How to build a successful e-commerce website?
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- Manage your online funds with an internet merchant account! -
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An internet merchant account is an account with a financial institution or bank that enables you to accept online payments from your customers. Big banks like Bank of America and Wells Fargo Bank also offer internet merchant accounts for their customers - but they normally charge higher fees.
The fees are the main issue here. Internet merchant account providers can be sneaky - they just know that most people won't read the small print or actually calculate the fees before they sign up. Read on and I'll show you how to be one of the few people that do......
So, before you decide to open an online business, the most important thing you have to understand is the REAL cost of your internet merchant account. There are various fees you might have to pay. These include:
- Up-front application fee:
This is to process your application and is normally non-refundable. The standard cost is around $300.
- Set-up fee:
This is to set up your account. The standard cost is about $50-100.
- Security Deposit:
If you anticipate a high volume of internet sales, the bank might require you to put down a security deposit.
- Discount rate:
This charge is for the privilege of using a credit card company's service. It ranges from 2.2%-5% of each sale.
- Fixed Transaction fee:
This is a service fee paid to the credit card companies and merchant account provider. It ranges from $0.25-0.50 per transaction. There is also another fee called an AVS. This service allows you to verify the cardholder's address if you wish to. AVS is mandatory for internet transactions and is usually NOT included in the transaction fee. It normally costs $0.19 per transaction.
- Monthly Statement fee:
This is for printing out your monthly statement. The average is about $10-$20 per month.
- Monthly minimum charge:
Your total monthly transaction fee and discount rate amount is normally applied against this charge. The average minimum amount is about $25 per month. If your total monthly transaction fee and discount rate is $30.00 then you won't be charged for the minimum.
- Charge-Back fee:
If one of your customers requests his/her credit card company to process a refund for a disputed transaction then your merchant account provider will request a charge-back fee for processing it. It's normally $20-$35 per transaction.
- Batch fee:
This is for processing the batch. The average is about $0.20-0.50 per batch.
It's vital that you fully understand exactly what is here. Otherwise you'll be shocked by these hidden costs when you receive your statements. When applying for an account, also ask the provider if they have a monthly volume limit because they won't always tell you if they do. I know that there are some merchant account providers out there that will only allow a certain amount such as $5000 per month to be processed through your internet store. They'll actually "penalize you" for making money by charging extra when you exceed your limit!
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What type of credit cards should I offer?
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In terms of credit cards, you'll be looking at Visa, Mastercard, AmEx & Discover 4 as the most popular cards. You probably had the experience that some businesses only take Visa and Master and don't accept AmEx and Discover. Here's why:
- AmEx and Discover credit cards have their own approval systems and you'll have to apply separately for each.
- AmEx charges 1.5% higher discount rate than Visa/Master. AND you will have to pay a monthly statement fee (normally $5.00).
- Your Visa/Mastercard payment will normally get deposited into your bank in 2-3 days, but it takes 3-5 days for AmEx/Discover payments to get there.
From the above you can see the disadvantages of applying for and accepting AMEX and Discover cards. But I would encourage you to make all four of these major cards available from your website. It's hard enough to get people give you money, so you don't want to turn the business away!
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Case study
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Now we've covered the different fees involved, let's look at an example to help you see how much an internet merchant account might cost your business on a monthly basis. Here is the formula to calculate your monthly charges:
Total Charges = Statement Fee + Number of Transactions x (Average Sale x Discount Rate + Fixed Transaction Fee) + (Number of Times Closing the Batch x Batch Fee) + (Number of Chargebacks x Chargeback Fee)
Let's say you sell leather jackets on the internet. The sales price for each jacket is $100. You typically sell 200 jackets per month. You close your batch once everyday and 1 person requests chargeback. For this example, we're assuming that you've signed up with ABC internet merchant account services and have the following terms:
- Discount Rate - 2.5%
- Statement Fee - $10
- Fixed Transaction Fee - $0.30
- Batch Fee - $0.20
- Chargeback Fee - $20
- Monthly Minimum Charge - $25 (to be waived if total monthly fixed transaction fee is greater than $25.00)
By applying this formula to your sales stats, you'll see that your monthly ABC charges will be:
Total Charges = 10 + 200 x (100 x .025 + 0.3) + (30 x 0.20) + (1 x 20) = $596
You can calculate your monthly sales revenue by multiplying your sales volumes by the price:
Monthly Sales Revenue = 200 x $100 = $20000
This means that your internet merchant provider is costing you 2.98% of your total sales!
So, the bottom line is you should take the time to really UNDERSTAND all of the cost components before you choose an internet merchant provider. You can use your current or projected sales data to forecast what the costs will mean in real terms. Planning ahead like this will save you time and money.
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If you are looking for an internet merchant account, and you don't have the time or inclination to compare lots of providers, consider our recommendations. We audit our list annually. This one is updated in Jan, 2007. Following please see the fee structure comparison - you can see that our recommendation charges A LOT LESS than other merchant account service providers:
| Item |
Our
Recommendation |
Average
Merchant Account
Cost |
| Set Up Fee |
$0 |
$50-$100 |
| Application Fee |
$0 |
$300.00 |
| Monthly Minimum |
$0 |
$25.00 + |
| Discount Rate |
2.15% |
2.25%-5% |
| Fixed Transaction Fee |
$0.25 |
$0.25-$0.50 |
AVS (Address Verification Service)
(Mandatory for Internet Transactions) |
0.10 |
$0.10-0.19 |
| Monthly Statement Fee |
$10 |
$10-$29.95 |
| Chargeback |
$25.00 |
$35.00 |
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It takes about 2-3 days for the application to go through. And remember you need to have your website live before you submit your application.
Online Image provides "NO-RISK" integrated merchant account and payment gateway solution for your online payment processing. Contact us for a even greater fee structure.
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"How to build a successful e-commerce website" Course Index:
- Preface
- Course overview
- Find your domain name before it's too late!
- You need a web site that sells itself!
- A secured hosting server gives you confidence!
- Guard your privacy with a SSL Certificate!
- Find a shopping cart that works for you!
- Manage your online funds with an internet merchant account! (You are here!)
- Put the pieces together with a payment gateway!
- Last Few Words
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Online Course written by Maggie Pearce
About the Author: Maggie Pearce is the founder of Online Image, a web development firm specializing in high quality innovative web site production that takes your business further on the internet! At online image, we deliver more than top quality online presence; we develop online infrastructure that makes your website sell itself!
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