Your ‘Minimum Purchase’ Credit Card Policy Is Dumb

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(This post originally appeared on Entrepreneur)

The other day I went into a convenience store to buy a bag of Blazin’ Buffalo and Ranch Doritos. The cost was $0.99. I didn’t have cash because…well…who carries cash anymore, right?

When I went to pay for the Blazin’ Buffalo and Ranch Doritos I was told there is a $10 minimum on credit card purchases. I told the cashier — who did not make this policy and was just doing her job — that I didn’t have any cash. She told me the minimum on credit card purchases is $10. Hoping the young lady was also a fan of Blazin’ Buffalo and Ranch Doritos, I asked if she could perhaps make an exception. She told me the minimum on credit card purchases is $10. Clearly, a Fritos fan.

So,I left.

The convenience store business is a tough business. There’s a ton of competition. The hours are brutal. Finding reliable people can be impossible. Net profit margins are shockingly low. According to industry data, a typical convenience store has revenues of around $650,000 and at the end of the day, after product costs and overheads, the owner pockets only about two percent or $66,000. It’s a living. But it ain’t great. Every penny counts.

Including the pennies the convenience store owner would’ve made from the purchase of my Blazin’ Buffalo and Ranch Doritos. Not to mention the hundreds, if not thousands, of dollars the convenience store owner is ignoring every year by denying people purchases under $10 who want to use a credit card.

My failed Blazin’ Buffalo and Ranch Doritos purchase made me wonder. Does this policy really make sense? Are you also requiring a minimum purchase for customers to use their credit cards? If so, don’t you think you’re losing business because so many people are like me and don’t carry cash? I know you don’t like to pay the credit card fees. But, in an effort to avoid these fees on smaller purchases aren’t you also hurting your profits in the long run? Isn’t this dumb?

Maybe there’s a better way. Actually, there is.

Let’s do the math. The convenience store charges $0.99 for a bag of Blazin’ Buffalo and Ranch Doritos. The convenience store owner makes around a 20-30 percent gross margin on that bag. The credit card company’s fees on this transaction would have been three percent or $.03. Which means that, even in the worst coast scenario, the owner is giving up $0.17 gross profit on each bag of Blazin’ Buffalo and Ranch Doritos that go unpurchased.

But here’s a question: instead of denying me the purchase, if the owner simply had a policy that charged me three percent more for credit card purchases under $10 would I have still gone for it? Would I have paid the additional three cents? Yes, I would pay three freaking cents more for my Blazin’ Buffalo and Ranch Doritos if that’s what it would’ve freaking took to use my credit card!

Let’s say I lived in a state where recreational marijuana is legal. As such, I buy ten bags of Blazin’ Buffalo and Ranch Doritos. My total bill would be $9.90. Would I have paid the additional $0.30 to use my credit card? Uh…I’m going to say yes. And yes, I’m going to take a giant leap of faith and assume that the typical customer would also part with that whopping thirty cents for a ten-dollar order.

So, why does that convenience store — or any retailer for that matter — have a minimum credit card policy? Simple answer: they’re dumb and it’s costing them money. The fact is that people are using less cash and more credit cards. Customers do it for convenience. There is an added cost for this convenience. It is a tiny, tiny cost. Charge them if necessary. Don’t lose the sale.

Regardless of whether you’re earning $66,000 a year as a convenience store owner or $600,000 a year running a tech company you can never afford to pass up a customer who’s ready and willing to pay a small surcharge — especially for a bag of Blazin’ Buffalo and Ranch Doritos.

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One response to “Your ‘Minimum Purchase’ Credit Card Policy Is Dumb”

  1. Jeff Sequeira says :

    I probably agree with over 95% of your posts…however, your first example assumes a 3% credit card charge, but does not take into consideration that debit card “swipe fees” can easily be 25 cents or more per transaction, which would drastically change the example that you use. Also, is it even legal in your state to charge more $ to a consumer who uses a Credit Card (besides at gas stations)? I don’t have the answer to this, but I have a feeling that the regs differ greatly from state to state on this issue….oh, and calling these business owners “dumb” is probably not the best way to go, come one, you’re “smarter” that that Gene!!…(I am not a convenience store owner/operator, and I do like your work, thanks!)

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