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On Going Fixed Fee
Most all internet merchant providers require a monthly fixed fee or "statement fee" as it is commonly named, which is simply another way to cover their costs and make money. You will be hard pressed to find a provider that does not require this type of fee on a monthly basis. However, do not choose an internet merchant account that requires more than $10 per month. Additionally, most internet merchant providers require a monthly minimum (usually $25). The bottom line is that you will be paying at least $25 per month (on top of
monthly statement fee) for your account.
Discount Rate
Usually, discount rate will be between 2 and 4 percent. The discount rate is sales commission provider earns on each sale. For example, if discount rate offered is 3%, and you receive a sale over your web site for $20, you will owe 60 cents to your internet merchant provider.
Fixed Transaction Fee
Usually between $0.20 and $0.30, fixed transaction fee is fixed fee portion of each sale. Unlike discount rate, fixed transaction fee is same for every transaction. Whether you get a $1 sale or a $100 sale, transaction fee will be same.
Termination Fee
A bit more hidden in small print, a termination fee can apply if you cancel your merchant account within a specified period of time (usually within one year). But beware, some merchant providers require a three year commitment!
Miscellaneous Fees
If a customer requests a refund and they want their credit card credited, an internet merchant provider will charge you a separate fee (usually between $10 - $20). Read contract carefully, as other special fees may apply.
Putting It All Together
Now that different fees have been explained, let us look at an example set of transactions to help understand what an internet merchant account may cost your business on a monthly basis.
I have created a simple formula to help you calculate your monthly charges:
Total Charges = Statement Fee + Number of Transactions x (Average Sale x Discount Rate + Fixed Transaction Fee) + (Number of Chargebacks x Chargeback Fee)
For example, let us see you sell widgets over internet. The sales price for each widget is $10. You typically have 100 sales per month and about 5 people request refunds (chargebacks). For this example, let us assume you have signed up with Jones&Jones internet merchant account services and have following terms:
Discount Rate - %2.5 Statement Fee - $10 Fixed Transaction Fee - $0.30 Chargeback Fee - $15
Using my formula above, your monthly Jones&Jones charges will be:
Total Charges = 10 + 100 x (10 x .025 + 0.3) + (5 x 15) = $140
You can calculate your monthly sales revenue by multiplying your sales volume by your price:
Monthly Sales Revenue = 100 x $10 = $1000
Your internet merchant provider is costing you %14 or your total sales.
Making Your Decision
Before you choose and internet merchant provider, understand all of cost components. Use your current or projected sales data to forecast what your internet merchant account costs will be. Planning ahead can save you time and money.
