients, we have Connecticut, Maine, Massachusetts, Oklahoma and Puerto Rico. Then we have several states that are regulated. So Texas is one in particular that falls into a gray area. There is some legal stuff that is happening at the time of this recording. So it's going to sway one way or another. Maybe sometime in 2025, maybe sometime in 2026, I don't know. But there is question about if Texas is going to allow this to happen legally or not. I'm going to assume at this point you still can because it's in the gray. But keep an eye on it because we don't know what's going to happen forward. In New York, New Jersey, Nevada and South Dakota, passing on surcharges and credit card processing fees cannot exceed the merchant's cost, which I don't think that's a major issue. I think for most of us, it's like if we're paying a 2.9% credit car processing fee, that's what we're looking to pass along to our clients. So what it's saying is you can't surcharge more than what you are paying to your processor. But I think that's what most of us are looking for anyway. So it's just kind of like a Clarifier on that one. Then we have Illinois surcharge rates are capped at 1% of the total processing fee, meaning if your credit card processor charges you 3.3% per swipe, you can still only pass on 1% to your clients. So it's almost like a share responsibility. I thought that was kind of interesting. They're the only state that really does it that specific way. Colorado is a 2% cap. Montana is a 3% cap. So the reasons why the caps matter is that there are also caps that come from the credit card providers themselves. So Visa only allows for a 3% of the total transaction surcharge to be passed along to the customer. With MasterCard, it's up to 4%. So that's something to keep in mind too is it's not cut and dry across the board, even with the credit card processors. I don't think most of us are looking to surcharge above 4% anyway. But if you're processing a Visa, if your swipe is costing you 3.3%, you can't legally charge more than 3. So that's just something to keep in mind as well. Okay, let's go back to the States for a minute. So Kansas and California both have something relatively similar going on. So in Kansas, it's stated that if a merchant is to implement a credit card surcharge program, they must incorporate credit card fees into the listed price of products. So it can't be a secondary charge. It's just like if your tint was once a hundred dollars and you want to recoup that 3%, it's now going to be $103. So you can't say, oh, part of that is a credit card surcharge. It's just you need to raise your prices, which for me has always been my stance. I've always said if you're worried about credit card processing fees, you need to look at your overall business operations costs and look at your budget and ask yourself, do we need to raise our prices? Is there enough margin here? It's just part of a bigger conversation, in my opinion. And that's kind of where Texas law stands. In California. July 1, 2024 SB478 passed. And it's very similar. It says, including credit card surcharges, the advertised price of goods and services must include any mandatory fees or surcharges. So again, very similar to Kansas, if you're charging 3%, that has to be what's on your website. That has to be what you quote to a Client, all that kind of stuff. It says while businesses can still factor credit card processing fees into their prices, they cannot present it as a separate fee at the point of sale. Again, it's just going back to budgeting and business practice and looking at your profit margin more than anything. Georgia convenience or swipe fees are allowed in the state, but businesses must provide customers with alternative payment options. So kind of old school, but one of the things we're definitely going to dig into today, you can say there's a 3% credit card processing fee, but you must also accept cash or you must also accept check. There's some businesses, I was in one over the weekend that was credit card only. It is a very, very, very popular high production bakery. Like they probably serve a thousand customers an hour. I mean, really high production and their credit card only. So if they were in Georgia, could not do processing fees because there is no cash option. So there has to be an alternative in the state of Georgia. In Michigan, credit card surcharging is legal. However, brick and mortar stores, which salons fall into, have to install signage at every point of sale and entrances of the business that explain in detail the surcharge fees to the customers. In the case of gas stations, if prices differ for cash versus card, they must use similar signs to post these prices. So if in Michigan you're going to do this, you have to have a sign at your door and at every point of sale that detail how your surcharges work. Now that is simply current as of July 21, 2025. You should do your research on your own and see what is legal in your state, because this seems to be something that is evolving very much in real time. This was actually an episode that was relatively difficult to research because there are very clearly moving parts and pieces and laws that are being passed like as we speak, and debates and lawsuits and all kind of things. So just know you are entering muddy water with this topic no matter what you decide to do. So no matter what state you live in, if you're going to do surcharging and you live in a state where it is potentially legal, a few things you have to do. Disclosure is required legally in every state. If you can do this, there is not a single state that