When you pull into a gas station, you almost always see two prices. One is the cost of gas if you use a credit card, and the other is the cost of paying with cash. Unlike surcharges, which are illegal in some states, this legal financial strategy allows you to increase profits by reducing credit card processing fees.
Here, we’ll explore some of the restaurants taking advantage of this strategy and the benefits and challenges it brings.
Restaurants with a Dual Pricing Model
Seven Café & Grill in Clovis, California, made the news in June when they changed their menu to a two-pricing structure. Each item has two possible prices, one if you pay cash and the other if you use your credit card. For example, the cash price for Joe’s Skillet is $15.79, while the card price is $16.26. This 3% increase aligns with the processing fees credit cards charge.
On Fox26 News, the owner mentioned the need to be as “visually compliant as possible” by listing the prices right on the menu. They also draft it as a reduced price for those paying cash instead of an increase in fees for those paying with a credit card.
Service Fees Vs. Dual Pricing
This restaurant took the two-pricing structure plunge in anticipation of the new California law that went into effect in July. Senate Bill 478 bans mandatory fees, such as service charges, that appear at the end of a bill. However, pushback from the restaurant industry prompted an exemption for bars and restaurants. Senate Bill 1524 allows food service establishments to charge service fees as long as they are “clearly and conspicuously” displayed and where the money goes is clearly stated.
Service fees have had their share of bad news, with customers taking to social media in opposition. Some do not leave a tip if a service fee is included in the bill. You’ll also find restaurant owners on two sides of the same fence, with one believing operators should increase menu prices. Hence, guests see exactly what they’re paying, which levels the playing field among all establishments. Others feel that adding a service fee allows them to explain the price increases, whether helping to pay for employee benefits or offsetting increasing labor costs.
The Financial Benefits to Restaurants
With dual pricing, restaurants have the potential to save thousands of dollars each month. Processing fees, on average, amount to 3.5% of sales. To offset these fees, operators encourage cash transactions, reducing operating expenses.
Integrating this procedure also increases cash flow, giving restaurants immediate availability of funds and improving liquidity. When initiated as a discount for those paying cash, you’ll find an increase in customer retention and loyalty for those who appreciate the savings. Additionally, in our competitive environment, you can set yourself apart by attracting diners who prefer paying cash.
The Legalities
It’s important to notify your merchant accounts and make sure they approve. If done incorrectly, it can lead to penalties from the major credit card brands. To be compliant, the prices in your POS systems should show the credit card prices as the list price, not the cash prices.
This approach builds trust and transparency, enabling your customers to see clearly what they’re paying for and why. Almost everyone in today’s digital era understands the increasing costs credit cards charge and the need to offset them.
Many of today’s POS systems have built-in data analytics tools, which include a breakdown between credit card and cash transactions. This information helps you analyze customer behavior and identify trends essential in future decision-making.
Today’s customers are increasingly looking for transparency in their interactions with businesses. This approach is one way to offset increasing fees without raising prices and make it clear where the money is going.
