Choosing A Merchant Service Provider Part 2
Posted by administrator on Monday, April 12th, 2010
In a previous article, we discussed how to choose a merchant service provider when you want to accept credit cards. Today I want to discuss how to calculate your total cost of accepting credit cards and to determine if it is really worth it for your business.
I recently took a close look at one of my recent merchant account statements. I charged approx. $450 in cards in that month in several transactions. The sum of the discounts (the percentage of the sale the credit card company takes) came to roughly $8.50. However, my merchant account is set up to charge a monthly $25 minimum, so they actually take $25 even though I only had $8.50 worth in credit card discounts. I am also charged a per-transaction fee of $0.25. Because I had processed 20 credit cards, that came to $5. My total for credit card fees was about $30.
I also have a gateway to connect my website to my merchant account. I am paying $20 a month for that service. In total, it cost me about $50 that month just to process $450 worth in credit cards! I'm paying 11% of each sale for the privilege of accepting credit cards!
On the other hand, PayPal charges about 5% for each transaction. If all of those payments went through PayPal instead, I would have been $22.50 richer.
In conclusion:
- Evaluate your total cost to accept credit cards for your site. It may surprise you how much of your profit goes towards the credit card companies.
- If your credit card processing is low volume, like mine is, it might be best to go with another service with a higher percentage but no monthly fee such as PayPal.
- Find a better deal for credit card processing than what I found. :)
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