Dual Pricing vs. Credit Card Surcharges: What’s the Difference?

If you’re considering offsetting credit card processing fees, keep reading to learn the difference between dual pricing and credit credit card surcharges, figure out which one is best for your business, and gain some useful implementation strategies.

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It’s difficult to run a restaurant or bar these days without accepting credit cards. However, credit card processing fees typically cost businesses between 3% and 5% of their sales. Bars and restaurants are increasingly implementing dual pricing and credit card surcharges to offset these costs and widen slim profit margins. While these two strategies have the same purpose, they vary greatly in terms of transparency, customer satisfaction, and legality.

If you’re considering offsetting credit card processing fees, keep reading to learn the difference between dual pricing and credit credit card surcharges, figure out which one is best for your business, and gain some useful implementation strategies.

What is dual pricing?

Dual pricing, similar to “cash discounting,” is the practice of offering two prices to customers depending on whether they pay with a card or with cash. This pricing strategy offsets credit card processing fees while creating transparency and giving customers a choice.

Here’s how dual pricing works:

  1. Set a menu price that accounts for your payment processing costs. For example, after accounting for cost of goods sold, a 4% or 5% payment processing fee, and your ideal profit margin, you might price a draft pilsner on your menu at $7.
  2. On their bill, offer customers a discount for paying in cash. This discount should be roughly equivalent to card processing fees (about 4 or 5%). So on that bill, the draft pilsner would be rung up at $7, but customers would also see a 5% cash discount option for $6.65.
  3. Customers choose how they want to pay. If they put a card down, you charge them the menu price. If they put cash down, they can take advantage of the cash discounting price.

Pros and cons of dual pricing

These are some pros and cons to consider before implementing dual pricing at your restaurant.

Pros of dual pricing
  • Transparency: Customers pay no more than the price they see on the menu.
  • Increased profit margins: Your business keeps more of your revenue because your payment processing fees are being offset.
  • Customer happiness: Customers feel delighted to be offered a discount. What’s better than having an option to pay less than you thought you were going to pay?
  • Legal pricing strategy: Dual pricing and cash discounting are totally legal ways to offset payment processing fees.
  • Freedom of choice: Customers can save with a cash discount or pay with a card if they don’t have cash or want to collect credit card points.
Cons of dual pricing
  • Can be confusing: Though dual pricing programs are becoming more and more popular, the idea of a cash discount may take some time for customers to get used to. However, Abigail Malcolm, Co-Owner and General Manager of Zambaldi Beer in Green Bay, Wisconsin says that while some of her customers have asked about their switch to dual pricing, “it was such a non-issue, it was kind of laughable.” 
  • More admin work: Offering a cash discount can make more work for your team, but that’s only if you don’t have the right tools. A POS that supports dual pricing automatically shows customers both prices on their bills and charges the correct amount. 

What is a credit card surcharge? 

A credit card surcharge is the practice of adding an extra fee, on top of the advertised price, when customers pay with a card. This pricing strategy offsets card processing fees, but at the risk of making card-using customers feel duped.

Here’s how a credit card surcharge works:

  1. Set menu prices based on cash payments (without accounting for credit card processing fees). For example, you might price a draft pilsner at $7 on your menu.
  2. Do your best to alert customers that you charge a credit card surcharge via your servers, menu, and website.
  3. Customers receive their bill and see the menu price on it. So if a customer orders a draft pilsner, the bill will reflect the $7 price.
  4. If customers pay with a card, they’re charged an extra surcharge on top of the menu price to offset payment processing costs (typically between 4 and 5%). So the customer would be charged $7.35 for that beer. If they pay with cash, they’re charged the menu price of $7.

Pros and cons of credit card surcharges

Consider these benefits and downsides of credit card surcharges.

Pros of credit card surcharges
  • Offset payment processing fees: Your business recoups card fees by having customers subsidize them.
  • Increased profit margins: Because processing fees are offset, your business keeps more of its profits.
Cons of credit card surcharges
  • Upset customers: Credit card surcharges can make customers feel ripped off because they’re expected to pay the menu price plus tax, tip, and an additional fee.
  • Bad for staff retention: Customers who feel deceived by the surcharge may end up giving a smaller tip, which will come out of staff’s paychecks and might encourage them to find a better paying job.
  • Surcharges are illegal in some places: Credit card surcharges are currently not legal in Connecticut, Massachusetts, Maine, or New York. Other states place limitations on such surcharges. For example, Colorado limits credit card surcharges to 2%.
  • Card-imposed limits: Some card brands and payment networks (e.g., Visa, Mastercard) set limits on surcharges, which can make implementing a credit card surcharge tricky. Most limit surcharges to 4%.

Dual pricing vs. credit card surcharge: Which is better for your business?

Now that you know a little bit more about these strategies for offsetting card processing fees, it’s time to think critically about which one is right for your business. Consider the following:

Impact on customer happiness

Being transparent with pricing is undoubtedly better for customer satisfaction.

Winner: Dual pricing

Impact on customer behavior

You might be worried that if you offer a cash discount, everyone will start paying with cash. However, data from Zambaldi Beer shows that consumer behavior didn’t change when they implemented a cash discount. In fact, the ratio of customers paying with card versus cash stayed exactly the same.

Winner: Dual pricing

Costs to your business

Credit card fees add up but cards are one of the most popular forms of payment, so going cash-only is unsustainable. Both credit card surcharges and dual pricing cost your venue the same.

Winner: Tie

Legal compliance

Credit card surcharges are illegal in some states, and many card networks have their own regulations that make surcharges iffy. Dual pricing, on the other hand, is a completely legal way to offset credit card fees.

Winner: Dual pricing

Tips for implementing dual pricing

If you’re ready to embrace dual pricing, follow these tips to do so successfully:

  • Price menu items based on card payment prices. Start with your cost of goods sold, then make sure your menu price accounts for a 4-5% payment processing fee.
  • Inform guests of the cash discount. Show both options on the bill so guests who pay with a card are doing so consensually.
  • Use a POS that automates dual pricing. Doing so will save you time and hassle.

The bottom line: Dual pricing trumps credit card surcharges

Dual pricing is the clear winner over credit card surcharges for its transparency, legality, and impact on customer satisfaction. When you’re ready to implement dual pricing at your restaurant or bar, use a POS system like Arryved that makes it easy. Arryved Dual Pricing prints both pricing options on customers’ bills and automatically charges customers the correct amount based on their payment method.

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