Chapter 26 — Exercises

Thirty-eight problems, graduated from recall to judgment. Items marked † have worked solutions in the answers appendix. Every calculation resolves; show your arithmetic.

Unless a problem states otherwise, use the illustrative blended rates from §26.7: interchange 1.713% + \$0.119** per transaction, assessments **0.140% + \$0.03, and a processor markup of 0.35% + \$0.10. All rates in this chapter are illustrative and are for teaching only.

A. Recall

26.1 Name the three parties paid on every card transaction, state roughly what share of Bellwether's processing bill each receives, and identify which one you can actually negotiate with.

26.2 State, in one sentence, the difference between a kitchen printer and a kitchen display system in terms of what a manager can measure.

26.3 Define the effective rate. State the two denominators it can be computed against and say which one belongs on the profit-and-loss statement.

26.4 What is a downgrade? Name two causes that are specific to full-service restaurants.

26.5 List five distinct things a POS must capture in order to serve as a system of record, and for each one name a downstream number that fails without it.

26.6 State the structural difference between surcharging and cash discounting, and name three constraints that apply to surcharging.

26.7 Name the six rungs of the integration ladder in order, from most to least automatic, and state the cost associated with each.

B. Applied reasoning

26.8 A chef tells you ticket times "run about fifteen minutes." Explain precisely what is wrong with that sentence and state what would have to exist for it to become a measurement.

26.9 † A POS vendor offers the software free on the condition that you process payments through them. Write the three questions you would ask before accepting, and for each one state the answer that would make you decline.

26.10 Argue the case that a POS configuration requiring a cover count before a check can be tendered is worth more to a restaurant than a better reporting dashboard. Use at least two downstream metrics.

26.11 Explain why a full-service restaurant generates more downgrades than a clothing store with identical card volume.

26.12 Your reservation platform's marketplace-originated bookings have risen from 18% to 34% of covers over eight months while total covers are flat. State what has most likely happened, what it is costing you, and what you would do about it.

26.13 A manager has entered this guest note in the reservation system: "Table 6 regulars — older couple, husband is loud and slightly deaf, wife orders for both, big spenders, always the Cabernet, do not seat near the bar because he complains." Apply the over-the-shoulder test from §26.5. Rewrite the note so it is operationally useful and defensible.

26.14 † Rung 0 of the integration ladder — "the number is never produced at all" — is described in §26.8 as the most expensive rung. Defend that claim with a specific example drawn from Chapters 11, 13, or 19.

26.15 A restaurant installs a KDS and reports that ticket times improved by four minutes in the first week with no change to staffing, menu, or prep. Give the most likely explanation and describe an audit that would confirm or refute it.

26.16 Chapter 32 will require every cost to be classified as fixed, variable, or semi-variable. Classify each of the fifteen lines in Bellwether's technology budget and state the total in each category. What does the split imply about what happens to the technology percentage in a bad year?

26.17 Explain why the tip line on a full-service check makes payment processing structurally more expensive than it is for a counter-service operation with the same sales, and name two separate mechanisms by which that happens.

C. Compute this

26.18 † A restaurant does \$980,000 of net sales. 86% is paid by card. Sales tax is 8%; tips average 17% of card sales. Compute the annual card volume the processor charges against.

26.19 Using your answer to 26.18 and an effective rate of 2.62% on card volume, compute the annual processing cost and express it as a percentage of net sales. Which number goes in the budget?

26.20 † From 26.18 and 26.19: what dollar amount of the processing bill is charged on sales tax and tips, and what share of the total bill is that?

26.21 A processor quotes interchange-plus on \$2,240,000 of card volume across 26,500 transactions: interchange 1.79% + \$0.12**, assessments **0.14% + \$0.03, markup 0.30% + \$0.10, and \$60 a month in fixed fees. Compute the annual cost and the effective rate.

26.22 † A competing processor quotes the volume in 26.21 at a flat 2.75% + \$0.05, no monthly fees. Which is cheaper and by how much? At what flat rate would the two tie?

26.23 A bar runs 9,200 single-drink card transactions a year averaging \$12.60 including tax and tip. Using the chapter's blended rates (2.20% + \$0.25 combined per-item), compute the annual processing cost of those transactions. Now suppose half of them become four-drink tabs instead. Recompute and state the saving.

