Welcome to BKW Servicing
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Welcome to BKW Servicing
FFL merchant fees can be a killer to your profits, especially when your business is just starting out. These fees cut into your profits, making you earn less with each sale on top of the business expenses you already have to pay. What’s worse is that most of the time, merchants aren’t even given much of a reason for these hidden fees beyond “service fees” or “processing fees.”
The good news is there are ways to mitigate these costs, with the right FFL merchant services solutions.
First, it helps to understand where those high FFL merchant fees come from. Most merchant accounts use one of two pricing models: tiered or cost-plus (sometimes called interchange plus). Tiered pricing lumps different types of transactions into tiers. Typically, in-person card-present transactions are a lower risk tier and online purchases are considered a higher-risk tier. Thus, online purchases come with higher FFL merchant fees. The reason for this is that online purchases have a higher risk of fraud or chargebacks.
But with so much of the firearms industry transitioning to ecommerce, this could cost your business a pretty penny in the long run. This is why most FFL merchants prefer cost-plus pricing models. This model puts the cost of processing and service directly on the merchant, plus a cost based on the interchange rate. If the interchange rate is high, that fee will be higher. If it’s low, you might actually save money. Either way, cost-plus offers more transparency, so you know exactly why you’re paying for what you’re paying for.
Additionally, a higher transaction volume often results in higher processing fees. As the firearms industry is a growing one, this impacts a number of gun dealers the more they scale. This is often laid out in the terms of your contract, so it’s best to look that over before choosing a merchant services account.
Part of the problem is the expenses inherent in the firearms industry itself. Federal Firearms Licenses (FFL) have costs that range from $30 to $3,000 for three years, depending on the type of FFL you need for your business. Gun dealers are considered “high risk” by many banks and payment processors, because of the risk of fraudulent purchases or compliance failure. Since options are limited for firearms dealers looking for a payment processing solution, some processors may take advantage of this by tacking on exorbitantly high processing fees.
No one likes to have hidden fees bite into their profit. For gun dealerships, FFL merchant fees can be detrimental to your earnings. The higher the fees, the less of your profits you receive. And if you don’t know the reason for the hidden fees, they can continue to recur.
Additionally, gun shops are also subject to state and local taxes, as well as the Firearm and Ammunitions Excise Tax, which may impact your fees. Gun shops typically pay self-employment taxes, which are notoriously high. With all of these taxes and fees that already exist, every bit of profit that you receive helps. So when you lose so much profit to hidden fees, you may find yourself with more fees than profit.
Educating yourself on both FFL fees and merchant fees that you might face is always the first step to mitigating the impact of hidden fees on your gun shop. Finding an FFL friendly processing solutions company like BKW Servicing is another great option. When you find a payment processor that works with high-risk merchants, you will likely be able to negotiate a contract that truly fits your business.
It may also help to diversify your revenue streams. If you have high processing fees for online purchases, make sure to emphasize your physical storefront and local SEO in your marketing. One gun shop owner reduced his transfer fees to practically nothing so as to increase in-store customer traffic. When customers arrived to pick up their guns, he then was able to sell complementary goods such as bullets, holsters, and aftermarket sights. This took his business from struggling to thriving.
The decision to reduce transfer fees was also a big part of the reason for his success. Because customers often don’t understand the reason for transfer fees, they mistrust them and may see high transfer fees as a rip-off. When your transfer fees are lower, you are more likely to earn customer loyalty and therefore more steady profit.
One of the biggest frustrations of FFL merchant fees is that they seem so cryptic. The explanations are a line or two of jargon designed for only the processor to understand. If you learn to understand that fine print, you can better understand what you’re paying for. So let’s go over some of the terminology:
Additionally, you may have to pay penalty fees if your business does not remain compliant with data privacy laws and firearm regulations. Finding a merchant account services provider who uses technology such as APIs to keep your business current on compliance can help you avoid these fees.
BKW Servicing frequently works with high-risk clients such as gun shop dealers. We tailor our payment processing solutions to your business’s needs, so you can maximize your profit while streamlining transactions. It’s easy to apply for an account with us and even easier to work with us. Contact BKW Servicing today to learn more or get started.