says you can do it. And you don't have to disclose it, you're always going to have to disclose it. Businesses must clearly and conspicuously inform consumers about the surcharge before the transaction is completed, both online and in store. The surcharge should be listed as a separate line item on the receipt. Now, the caveat to that would be a state like Kansas or California where you have just included that surcharge in your car cost of doing business, which is going to be my preference. Like, if you're sweating the credit card processing fees, you probably just need to raise your prices. It's 6 1/2 dozen of the other, honestly. But they're saying if you are going to have it be a surcharge, it has to be lined item, no profit, meaning the surcharge can't be something that's profitable. On the flip side, this is where it gets tricky. In all states, surcharges cannot be applied to debit card transactions. So if you decide you're going to do this, you have to ask your clients every time, are you using a debit card today? And if they're using a debit card, it's essentially, essentially an electronic form of payment that is same as cash. So you can't charge that processing fee. If you're swiping debit cards, you're going to have to cross check every single time what you're swiping and see if that fee is even appropriate for that transaction. Now, call to action here, because if you are going to implement these surcharges or processing fees, you do have to notify your acquirer or your payment processor. So if you use square or whatever using to process those credit card payments, you have to let that company know. You also have to notify Visa MasterCard and let the credit card companies know and your acquirer or your payment processor know at least 30 days ahead of charging your first surcharge. So I looked up visas and if you go to visa.com merchantsercharging, you can start the paperwork there for a MasterCard, they didn't have a clean URL, but if you just search MasterCard surcharge form, it comes right up. It took two seconds. And then whatever credit card processor you use, they're going to have their process as well. So all of that needs to be completed and documented 30 days ahead of you implementing any surcharges. If you do choose to do so, you can't just crank it up by 3%. You have to follow the process. And then you're going to be agreeing to having receipts available for your clients that break down the, the way that the processing was done and how much was based on service and how much was based on, you know, surcharge and that you're going to have the signage up and whatever laws are required in your state, you'll be agreeing to those things and then letting everybody know that you're doing it. So this is being very well documented. So then the question becomes, you know, when the person who submitted this question said, I've talked to other owners. Everybody loves it. Clients don't say anything. Nobody cares. I was like, okay, well, let me. Let me look at what the data supports. So there was a survey done by a company called wallet hub, and 87% of people think they're being nickel and dimed when they're asked to pay an extra fee for credit card payment processing. More than four in five Americans have been charged a fee when paying with credit card. I mean, we've all basically been impacted by this one way or another, right? Two in three Americans say they would not use their credit card if they were charged a fee for doing so, which take that how you want to, because maybe you'll get. Get more debit card transactions or more cash transactions, and maybe that's really what you're after anyway. More than three in five people believe it's unfair for merchants to pass their payment processing fees onto their customers. The last piece that I thought was interesting is that 58% of people say that they don't believe merchants are transparent in the way that fees are being processed and advertised. So here's the thing about all of that data. I don't know about you. When I go to swipe my credit card and there is a processing fee, it annoys me every time. I'm like, that's annoying. When there's fees anywhere I go, I feel like that's annoying. Does it change where I spend my money? I can't say that it does. I can't say that I would go to a convenience store and they charge me a transaction fee. And then I'm like, well, I'm never going there again. I'm annoyed by it. I don't love it. Now when I'm experiencing these fees. First of all, I live in California, right? So I'm having a totally different experience than somebody in a state where these are legally accessible in a way that I'm not having here. I only see these kind of fees when I'm outside of my own state, because in my state, you can't do this. But if I was traveling and I were to come across this, it does. It irritates me. I don't love it. If I was to be going to a service provider who was always doing this, and let's say I was spending a thousand dollars a year with this person. So I knew that I was having to pay an extra. What does that end up being? 