There are a lot of tasks to be handled at a coffee shop, primarily if it’s serving mocha continuously throughout the day. Taking care of how to serve the customers is one thing, and cash collection is another.
Since credit card processing is becoming more expensive for businesses, most are looking for ways to reduce this expense. One way to reduce cash collection costs is to adopt a cash discount program.
Many business owners, including coffee shop owners, find this method attractive. Everyone knows that credit card processors charge a fee from you whenever you make a transaction.
All credit cards, including MasterCard and Visa, take a portion of your earnings for providing their services.
If you have decided not to pay this upfront cost to the credit card processors, you can use a cash discount program.
Here’s a complete guide to using cash discounts for your coffee shop.
What Is a Cash Discount Program?
Cash discount programs offer a discounted price if the customer pays with cash instead of a credit or debit card. Coffee shop owners use cash discount programs because cash is much easier to work with than credit cards.
Plus, there is no third party involved in cash collection. Whereas with credit cards, there are credit card companies and card issuing banks.
Businesses can incentivize cash payments by offering discounts to their customers, and it is very easy to do so. This motivates the customers to spend more as they get a small monetary discount.
Customers who choose to pay through credit cards will pay an increased price because the cost of processing is built-in into the cost of the product.
Example of a Credit Card Payment
A customer goes to a coffee shop and buys two cups of coffee and a few products for $50. He saw a notice that said a 5% service charge would be added to all the sales in the store. He will get an instant discount of 5% by paying in cash.
The shop attendant scans the coffee items and tells him the total amount is $50. However, if he chooses to make a card payment, he will have to pay $52.5.
The customer inserts his card into the POS machine, and it deducts $52.5 to cover the cost through the credit card. He paid $2.5 extra to buy those items with a credit card.
Example of a Cash Payment
Another customer walks to the coffee shop and purchases a cup of coffee and a bag of coffee beans. She saw the notice that said a 5% service charge would be added for all store sales.
However, cash payments will have a 5% discount.
The customer makes a cash payment and pays $50 for her purchased items. She saved $2.50, which the credit card processor would deduct if she had used a credit card.
Benefits of a Cash Discount Program for Coffee Shops
The main benefit of cash discounting programs is that they offset the credit card processing fees. On the other hand, credit card holders must pay the full price if they make payments through their cards.
Any business can use cash discounts to avoid credit card processing fees.
The following are the main benefits of a cash discount program for businesses:
Reduced or Zero Processing Fees
Credit card processing fees won’t seem like much at first, but adding them up will cost a lot. Cash discounts can save these costs for the business and help them in the long run. With credit cards, businesses pay the processing fees, and the customers have to pay them too.
Cash discounting programs are very beneficial to the companies and the customers both as it helps them save a lot. The businesses can use the savings to expand their business operations or invest more in marketing.
Faster Cash Flow and Fewer Collection Efforts
In the real world, customers who use credit cards may pay on or before their due billing date. During the process, businesses have to keep records and make efforts to track down payments.
On the other hand, receiving cash means receiving payments right away. This means that businesses will spend less time and effort on cash collection.
With cash payments, companies will have instant access to funds, improving the cash flow. With more cash payments, businesses can spend more on their business operations, such as paying bills.
Businesses Retain More Profit
Businesses can retain more profit by saving on reduced processing fees. When customers make fewer credit card payments due to the incentives, businesses also save a lot, which helps retain profit. Keeping profit margins consistent is also essential for a business.
Through cash discount processing, businesses can maintain consistent profits, which helps them plan budgets accordingly. If the business doesn’t have a cash discount program, the processing fees will make it difficult to maintain a consistent profit margin.
With cash discount processing, there is no fee involved in the process, and thus there is no obstacle to retaining more profit.
Engage Bargain Hunters
Everyone loves to have a discount! Customers will come again when they see that they can save a lot on purchases from your coffee shop. They will shop more if they can spend less cash at your coffee shop.
People always love to take advantage of discounts, and if you offer incentives for paying cash, they will come to your shop more.
If you have regular customers who use credit card payments, they will notice the difference and enjoy the savings.
Challenges Facing Coffee Shops
The coffee shop industry has its own unique set of problems to solve, as one might expect, given that coffee is one of the most widely consumed beverages in the world.
A few of them are as follows.
All over the world, but especially in the United States, people drink coffee in great quantities and consider it a staple of daily life. There are a lot of coffee shops out there, from the big chains to mom-and-pop shops, making it difficult for you to stand out.
This emphasizes the significance of differentiating your business in some way from the competition. Along with producing high-quality beverages, offering cash discounts to your clients is a successful strategy for expanding your clientele.
Many businesses now have an online presence to sell their products and services, thanks to digitization. You also want to make sure that your coffee shop stands out given the growing number of them.
Therefore, it is essential to invest in marketing to increase your clientele and revenue.
