5 Ways To Check If Your Restaurant is Paying too Much in Transaction Fees

Read Time: 6 min

In 2019, there were over 700,000 restaurants in the United States. For this reason, running a restaurant is a challenge. It is very competitive and capital intensive. In this industry, restaurant management must be very focused on employee productivity, process improvement, and ways to control and cut costs in a restaurant. The majority of revenue is obtained through credit card payments, therefore restaurant transaction fees need to be factored in as a key cost component to be controlled. Read to learn more on how to start accepting credit card payments.

Credit Card Processing Fees are a Big Cost

The average gross profit margin after wages for a restaurant is approximately 35%. This is pretty slim and allows little wiggle room when you still have to purchase ingredients and save in case of an emergency. In addition, the prices of accepting credit cards can range widely, but it is still an absolutely essential part of doing business. For instance:

Restaurant transaction fees can average between 2 to 4.5% per transaction. If a restaurant averages $30,000 per month in revenue, gross profit after wages will average $10,500. Financial transaction fees will average $600-$1,350. 

How are Restaurant Transaction Fees Determined?

Contrary to popular opinion, the credit card company or networks such as Visa, Mastercard, or Discover does not solely determine the processing fees. Four companies charge a fee, which together makes up the transaction fee that a restaurant has to pay:

  1. The Issuing Bank: The financial institution that issues the card (e.g. Synovus, Bank of America, Capital One, Chase, etc.)
  2. The Credit Card Network: The branded card companies (e.g., Visa, Discover Mastercard, etc.)
  3. restaurant transaction at POS terminalThe Payment Processor: The company responsible for securing and carrying out the credit card transaction.
  4. The Payment Hardware Company: The company that makes the card swiping machine or POS terminal. 

Every one of the four companies involved in the transaction takes a percentage of the actual payment made to the restaurant.


A Customer pays $100.00 for their meal.

  • Issuing Bank charges 1.0 to 2.25%
  • Credit Card Network charges 0.8 to .1.8%
  • Payment Processor charges .2 to .45% 

= Between $98 to $95.50 net to the restaurant. While on the other side, the other companies get anywhere from $2 to $4.50 on that $100 ticket. And those costs add up!

Cut Costs by Evaluating Your Transaction Fees

The majority of fees don’t go to your payment processor. They go directly to the Issuing banks and MasterCard, Visa, Discover, etc. in the form of Interchange and Assessment fees. For this reason, such fees are typically non-negotiable.

The remainder of transaction fees goes to your payment processor to cover the cost of the payment terminal and credit card processing fees incurred in clearing and routing the transaction and depositing the money into the merchant’s account.

Every restaurant needs to accept credit card payments. However, restaurant management evaluates fees regularly to assess the restaurant’s profitability and performance. When you have a good idea of where you stand with your restaurant payment processing company, you can look at ways to reduce their fees through negotiation or finding a different payment processor altogether that will give you a better rate. You can also lower fees by deducting them on your taxes. By lowering credit card processing fees, you will cut costs in a restaurant and therefore improve your bottom line.

Evaluate and Lower Your Restaurant Fees

1. Know which payment processing fees are negotiable.

Payment processors charge three basic types of fees: flat fees, situational fees, and processing fees. 

  • Flat fees include fees for online reporting, network charges, payment gateway fees, annual fees, and fees for statements. Some fees are negotiable while some are not.
  • Situational fees are those charged as the situation arises for things like cancellations, chargebacks, international credit cards, and not meeting monthly sales minimums. You can also negotiate rates for some of these fees.
  • Debit and credit card processing fees will be the lion’s share of costs found on your monthly statement.

Each of these types of fees has its own variability when it comes to negotiating. But, by getting to know why your payment processor takes these fees in the first place, you will be in a better place to negotiate them down to a manageable rate.

2. Understand which pricing method your restaurant uses.

Your payment processor can use one of four pricing methods:

transaction fees for a restaurant
  1. Cost-Plus: the processing fee is based on the interchange fee plus a percentage of the total transaction plus a card brand fee and a per-transaction flat fee.
  2. Fixed or Flat Fee: The processing fee is based on a fixed percentage of each transaction plus a dollar amount.
  3. Interchange Differential: the processing fee is based on the difference between the card network interchange rate and the interchange rate based on the type of card it is, plus the card brand fee, plus the interchange rate.
  4. Tiered Fee: different processing fees are charged depending on the tier the transaction falls in. Tiers are based on the type of business, the type of card, and the type of transaction. For an example of business types making a difference, a large, popular restaurant will have a higher transaction volume compared to a small, local establishment. The type of card used is another determining factor because not all credit and debit cards are made the same. Some have low limits and no benefits while others accumulate mileage and cash back rewards. And that matters because the processor will be paying for that cash back reward that the card offers. Lastly, the type of transaction will have an effect on the cost of that transaction. Customers paying in-store will be relatively low risk and so will be a lower cost, but if the customer wants to pay online, over the phone, or through an app, higher fees are incurred. These card-not-present (CNP) fees are a higher cost because they pose a higher risk to the bank and the payment processor supporting your transactions. 

3.  Calculate the effective processing rates on your statement.

A simple way to make sense of payment processor’s numbers and understand how much credit card processing truly costs, look at your monthly statement. Divide the total fees by the total amount in transactions and multiply by 100. This calculation will give you the percentage of fees you’re paying per overall transaction.


($1,775.25 / $41,550.75) x 100 =  4.27% in credit card fees this month.

If you notice that the effective rate is increasing or changing significantly month over month, you will want to have a conversation with your payment processor.

4. Take a look at the mix of credit cards being used by customers.

Part of the processing fees is the cost associated with the type of card and the method of payment. Rewards credit cards cost you more per transaction than debit cards or basic credit cards with no perks. In addition, less secure methods of payment will cost more per transaction than the chip and PIN method because they’re more open to fraud. Payment processors can also charge an additional processing fee to route International credit card transactions. 

Make sure that the pricing model you have is the best fit for your restaurant based on the credit mix. For instance, flat-fee pricing charges the same rate for all types of credit cards. but the transaction fees can be higher to cover the risk.  A Cost Plus pricing model charges additional fees for higher-end credit cards, but a large restaurant that caters to higher-end customers can usually defray costs with higher transaction volumes.

5. Check for hidden charges and ask your processor about them.

Some payment processors don’t fully disclose their charges. They may charge a flat fee for services that you don’t use, bury high fees in unnecessary surcharges, or charge fees if you don’t meet a minimum sales quota each month. Your contract will state the fees you are charged. If they are not understandable, you may want to look for a partner that communicates their fees honestly.

Restaurant credit card processing fees are transaction fees that are controllable and negotiable. If you are paying too much in transaction fees, you’ll want to do your research and opt for payment processing companies that cater to your industry and offer solutions that are right for your specific restaurant. Look for a payment processor that offers:

  • Competitive, transparent pricing 
  • Quick, reliable, secure payment deposits
  • Same-day or next-day deposits
  • Easy integration with your current systems
  • Solutions to mitigate risk factors or fraud
  • Updated POS systems including mobile and wireless options
  • Quality service and live support

Enquiring about your restaurant’s payment processing fees is part of the job. Luckily, with a payment processor that you can trust, having that conversation and breaking down your contract will be a breeze.

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