30 bucks to see this person. Does that make me less loyal to them? No, probably not. But it does make me feel a type of way. So do with that what you want to. I want you to think about your clientele. Are they going to love it? No, probably not. Is it going to make them leave you? I don't know. I think it's different for every kind of client and their tolerance for stuff like that. I think the most recent kind of feedback we've seen on this type of transaction is the pushback against constantly being asked to tip. Right. When you order a coffee at Starbucks, you're asked to tip if you. I mean, you go anywhere, you go, you go to sometimes a convenience store and you're asked to leave a gratuity. Like, we're so in this mindset of every time you swipe a card, you're asked to leave a gratuity. And I do think that there is a consumer irritation around that. Is there going to be an increased consumer irritation around credit card processing fees? There might be. Will there be pushback? Maybe. Will somebody say, okay, yeah, sure, I'll pay your 3% credit card transaction fee, but now your tip has gone down to 17%. Maybe they will. I don't know. I think the answer will be different for everybody. I don't think it'll be that broad. I want to be really respectful when I share this story because it was shared with me in confidence. I had a really interesting conversation with a stylist who decided to include gratuity in her service charges many years ago, did the thing where she eliminated gratuity but raised her prices in order to do so. And she told me in confidence it was a huge mistake. And she did it because she felt like everybody was doing it. And now it's very difficult to undo because she's made this huge statement about it and it's how she's known and how she's seen, and now you have to undo it all. So if you decide to do this, you just have to decide. You're going to go all in. You're going to do the signage, you're going to do the. The legal courses of action. You're going to stay up to date on the policies and what's going on with your state. And like, do you want to get into all this? Because it's not a light decision. I think when you're looking at it at a glance, it's easy to be like, oh, yeah, 3%. Have the clients cover it. It's not so simple. So just really make sure if you want to do this, you really want to go for it. Something else to consider if you are going to do this kind of surcharge is to offer cash discounting, either in addition or instead. This was something that came up suggested in the research I did, and I loved the point of view. So if I was given the option to pay $103 for something on my card or $100 cash, if I had the hundred in cash, I might just give it to you. I might not have it. So you might have to take the 103. And that's just the way it goes. But I think that if you position this as not necessarily a credit card surcharge, but a cash discount and do a reframe, it might land a little bit better and you'll still get a similar end result. Do you know what I mean? So if right now you're charging your average ticket's a hundred bucks, let's say you do raise Your prices by 3% across the board, like you'd have to do in California and Kansas if you wanted to implement something like this. And the cost of your services just goes up by 3%. Now, I cannot say at scale that I recommend this strategy. I think that price increases are done really differently, and we'll talk about that on next week's episode. But let's say you decide you want to do that. What you could do is at the same time you implement that 3% increase in your service cost, you could say, or you could pay cash and your price doesn't go up. It's interesting. You know, I feel mixed about it because you're almost discounting yourself before the raise even happens, right? Because let's say 30% of your clients decide to pay cash now. Cool. They're paying cash, but they're also paying less. So only 70% of your clients are really part of the price increase. I don't know. I don't know. I feel like over time it would probably be something that would shake out. Well, I think the immediate impact could be a little bit messy. I don't think you'd actually make more revenue in the short term. I think long term it might be able to pay out potentially. I don't know. I haven't mathed it. And it would depend on, you know, what portion of your clients choose to go the cash route and whatever. And then. So let's say you're Getting cash? Are you claiming the cash? I'm a big proponent of having as much of your income be on paper as possible. As somebody who really is looking to, you know, have financial peace of mind. And I'm looking into wealth creation all the time. You can't do wealth creation with cash under the table. Like it's just not possible. When you look at investing and having your money work for you, that's all going to be very traceable transactions. And so if you're taking the cash but you're taking less of it, you're avoiding the credit card transaction fees. But my hope is that you're still claiming it as taxable income. Just really think about systematically. Do you want to be doing frequent deposits to your bank because of that cash? If you are going to become more of a cash heavy business. I saw a stout recently with something like less than 20% of transactions are done by cash today. In current times, are you okay increasing that? Are you okay doing deposits? Deposits at the local bank every other day? It's really thinking about your lifestyle, what works for you and your business, how much you want to take on, how much this matters to you. For me, my stance hasn't changed. It's been what it's always been. And instead of worrying about the 3% credit card transaction fee, for me, the game I like to play is how do we increase Your revenue by 10% this year? So it's a non factor. I just think it's better for the clients, better for you. I think it's more fun, I think it's less paperwork, I think it's more effective, I think it's more scalable. That's my take. You have options. Think about you, your business and what you want to be up to. So much love. Happy business building and I'll see you on the next one.