Bill Matthews, the chief revenue officer of Antaris Club Management Software, shares why operators need to look closer at their CMS provider.
CMS providers are among the least popular vendors in the health and wellness industry. When asked about their club’s software, most operators state they will never go through the pain of a data conversion and staff training on new software, regardless of the benefits it might provide. However, many should take a closer look at their software provider relationship, as there are likely significant overall cost savings to be realized.
Why are clubs beginning to embrace converting software in the era of COVID-19?
COVID-19 forced owners to analyze their operations, including non-essential expenses. This led many to closely assess the credit card processing rates they were being charged by their software provider. They discovered their vendor had been reselling them at rates with significant mark-ups, in some cases as much as three times the rate they could get directly from merchant processors, such as FiServ or TSYS. Many of these software companies operate as independent sales organizations (ISO) reselling processing rates and services to club owners at high margins.
But if my CMS is a software provider, then why are they generating so much revenue from payment processing?
Many years ago, some of these providers realized it was easy to deceive small to medium-sized business owners by giving them “too good to be true” software fees. They took advantage of operators’ lack of understanding of standard payment processing rates to generate even greater revenue for themselves at the cost of the business owner. Most club owners find it more palatable to pay a provider $200-300 per month versus $1,200 for software, not realizing they are also paying up to 7% of total revenue in processing fees. An owner billing $500,000 in annual membership fees on credit cards at a 7% processing fee with a $200 monthly software cost ends up paying $37,400 per year. This is much more than an owner with a $1,200 monthly software cost and a 2% processing fee who will pay $24,400. The higher software fee appears more costly on the surface, but the lower processing fee reduces the total cost by $13,000 annually.
How can I avoid getting these high rates?
When evaluating CMS software providers, ask to contact FiServ, TSYS or Elavon directly to acquire your rates. A software provider who declines this request should raise a red flag.
Another red flag is a software provider who handles your merchant processor application through an entity that’s not one of the major processing companies. If your software provider charges a generic monthly software fee that is unusually low for a high-revenue generating club, that is a likely sign you will be overpaying on processing. If your provider doesn’t allow “interchange plus” pricing — a rate that varies by card type — but only a flat rate model, that’s also a bad sign the provider/ISO is generating very high margins for itself while increasing your costs.
