Maybe I'm cynical, but I learned many years ago there is no such thing as 'free'. There are good deals, bad deals, deals that make sense and deals that don't. But nobody, repeat
nobody, really gives away anything for free and survives very long in the business world to tell about it.
That said, the word "FREE" is and always will be a magical word for marketers of all kinds (including credit card processors) as well as website entrepreneurs. People and internet search engines love it and want to believe it. That's why it's used so much--it attracks people and search engines like cheese attracts mice..
Now about 'free' credit card machines: Just about every processor has a 'free equipment program' nowadays. None are really "free" as in "hand over at no charge"--they're more like loaners. You use the machine as long as you do business with the processor, and if you leave the processor you have to give the machine back.
But as you might have guessed, there
are some strings attached. For example:
1) Processing fees and terms for freebie machine offers are ALWAYS ALWAYS different than for merchants who have their own (or purchase) their equipment. The surcharges for mid-qualified and non-qualified transactions are always a little higher. The length of the contract is always a little longer. The early termination fees are always just a little steeper. You[l always find extra fees like batch headers, annual fees, etc. Why? Because that machine didn't appear out of thin air...SOMEBODY had to pay for it and that somebody has to cover that expense one way or the other, just like any other overhead item. If you don't believe that, please call me, I want to talk to you about selling a bridge in Brooklyn.
2.) "Free" loaner equipment is always used and/or refurbished with more than a little mileage on it and no warranty--you don't REALLY expect somebody who doesn't know you from Adam to hand you over a brand-spanking new $500 piece of electronics, do you? And when they break down, guess who gets to pay for the maintenance. The merchant---that's who.
3.) Here's the biggie: Sure, the agreement says the merchant can return the machine any time he wants But the freebie equipment agreement is totally different and separate from the processing agreement. And the processing agreement carries at least a 3 year term and a hefty early termination clause, which the merchant is responsible for even if he HATES the company and returns his 'free' machine. So lets say the merchant finds a better processing deal 1 year into a 3-year processing contractual commitment and wants to change processors. He'll return the equipment and end the free machine deal, but he's still going to face several hundred or thousand dollars of early termination fees for breaching the processing contract early IN ADDITION to having to pay the fees to the new processor and somehow coming up with a new machine. Some deal. Not.
So the bottom line is: Essentially the 'free machine' deal is nothing more than a ploy to make sure the customer remains with the processor for the entire 2-3 year duration of the processing contract no matter if he wants to or not. If you pick a good processor, that's OK. If you don't, then it's not.
Now, there ARE circumstances in which a 'free equipment deal makes lots of sense. It all depends on a little basic math and common sense. Lets examine two scenarios: A merchant who processes $3000 (THREE THOUSAND) monthly, and a merchant who processes $30,000 (THIRTY THOUSDAND) monthly.
The merchant who processes only $3000 monthly is going to pay a little higher discount rate for the privilege of getting 'free equipment'. For arguement sake, lets say 1.59% instead of 1.49%. Now lets do the math:
the difference in out-of-pocket expense for paying 10 basis points higher (the diff between 1.59% and 1.49% is ten (10) basis points) comes to a whopping $1 (that's ONE SINGLE DOLLAR) for every $1000 processed. So if this merchant does $3000 per month, that means he's paying a whole $3 more per month, that's $36 per year, in processing fees. So I would say to this merchant:
DO take the free loaner equipment and pay the $36 per year extra instead of shelling out over $500 to buy a machine....at the rate of $36 per year you're going to take over 13 years to get your $500 back!!!
On the other hand, the merchant who does $30,000 monthly would stand to save $30 per month---that's $360 per year--by getting the lower rate structure and forgetting about the 'free' machine deal. After all, he'll have his $500 back in less than a year-and-a-half at the rate of saving $30 per month after which point the extra $30 he saves per month goes right into his bottom-line pocket. So the smart move for this merchant is to buy his machine and take the lower rates.
If anybody doesn't understand the math involved, or has more questions on free equipment issues, please feel free to email me at
amspcs@juno.com.
Barry G
Boynton Beach, FL
www.merchantservices-help.com
in response to: Lighthouse24
