Ask any restaurant owner their top three costs and they'll say rent, labor, COGS. Processing fees almost never make the list, which is funny because on most P&Ls we've audited, processing is the fourth-biggest line item — larger than utilities, insurance, or marketing.
How processing actually works
When a customer pays with a card, the money flows through three parties before it hits your account: the card network (Visa, Mastercard), the issuing bank (customer's bank), and your processor. Each takes a cut.
The cut is called interchange. Interchange is set by the networks and it's the same for everyone — you, Starbucks, McDonald's. What varies is the markup your processor adds on top.
The three pricing models
- Flat-rate pricing: e.g., Square, Stripe, PayPal. You pay one rate (2.6% + $0.10) regardless of card type. Simple, transparent, but usually the most expensive.
- Tiered pricing: e.g., many traditional processors. Transactions are bucketed into "qualified," "mid-qualified," and "non-qualified" tiers at different rates. Opaque and usually designed to surprise you on non-qualified transactions.
- Interchange-plus: you pay actual interchange + a fixed markup (e.g., interchange + 0.15% + $0.08). Most transparent, almost always cheapest at volume over $30K/month.
What you're probably paying
Typical effective rates for restaurants across the three models:
| Model | Effective rate | Monthly on $80K |
|---|---|---|
| Flat-rate (Square) | 2.7–2.9% | $2,160–$2,320 |
| Tiered (traditional) | 2.5–3.0% | $2,000–$2,400 |
| Interchange-plus (well-negotiated) | 2.2–2.5% | $1,760–$2,000 |
| Interchange-plus (institutional) | 1.9–2.2% | $1,520–$1,760 |
The difference between "flat-rate at 2.8%" and "interchange-plus at 2.2%" on an $80K/month restaurant is $480/month or $5,760/year. That's real money.
The hidden fees that inflate the effective rate
Most processors add line-item fees on top of the percentage rate. These don't show up on your statement's "effective rate" but they're real cost:
- Monthly statement fee: $5–$15
- PCI compliance fee: $10–$20/month or $100–$200/year
- PCI non-compliance fee: $20–$50/month if you haven't completed attestation
- Batch fee: $0.10–$0.25 per daily batch
- Chargeback fee: $15–$35 per dispute (regardless of outcome)
- Gateway fee: $10–$25/month for online processing
- Minimum monthly fee: $25 if you don't hit a processing threshold
Add these up and your "2.5% + $0.10" rate becomes an effective 2.8–3.0% once the line items are spread across your actual volume.
How to audit your own rate
Five-minute exercise. Pull your last three months of processing statements.
- Sum every dollar the processor took (processing %, gateway fee, statement fee, PCI fee, batch fee, chargeback fee — everything).
- Divide by your total processing volume for those three months.
- That's your true effective rate.
If it's above 2.6% and you're on interchange-plus, you're leaving money on the table. If it's above 3.0%, you're dramatically overpaying and should get quotes from 2–3 alternatives.
What to ask any processor before signing
- What's your pricing model — flat, tiered, or interchange-plus?
- What's the monthly markup above interchange?
- What are all the line-item fees?
- Is there a minimum monthly fee?
- What's the contract length? ETF? Auto-renewal?
- Do you own the merchant account or am I on your master account? (Owning your own is better.)
- Can I see a sample statement for a restaurant my size?
Bundled processing (the Labrador approach)
The reason Labrador bundles software with processing is that the economics work out better for both sides: you get the 16-system software stack at $0/month, and we lock in a predictable, transparent processing relationship. For most restaurants, the all-in comes out lower than splitting software ($1,400/mo) from processing (2.6% on a flat rate) and materially lower than the patchwork most independents are paying today.
Run your actual numbers through our savings calculator — you plug in volume and current rate, we show you what changes.
Bottom line
Processing is the cost you don't think about, which is exactly why it gets inflated. Every restaurant owner should audit their effective rate annually. If it's above 2.6%, you can likely do better. And if you're on a platform that bundles software with processing honestly, you can often do better still.