Cash “Discounts”

I’m not entirely sure why, but this has been a hot topic in the last couple of months. Figured it was worth addressing since there are so many conversations around it.

If you’re not aware, cash discounting is where a restaurant gives you a discount of up to 4% if you pay with cash rather than a credit card. The idea behind it is that, if you pay with cash then the restaurant doesn’t have to pay a credit card processing fee and they’re passing the savings onto you, the customer.

There are several things that you should know if this is something that you’re considering. Just a reminder - I’m not a legal, tax, or financial expert, so you’ll want to consult with people who ARE to help you make decisions. Rules are different everywhere so it’s important you work with local specialists. There are restrictions in several areas so it’s imperative that you consult with experts. You could be fined thousands of dollars. That would negate any profits you make from this.

Before you start any of the heavy lifting, consult specialists to see if this is legal and under what circumstance. You may need to gather or account for the money in a specific way.

Look at your credit card agreement. Oftentimes you’ve agreed to charge the same amount for credit card transactions as all other transaction types. You will not penalize a customer for using a credit card. This is where “cash discounts” come from. You’re not *technically* increasing prices for those with credit cards, even though credit card transactions are more expensive than cash. This verbiage seems to work in a lot of areas, but is actually illegal in several states.

Then engage your Accounting and IT Teams and make sure that you can honor the letter of the law via your POS and current account practices. If you’re told that you cannot currently honor the law, inquire as to what needs to change in order to be compliant and if your team can execute those changes. Evaluate if this is reasonable. If it is, work with your team to make those changes before implementation.

The biggest lift for this project is going to be changing your price. To recoup the cost of credit card fees, you’ll need to increase your menu pricing. Your POS pricing, your printed menus, menu boards, online ordering, 3rd party delivery, online PDF/HTML menus, catering menus. All of your menus, everywhere. These changes will need to be coordinated between your IT, Marketing, Accounting, and Operations teams.

All of the above is going to take you a several weeks to make sure you’re doing it correctly. If you ARE your IT, Marketing, and Accounting teams, it’ll take you much longer.

And I don’t think it’s worth it.

Here’s why:

Service Fees and other adjustments to the pricing looks amateur to your customers. It looks like you’re counting pennies so closely that a 3% fee is going to break you. Could it? Sure. Does your customer need to know that? Absolutely not.

Just taking menu price would arguably be less work. You don’t have to consult specialists, beyond your IT and Marketing teams. If that’s you, it’s less work for you, too. For the same result. Also, discounts are meant to draw customers in. Most customers aren’t looking for where to eat based on a potential for cash discounts. Even if they were, most restaurants aren’t promoting them. If the only place someone sees a cash discount for your restaurant is when they get the bill, then you’re just undercutting yourself - you’re not drawing people in for a discount.

If your argument is that you haven’t taken price in years, I implore you to start. Everyone knows that your costs are going up. Sure, a couple of people will be upset, but, most people won’t really notice. It’s a good idea to evaluate your costs and adjust pricing either quarterly or twice a year. Since you may be updating your offerings seasonally anyway, it would be a great time to evaluate and make sure you’re still profitable.

This will also get your customers excited about your menu changes. Market your menu change to highlight the awesome seasonal menu items to get people hyped about your changes. And honestly this doesn’t have to be a crazy overhaul. One or two new entrees, a side, and maybe a signature drink. It might even just be a change to preparation - like a cherry glaze in the spring. Nothing huge.

The most important part of this entire exercise is HOW your customers will see your restaurant during this update. Menu changes with exciting new items are proactive. Menu changes that just inflate the price and have verbiage around service fees or cash discounts feels reactive. Be proactive. Evaluate your costs and update your pricing quarterly. You got this.