Overview
The effective rate is a standard metric used to analyze competitor pricing or to track and identify changes in your own pricing package over time.
How to Calculate the Effective Rate
To find your effective rate, use the following formula:
Understanding the Results
While this calculation is an excellent tool for traditional merchant accounts, it can be misleading for custom-built packages—such as the no monthly fee model.
In a no-fee model, you do not pay a monthly maintenance fee; instead, you only pay processing fees when you run a transaction. This creates two specific scenarios where your effective rate might appear inaccurately high:
Pass-Through Timing: Some network pass-through fees are not assessed until the month following the transaction. If you have low or no sales volume in that following month, the fees will be divided by a small volume (or zero), resulting in a skewed, high effective rate. To get an accurate reading, these fees should be applied to the previous month’s processing volume.
Occurrence Fees: One-time occurrence fees—such as chargeback fees or account change fees—can inflate the effective rate for a specific month. These fees do not reflect your actual processing costs and should be excluded for a "true" representation of your rate.