Should I add a card surcharge to cover payment processing fees, or just raise my prices?
In most small service businesses, a small price rise is cleaner than a surcharge. If 85% of $400,000 revenue is paid by card at 2.9%, fees are $9,860 a year; a 2.5% price rise on everything brings in $10,000 and covers it with no extra line on the invoice. The rules on surcharging vary by country, state and card network, so check them before adding one.
A 2.5% price rise covers every card fee with $140 to spare and never puts a surcharge in front of a customer.
A surcharge is a price rise that the customer sees itemised at the worst possible moment — the point of payment. Many customers accept a higher price far more readily than a visible fee, and it avoids arguments at the till.
Surcharging is also restricted in many places. Some countries ban surcharges on consumer cards entirely, some US states limit or prohibit them, and card networks set their own caps and disclosure rules. Debit and credit cards are often treated differently. Check the current rules for where you operate, and with your payment processor, before introducing one.
Work out the break-even rise before choosing. Fees divided by total revenue is the percentage your prices need to move to absorb card costs completely — usually between 2% and 3% for a business where most customers pay by card.
A cash or bank-transfer discount can be a better tool than a card surcharge for large invoices, such as project work or annual contracts, where the fee on a single payment is large enough for the customer to care about.
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Figures are typical ranges for small businesses in the UK, US and Canada, given so you can check them against your own books rather than take them on trust. They are arithmetic on stated assumptions, not a forecast, and not financial advice.