To Pass It On, or Not... That Is The Question
In the restaurant industry, where profit margins are often razor-thin, every decision counts. From sourcing ingredients to pricing menu items, restaurant owners are constantly navigating a complex web of financial considerations. One decision that has gained particular attention in recent years is whether to pass on credit card charges to customers as a separate charge or to absorb these fees into menu prices. This decision is not just a financial one; it’s deeply influenced by the mindset you bring to your business—whether you operate from a scarcity mentality or an abundance mentality.
This article explores how these two mentalities influence your decision-making process and, ultimately, the success of your restaurant.
Understanding Scarcity Mentality
A scarcity mentality is rooted in the belief that resources are limited. When you operate from this mindset, your decisions are often driven by fear—fear of losing money, customers, or competitive advantage. Scarcity thinking is characterized by a focus on short-term gains and an emphasis on minimizing losses.
In the context of restaurant management, a scarcity mentality might manifest as:
Reluctance to invest in staff training or development due to the perceived cost rather than seeing it as a long-term investment in your team.
Hesitation to raise menu prices for fear of driving away customers, even if costs have risen significantly.
Focusing on cutting costs wherever possible, often at the expense of quality or customer experience.
Passing on credit card charges to customers as a separate fee because of the fear of reducing margins or profits.
While these actions might seem logical on the surface, they often stem from a fear-based approach that can limit your business's potential for growth and long-term success.
Understanding Abundance Mentality
An abundance mentality, on the other hand, is rooted in the belief that there is more than enough to go around. Business owners who operate from an abundance mindset believe in the potential for growth, innovation, and positive outcomes. Decisions are made with a long-term perspective, focusing on creating value for customers and employees alike.
In the restaurant industry, an abundance mentality might be reflected in:
Investing in staff and their development with the belief that a well-trained team will drive better customer experiences and, in turn, higher revenue.
Adjusting menu prices to reflect quality and cost with confidence that customers will appreciate the value they’re receiving.
Focusing on enhancing the customer experience rather than cutting corners to save costs.
Absorbing credit card fees into menu prices as a way to streamline the customer experience and build goodwill, rather than imposing an additional charge that might detract from the dining experience.
An abundance mindset allows for decisions that prioritize long-term growth, customer loyalty, and overall business health. It is not about being careless with finances but about recognizing that strategic investments and customer-centric policies often pay off in the long run.
The Decision: Passing on Credit Card Charges vs. Absorbing Them
Let’s delve deeper into the specific decision of whether to pass on credit card charges to customers or to absorb them into your pricing structure. This decision is a perfect example of how your mindset can influence your approach to business.
The Scarcity Perspective: Passing on Credit Card Charges
From a scarcity perspective, passing on credit card charges directly to customers seems like a logical way to protect margins. The logic is straightforward: by charging customers a small fee for using their credit card, you offset the cost that these transactions impose on your business. Given that credit card fees can range from 1.5% to 3.5% per transaction, this can seem like a significant expense, especially for a small restaurant.
Owners operating from a scarcity mindset might argue that:
Margins are already tight, and every dollar counts.
Customers will understand that the fee is a necessary charge, given the widespread use of credit cards.
The fee is transparent, and customers can avoid it by paying with cash or debit cards.
Competitors are also charging these fees, so it won’t put you at a competitive disadvantage.
While these points are valid, they are grounded in a fear of losing money or being unable to sustain the business without these additional charges. The focus is on what might be lost rather than what could be gained.
However, this approach can backfire. Customers may perceive the fee as a nickel-and-diming tactic, which could erode trust and reduce their overall satisfaction with your restaurant. In a highly competitive market, even small irritations can drive customers to your competitors.
The Abundance Perspective: Absorbing Credit Card Charges
On the other hand, an abundance mindset would lead you to consider absorbing credit card fees into your pricing structure. While this might seem counterintuitive, the rationale is based on the idea that providing a seamless, pleasant customer experience will lead to greater long-term rewards.
From an abundance perspective, the arguments might include:
Customer Experience: Absorbing the fee avoids creating a negative experience. Customers appreciate simplicity and predictability when it comes to pricing. A separate charge for credit card usage can feel like a hidden fee, which may sour the overall dining experience.
Price Integrity: By absorbing the fee, you maintain price integrity. Your menu prices are what they are, and customers can trust that they won’t be surprised by additional charges. This transparency can build customer loyalty.
Competitive Advantage: Not charging a fee can become a competitive advantage. In a market where many businesses are passing on these charges, you stand out as a customer-friendly establishment. This can attract customers who value transparency and are turned off by extra fees.
Long-term Growth: The focus is on long-term growth rather than short-term savings. By building goodwill and a strong customer base, you set your restaurant up for sustained success rather than just immediate profit protection.
The abundance approach requires a shift in how you view costs and pricing. Rather than seeing credit card fees as an expense to be directly offset, they’re viewed as part of the cost of doing business—much like utilities or rent. When these costs are integrated into your overall pricing strategy, they become less of a burden and more a part of your restaurant’s operating framework.
Practical Considerations
While mindset is a powerful factor in decision-making, practical considerations should not be ignored. Here are some steps to help you make an informed decision that aligns with your overall business philosophy:
1. Understand Your Customer Base
Consider your customers’ preferences and expectations. Are they likely to appreciate the transparency of a separate credit card fee, or would they prefer a more straightforward pricing model where all costs are baked into the menu prices? Survey your customers or observe their reactions to fees to gauge their preferences.
2. Analyze the Financial Impact
Run the numbers to see how credit card fees affect your bottom line. If absorbing these fees into your menu prices means a significant increase, consider whether this might deter customers. Conversely, if the increase is minimal, it might be worth the goodwill you’ll generate by not charging a separate fee.
3. Consider the Competitive Landscape
What are your competitors doing? If most restaurants in your area are passing on credit card fees, absorbing them could set you apart. However, if no one else is charging these fees, adding them might put you at a disadvantage.
4. Evaluate Your Long-Term Goals
What are your long-term goals for your restaurant? If you’re focused on building a loyal customer base and expanding your business, an abundance mentality might serve you better. If you’re in a more precarious financial position and need to protect your margins aggressively, you might lean toward a scarcity approach—but be aware of the potential long-term consequences.
5. Communicate Clearly
Whatever decision you make, communicate it clearly to your customers. If you choose to pass on the fee, ensure that it’s prominently displayed before customers reach for their credit cards. If you absorb the fee, you might consider highlighting this in your marketing as a way of differentiating your restaurant from others.
Conclusion: Mindset Matters
The decision to pass on credit card charges or absorb them into your pricing structure is more than just a financial one—it’s a reflection of your underlying business philosophy. A scarcity mentality might drive you to pass on these charges to protect your margins, but this approach can sometimes backfire by alienating customers and reducing overall satisfaction. On the other hand, an abundance mentality might lead you to absorb these fees, focusing on creating a positive customer experience that drives long-term loyalty and growth.
Ultimately, the best decision is one that aligns with your broader business goals and values. By understanding the influence of your mindset on your decision-making process, you can make choices that not only protect your bottom line but also enhance your restaurant’s reputation and customer relationships. In an industry where competition is fierce and margins are thin, embracing an abundance mentality can be the key to long-term success.
Joel Smith
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