Payment fees and commissions: how to price them in

Every time a customer pays by card, through a payment link or through an app, someone takes a cut. Most of that cut is a percentage of the price, so it does not get added to the cost like another ingredient: it comes out of the price, just like your margin. To keep your margin, price like this: price = (cost + fixed fee) ÷ (1 − margin − fee rate). If your prices include sales tax, the fee is usually charged on the tax too, which makes it a little bigger.

What fees you are paying

• Card reader: a percentage of each card sale, often plus a fixed amount per transaction.
• Online payments and payment links: a percentage per payment, sometimes with a fixed part.
• Bank transfers: often free for the person receiving, but check your business account terms.
• Delivery apps: a much larger commission per order, sometimes with a separate charge for processing the payment.

No rate is the same for everyone. Find yours in your provider's terms or in your payout statements, not in what another stallholder told you.

Payment fees are one of the hidden costs of a food business, alongside the samples and tastings you give away: they are not in the recipe, but they come out of every sale.

Why adding it to the cost does not work

A 2.5% fee is not a fixed amount: it is 2.5% of whatever you charge. Raise the price and the fee rises with it. That is why the percentage sits next to the margin, in the divisor:

price = (loaded cost + fixed fee per sale) ÷ (1 − margin − fee rate)

It is the same formula as in setting a price that hits your target margin, with the fee added. The fixed part goes on top of the cost, because it does not change with the price.

If your prices include sales tax

If your shelf price includes sales tax or VAT, the card fee is normally charged on the whole amount, tax included. Measured against your price before tax, the fee is then the rate multiplied by (1 + tax rate). The rate where you sell depends on local rules; the guide on including sales tax in your prices shows how to handle it. The example below leaves tax out to keep the fee visible.

Worked example: a box of brownies

You sell boxes of four brownies at a farmers market. The loaded cost of a box is $5.20 and you want a 40% margin. Say your card reader charges 2.5% plus $0.20 per transaction. All figures are before any sales tax.

Without thinking about the fee:

• Price: 5.20 ÷ (1 − 0.40) = $8.67

A customer pays $8.67 by card:

• Fee: 8.67 × 0.025 + 0.20 = 0.22 + 0.20 = $0.42
• You keep: 8.67 − 0.42 − 5.20 = $3.05
• Real margin: 3.05 ÷ 8.67 = 35.2%

You wanted 40% and got 35.2%.

With the fee in the price:

• Price: (5.20 + 0.20) ÷ (1 − 0.40 − 0.025) = 5.40 ÷ 0.575 = $9.39

Check with a $9.39 card sale:

• Fee: 9.39 × 0.025 + 0.20 = 0.23 + 0.20 = $0.43
• You keep: 9.39 − 0.43 − 5.20 = $3.76
• Margin: 3.76 ÷ 9.39 = 40%

The fee went up by a cent at the higher price, and the formula already allowed for it.

When not everyone pays by card

Almost nobody takes every sale by card. Work out an average fee from how you get paid in a normal month:

• Average rate = share of sales by card × card rate
• Average fixed fee = share of sales by card × fixed fee

Say 70% of your sales are by card and 30% cash:

• Average rate: 0.70 × 0.025 = 0.0175
• Average fixed fee: 0.70 × 0.20 = $0.14
• Price: (5.20 + 0.14) ÷ (1 − 0.40 − 0.0175) = 5.34 ÷ 0.5825 = $9.17

With one price for everyone, you make a bit more than 40% on cash sales and a bit less on card sales, and the month averages out at your margin. If the way people pay changes a lot, redo the sum.

The fixed part and small sales

The fixed fee is what makes small card sales expensive. With the example reader:

• On a $3.00 single brownie: 3.00 × 0.025 + 0.20 = $0.275, which is 9.2% of the sale.
• On the $9.39 box: $0.43, which is 4.6% of the sale.

Same reader, double the bite. If you sell a lot of cheap items, a card minimum, a bundle or a slightly higher price on the smallest items keeps the fixed fee from eating the margin.

Check every few months

• Compare what you charged with what landed in your account, using your payout statements.
• Note what share of sales comes through each payment method.
• When your provider changes its terms, update the rate and the price.
• Check what happens to the fee when you refund a sale. With some providers you do not get it back, so a refund costs you more than the price.

Do it with the calculator

In the food cost calculator, enter your recipe, the margin you want and your average payment fee in "Channel commission (%)"; it returns the price that keeps that margin after fees.