Your Business and Square…

Recently I have been getting a large amount of questions regarding Square.

  • Is Square right for my business?
  • Is it really as expensive as people say?
  • I hear it is really simple and all the equipment is free, is that true?

Well, I have my own opinions on the subject and my answers might surprise you.  Regardless, I thought I would do some more research and see what the people that actually use Square are saying.  About a week ago I searched and searched and found a Square advertisement on Facebook.  They allow ‘comments’ on the ad so I just started reading.  Boy were there a lot of comments.  They ranged from ‘Best thing ever’ to ‘worst thing imaginable’…  I kind of figured.  After sifting through all the comments, I found a number of people that didn’t really know if it was right for their business or not.  Like many others, people are skeptical of information they receive from people they don’t know.  Take it with grain of salt kind of attitude.

With me, I read comments like this.  People that feel compelled to leave negative comments are typically emotional about the situation.  The person or product has damaged them in a personal or financial way and they are venting.  I think we’ve all been there.  Then there are the people that leave the positive comments.  I break these down even further into 2 categories based solely off what they say.  The first is the person that leaves the simple, ‘my experience’ comment.  They feel compelled enough to say something because whatever they are referring to has worked to their satisfaction or provided what they expected and have little to no complaints.  Then there is the ‘over the top, positive response.’  I feel this response is really looking for assurance that they made the right choice and need to over emphasize the choice they made.  In some cases also taking the time to bash a different service or product.

I found my self responding to others that had left comments just to educate them.  After about an hour, I realized that I was saying basically the same thing to all of them.  I thought I would share that here.

Is Square right for your business?

Well, that really depends.  Square is a simple, easy to use product that only charges you (the merchant) when you use it.  Square charges a flat fee pricing structure starting at 2.75% plus a transaction fee and the cost goes up from there.  The benefit of this kind of pricing structure is you always know exactly what you pay for each transaction and there are theoretically no ‘Hidden Fees’ to speak of.  This type of product is an excellent choice for certain types of businesses such as:

  • Weekend warrior type of businesses like craft fairs or farmers markets
  • Businesses that process less than $1,500 a month consistently
  • Business that do less that 1 to 2 transactions a month for low volume amounts under $1,500 total
  • Seasonal businesses that do low volume.

There is a theme here.  Do you see it?  It’s totally about the amount of consistent volume a given business processes.  If you have a business model that is similar to the bullet points above, SQUARE is a fantastic option for you.  It is everything you need, simple, easy to set up, there when you need it and they send you the little swiper guy at no charge to you.   See, and because Square is a competitor of mine, you thought I’d talk bad about them…

However, there are down sides to Square even for the business types listed above.  For micro businesses, (that’s how we in the business refer to business that process less than $1,500 monthly on a consistent basis) Square pulls some very shady things on occasion.  They might hold funds for up to 2 months if you process a larger than expected transaction, and in some cases, it’s very difficult to get a hold of anyone to fight to get your money.  They do have, however,  a ton of ‘How To’ videos on YouTube.  If a chargeback should occur with your business, I haven’t heard of any business owners being very successful on getting their money back.  So, take if for what it’s worth.

Is it really as expensive as people say?

Expensive is relative. If you haven’t read my previous BLOG post, Understanding Effective Rates, I would suggest reading that.  It really discusses all you need to know about what really SHOULD matter to the business owner when it comes to overall cost.  Regardless, I’ll touch on it a little here but I still suggest you read that BLOG as well.

Interchange is the cost that every merchant pays for accepting credit card payments. Each card they take typically has a different percentage rate associated with it and, by the way, this is not a secret.  You can look up Visa/MasterCard Interchange rates and look at them for yourself.  Those rates are standard for every processor out there, including Square.  If you look at it, rates range from .05% to 3.15% which is charged to you, the merchant, for accepting that particular card type.  That’s a pretty big range.  Square’s pricing structure STARTS at 2.75% and goes up to about 4.5%.   Hmmmm….. IF that was the only information you had to go on, I’d say Square is pretty expensive.  Now, that is just the percentage they charge, there is also a transaction fee that is somewhere in the $.20-$.30 range per transaction. Let’s not go there yet.

Let’s do a little math. For this exercise, I’m going to try to explain the cost a merchant might expect to pay for a particular transaction if they used Square VS any other processor.  I like to use the Visa Rewards 1 card type because it used to be the most common, basic level rewards card out there.  Think of it as the Southwest Airlines card.  The cost to take this card is 1.64%.  Understand that is the ‘interchange’ cost and not what a typical merchant would pay.  A typical merchant might expect to pay anywhere from .20% – .40% higher to accept that card type.  For this example, lets use the .40% upcharge to the merchant as the worst case scenario.  Now, that charge would be if they had a processor OTHER than Square. This might be B of A, Chase, Heartland, Podunk Processor, it really doesn’t matter.  For simplicity purposes, I’m going to compare a $100 transaction with Square and ‘another’ processor using the Visa Rewards 1 card type.  Since I know you have all been following along with all my posts since they are so informative, you already understand that for every transaction you run as a merchant, you get charged a percentage and a transaction fee.  Again, for this example, I’m going to assume the transaction fee between the other processor and Square are the same. Coolio???

Square would charge no less than 2.75% and $.20 a transaction.  For the $100 transaction, you might expect to pay the following:

$100 X 2.75% + $.20 per transaction +$2.95

Did you follow that?  Now, for the same transaction through ‘another’ processor, it might look like this:

$100 X 1.64% + $.20 per transaction + the upcharge of .40% ($100 X .40%) = $2.24

How did you math geniuses do there?

So for that same $100 transaction, Square is going to charge $.71 more for that transaction.  I know, you’re thinking, “It’s only $.71” and you’re right.  That’s why if you don’t do much volume, Square is a great, simple solution for your business. I also want you to understand that in my little math problem above, we used Squares BEST rate and the ‘other’ processors WORST rate.  You can figure out the math on you own for the worst case for Square if you want. Let’s just say is well over $1.50 difference in charges. That would be $1.50 on every single transaction that is similar to the example above…

Now lets say that this is your business and you process on average $20,000 a month in credit cards and this Visa Rewards 1 card was the only card your customers paid you with.  If Square charged you $.71 more for every $100 you processed, that works out to be $142 more that Square would charge you compared to the ‘other’ processors.  Do you see how Square can be labeled as expensive?  Imagine if you did $50,000 or even $100,000 a month in processing. How much money would you be wasting every month by using Square?

I hear it is really simple and all the equipment is free, is that true?

Yes and no… Square is very simple to set up, use and understand.  But then again, so are virtually every other processing company out there.  Square would have you believe that they are simple and everyone else out there is difficult, cumbersome or requires a degree from MIT to use.  That’s not the case at all.  Also, when you sign up, Square will typically send you the little reader that attaches to your smart phone for free.  However, if you want to process through a Squares POS system, (Sits on your counter) that’s not free.  Nor is the ApplePay reader or external printer.  So, YES, the simple phone swipe reader is free, but that is it.  While recently reading through all those comments on that Square ad, I saw a lady posting something that Square is doing now.  Sign up and process your first $1,000 for free!!!  That sounds like a great deal.  Let me ask you this, is anything really free?

In closing, I just want you to understand this, depending on your business model, there is a solution that will work for you.  It might be Square, it might be B of A, Chase or myself.  Just take some time to learn a little about it and find a company that will tell you the whole story, not just the part they think you want to know.

Until next week,

I’m Ed Craft, your credit card guy!

15 years in the business and counting.

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