Overview
The effective rate is a common denominator used to analyze competitor pricing or to track and identify changes in your own pricing package.
The Formula
To find your effective rate, use the following calculation:
Understanding the "No Monthly Fee" Model
While the effective rate is a great tool for traditional merchant accounts, it can be misleading for custom-built packages, such as the no monthly fee model.
In this model, you only pay processing fees when you run a transaction. However, certain pass-through fees from card networks are often not assessed until the following month. This creates two specific scenarios that can skew your data:
Low Volume Months: If you have high pass-through fees from a previous month but zero or low sales in the current month, the "fees without volume" will result in a disproportionately high—and inaccurate—effective rate.
One-Time Occurrences: Including one-time charges, such as chargeback fees or account change fees, will make the effective rate appear higher than your actual cost of processing.
How to Find Your True Rate
To get an accurate representation of your processing costs:
Realign Fees: Apply the pass-through fees seen on your current statement back to the processing volume of the previous month.
Exclude Incidentals: Remove one-time occurrence fees (like chargebacks) from the calculation to see your baseline processing percentage.