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It seems like every retail store and restaurant I visit is now warning me that they will charge an extra 3% of the bill if I have the nerve to use a credit card. Nervous, right?
Then there was the last dinner I had where a “service charge” was entered on the bill which accidentally made me double the tip to my server, which was very good, but not 40% of the good bill. Yes, I should have cared more and yes, I should have said no to that fourth glass of wine but come on – doesn’t that sound like a lot – and a bit of a disingenuous?
Related: ‘These fees are getting out of hand’: Diner claims she charged her a 5% fee at the restaurant to support employees’ health care
Adding additional fees and costs is just a bad pricing strategy. However, small businesses across the country continue this practice and are experiencing backlash both online and in the media.
There is a recent story of a pizzeria in Fiera Florida that irked customers by adding a 20% fee to “retain staff and offset inflation.” and restaurants in Memphis, Richmond, Charleston and Cincinnati, who have pulled off the same trick with equal consequences.
This is not limited to restaurants. Companies in other industries annoy their customers by forcing them to “guilt-piste” employees through additional screens on their point-of-sale systems. According to a report in Business Insider, landlords have taken to TikTok to make a case for a gratuity added to their rent, while Maryland’s first Apple Store is fighting to introduce a tipping system.
“It’s emotional blackmail,” one customer complained when he was forced to pay an additional service fee on a retail purchase.
There are better ways to make your profits without pissing off your customers. Try these three strategies to cover your costs without charging extra fees and potentially pissing off your customers.
1. First, you need to spread out the overhead costs across all of your products
Take credit card charges. According to the San Francisco Federal Reserve, consumers use cash about 20% of the time. So if you were running a restaurant that grossed $500,000 a year, $100,000 would probably be paid in cash and the rest ($400,000) would be paid by credit card. Your credit card fee — assuming 3% — would be $12,000 for the year or 2.4% of revenue.
So what do we do? The added overhead should be distributed across your products. Using the simple example above, a 2.4 percent increase means that the $30 menu item now costs $30.72. For goodness sake, don’t make a big deal out of this by charging extra. Simply monitor your overhead as a percentage of sales and quietly increase the price of your items. Will your customers slam the counter, throw away their napkins, and throw a glass of wine in the server’s face because of this overcharge? of course not. Why? Because they will hardly notice.
2. Next, practice contraction to protect your margins
Shrinkage charges the same price but provides a slightly lower product. If you think this is unethical, know that the biggest companies — from Walmart to Reynolds Consumer Products to Domino’s Pizza — do. So why not?
Maybe three meatballs instead of four in this noodle dish? Or how about shipping 10 units in a box of parts instead of 12? Or provide less services with the product? Or transfer more shipping costs? It’s all about protecting margins and your material cost is always the biggest part of your margin. You need to analyze what you can shave off your offerings before you simply raise prices.
Related: Unified Apple Store wants customers to start leaving tips for employees
3. Finally: Encourage turning over, but don’t force it
You should by all means update your point of sale system and website so that customers are strongly ‘encouraged’ to leave a tip. most will. I do. But you have to give the choice. Don’t just add arbitrary service fees to your bills. It just makes people feel bad and feel like they are being attacked.
Why did he do this? Because the more people you have earning, the happier they will be in their jobs, so you will experience less turnover and you may even be able to attract more workers. And the lower your employees pay, the happier your accountant will be at the end of the year. Of course, you must pay a fair wage. But an increase in wages puts pressure on your profits and will most likely lead to an increase in prices, which means that the customer will have to pay more. Gently nudging the customer instead to tip more has much the same effect, without the cash coming out of your bank account.
Placing signs asking for additional fees when using a credit card or charging a service fee on the bill draws unnecessary attention to your prices and potentially annoys your customers. You don’t want to do this. You want to keep your winnings without paying attention to how you do it. By spreading out the overhead on your products, practicing shrinkage and aggressively encouraging tip to your customers, you can achieve this without it becoming a negative news story.