How to Estimate Volume as a New Business?

Business Owners often ask, “how do I estimate my volumes, I’m not even open yet?”  That’s understandable; however, the average sale amount/ transaction, estimated monthly volume, breakdown into estimated monthly debit/cash, Visa and MasterCard volumes, and type of business model are all needed to start talking about merchant accounts.

I help do this with every new Business Owner, but just wanted to post this for Business Owners who are passing through this site and will need to know this when applying for Payment Processing & Acceptance of bank and credit cards.

My first question is what product or service are you going offer your potential customers?

Is it under $50 or over $100? Is it under $150 or over $200?  And so on.

If you and your friends are customers, then how much would you probably spend each transaction/sale for this particular type of product or service?

Would you estimate that that would be the same amount for 80-90% of your potential customers?

Would that be the average sale amount?

The range from lowest to highest doesn’t really matter, what would 80-90 out of 100 customers spend at your business?

How many sales do you think you can make each day through all your planned marketing efforts?

How many days are you open each month consistently?

How many more sales can you make on weekends, OR WHATEVER special condition(s) to consider specific to your business that affect your sales?

Now we have an average sale amount per transaction, and an estimated monthly volume based on what we sell and how we get customers. This also ties in to our business model.

Here are some general guidelines to help understand estimated debit/cash and credit card volumes.  With average transactions lower than $100 you’ll have more debit/cash usage and less credit cards.  With average transactions over $100 you’ll have the opposite.  And you can go to extremes like $10 avg like a pizza parlour or $200 like a tattoo parlour session.

Just think like a customer- if I spend $50 buying this, would I use a credit card?   ‘But, I’m conservative and never use credit cards!’   No problem, talk to a few people you know.  Almost everyone is spending $1.20 for every dollar they make, so you’ll find someone fast.  (NOTE: This is a social opinion tied to payment processing, NOT intended as economic fact/statement of fact.)

Generally speaking, approx. 20-30% of estimated total volume is going to be Visa and MasterCard for lower average sale amounts.  The rest will be a combination of cash and debit.  Debit usage is climbing dramatically each year in Canada, so now even with $10 transactions customers may use debit more frequently- it’s convenient.  If you don’t have debit, they’ll go somewhere else.  Visa usage is usually 2-3 times more than MasterCard usage for most types of businesses.  Most people that have a MasterCard will also have a Visa.

If the average sale amount for your particular business in over the $200 mark, then you start looking at 40-60% credit card usage and the remainder cash/debit.  That is why depending on your business model, you may be considered ‘higher risk’.  Stolen credit cards are not being used at McD’s for $10-$20 per transactions!

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