26.24 Build a five-year hardware replacement reserve for a stack costing \$26,400 with a five-year life. Then recompute assuming the terminals (\$9,600 of the total) last four years and everything else lasts six. Which number goes in the budget, and what does the other calculation tell you that the first one hides?

26.25 † Recompute Figure 26.4's un-integrated boundary cost using a \$36 loaded manager rate and a \$28 loaded bookkeeper rate. State the new total and comment on how sensitive the conclusion is to the wage assumption.

26.26 Compute the POS switching cost for a restaurant with 32 POS users, \$14,800 of vendor-specific hardware, a \$9,600** annual subscription, an average check of **\$52, and an estimated 40 covers lost across a two-week cutover. Use the chapter's other assumptions. Express the answer in years of subscription.

26.27 Bellwether's card volume is \$1,743,750. Build the basis-point scale from Figure 26.9 for a restaurant doing \$3,400,000 of net sales with the same 90% card share, 7% tax, and 18% tip assumptions. What is one percentage point of effective rate worth to that operator, in dollars and in \$46 covers?

D. Read the document

26.28 † Here is one month of a merchant statement.

  Gross card volume ......................... $204,600.00
  Transactions .................................... 2,180
  Interchange ................................. $3,682.80
  Assessments ................................... $351.84
  Processor discount .......................... $920.70
  Monthly service fee ........................... $19.00
  PCI compliance program fee .................... $24.95
  Gateway fee ................................... $49.95
  Batch fee, 26 batches @ $0.25 .................. $6.50
  PCI non-compliance fee ........................ $34.95

The restaurant's net sales for the month were \$182,000 and it was open 30 days. Compute total fees and the effective rate two ways. Then name the three lines you would question, and say what is wrong with each.

26.29 Here is a tiered statement for one month.

  Qualified ......... $118,000 @ 1.79%
  Mid-qualified ......  $54,000 @ 2.69%
  Non-qualified ......  $38,000 @ 3.49%
  Per-transaction ....    2,100 @ $0.12
  Monthly fees .......................... $85.00

Compute the total and the effective rate. Then estimate what interchange-plus would have cost on the same volume, stating every assumption you make. Finally: is the tiered pricing wrong, or is it something else? Defend your answer.

26.30 A statement carries a \$34.95** "PCI non-compliance fee" and a **\$49.95 "gateway fee." Explain what each one is, identify which is pure waste, and state exactly what you do on Monday about both.

26.31 Return to Figure 26.2, the POS proposal. Identify the four clauses that matter from §26.2 and state, for each one, what the proposal says and what you would change. Then compute the 36-month total cost of ownership under the proposal as written and under your revised version.

E. Write this

26.32 † Write the closing-checklist item covering batch settlement and tip adjustment, in language a closing manager will actually follow at 11:40 on a Saturday. Maximum 150 words. It must be verifiable — someone reading the checklist tomorrow should be able to tell whether it was done.

26.33 Write the guest-note standard for the reservation platform, for inclusion in the training manual (Chapter 18). Say what may be recorded, what may not, why, and who audits it. Maximum 250 words.

26.34 Write the email to a POS vendor, before signing, requesting a data-export clause. Name the specific data categories, the format, and the timeframe, and give the vendor a reason to agree.

F. Judgment

26.35 † Should Bellwether surcharge credit-card transactions? Argue both sides in roughly 400 words, using the chapter's arithmetic on both. Then decide, and say what your decision assumes about the concept, the neighborhood, and the second visit (Chapter 23). Note the compliance steps your answer would require.

26.36 Your processing statements have been correct and competitively priced for two years. A competitor offers 0.12 points less. Your current representative has personally taken three Saturday-night emergency calls, one of which saved a service. What do you do — and what does your answer say about the dollar value of a vendor relationship? Put a number on it.

G. Business Plan extension

26.37 † Extend Bellwether's technology section to Year 3, at \$1,850,000 of sales. State which budget lines scale with revenue and which do not, model the processing cost from first principles, and compute the new all-in technology percentage. Explain in one sentence why the percentage moves the way it does.

26.38 Build the one-page annual technology audit worksheet Bellwether's managing partner will run every January: what to pull, what to compute, what to question, and what decision each section forces. It must fit on one page and it must be usable by someone who has never read this chapter.