Keeping up with inflation and the deteriorating economy is challenging. It makes it difficult to find goods at a discount and makes it even more difficult for clients to match your asking price.
As a coffee shop owner, you must discover ways to make up for the money lost to inflation. The cash discount program might assist you in doing this.
Does Your Coffee Shop Need the Cash Discount Program?
One of the main concerns the coffee shops have with implementing a cash discount program is the point of view of their customers. While most customers prefer credit card transactions, incentives like a discounted price can encourage them to make cash payments.
Moreover, cash discount programs are transparent and let the customers know their importance.
Do You Have Repeating Clients?
To choose the best option for your coffee shop, you must consider the benefits that you and your customers will receive. If you think the cash-discount program will bother your credit card-using customers, you must invest more time in educating them.
Before deciding, put your customers first and familiarize them with the cash discount program. You can also set up a dual-payment system to cater to both sets of clients.
Due to the benefits, cash discounting is being used in many restaurants, hospitals, and other businesses. Popular brands like Starbucks and Hilton have already used this program to avoid credit card fees.
Can You Get a Reliable Payment Processing Provider?
Also, it is important to choose the best payment processing provider for the cash discounting program. There are many providers that help eliminate up to 100% of credit card fees while allowing businesses to offer their customers a huge variety of payment options.
These programs use advanced technology that helps in making cash payments without charging any hefty service fee. By eliminating all these fees, you, as a coffee shop owner, can save thousands of dollars annually.
How to Implement a Cash Discount Program for Your Coffee Shop
If you own a coffee shop, the interchange and merchant fees can add hundreds or thousands of dollars per month.
According to Statista, around 40% of consumers prefer credit card transactions, which is more than cash-paying customers and debit card users. This is the highest percentage of people using credit cards to make payments.
Thus, businesses have to pay a credit card service fee.
A cash discount program is a good option for businesses and consumers. The following are some steps that will help you with the implementation of a cash discount program for your coffee shop:
- Sign up for a cash discount program for your merchant account
- Determine and establish a pricing model based on the discounted price for customers who will make cash payments
- Get processing hardware that will help you automatically process cash discounts.
- Post the notices on your website and place cash discount signage at the front of your coffee shop to let the customers know about the new discounted price
- Some cash discount programs have sign templates, too, that you can download and use for your coffee shop.
- The cash discount program will adjust the fees related to cash vs. non-cash purchases.
What are the Requirements for Implementing a Cash Discount Program for Your Coffee Shop?
You must comply with federal and state laws to run a cash discount program. There are very few requirements for implementing cash discounts, but it is important to consider them before starting.
There is no special hardware that the business will need to start this program. You can use the following basic hardware for your coffee shop.
The following are the main hardware:
- POS system
- Credit card terminal
- Mobile card reader
You can use this hardware to program the cash discount program for your merchant account. Programming the hardware will automatically apply a cash discount if you use a non-credit card payment option.
Before starting a cash discount program, it is important to post the notices and place the signs.
Besides that, you must train all the employees at your coffee shop to apply cash discounting. You must remember that your employees will deal directly with customers and must learn everything about the cash discount program.
The terminals will automatically apply discounts, but it is essential to train the employees.
A cash discount program is very beneficial as it reduces the chance of errors in your merchant account. You must avoid manually implementing a cash discount program, as it can cause errors.
Alternatives to a Cash Discount Program
If implementing a cash discount program is a hurdle for you, you can consider its alternatives. You can cover the increased cost of card processing by increasing the product prices.
Besides that, you can also discourage credit card payments by setting a purchase limit for card payments. Lastly, when it comes to choosing a service provider, you must choose the one that has the lowest processing fees.
The coffee shop owners must provide the details of the program to the customers through notices, signs, posts, and receipts. This is a basic requirement and is very easy to implement.
It is a good practice as it helps in spreading more awareness about the program. When the customers have complete knowledge about the program, they can choose whatever option they have for the payment.
Customer Reviews for Cash Discount Programs
As a coffee shop owner, you can get maximum benefits from cash discount programs if your customers are happy. You must consider how your customers perceive the idea of making cash payments. As people are getting more awareness regarding the rising inflation, they are looking for ways to save money.
In this situation, many customers are appreciating the idea of paying with cash. According to a study, around 99.2% of customers have no problem with cash payments. Thus, it is easy to say that cash discounting practices are not affecting consumer behavior.
Cash discounting is on the rise as many national and international companies implement it. More customers and businesses are becoming aware of the economic downturns and changing economies, and they are going towards those methods that help save more.
With the rising costs of labor and goods at stores, restaurants, and coffee shops, businesses and customers cooperate to save their costs.
If you are ready to offset 99% of your coffee shop’s credit card processing fees, get started by scheduling a free demo of a cash discount program. If you want to dig deeper into this topic, please check out our payment processing toolkit here.
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.