sales. Unfortunately, most merchants are unaware that acquiring a merchant account can actually save them money. And in many cases, big money!
For this experiment, we will use a fictional character named
Bill. Bill owns and operates a great online resources for
marketing tools and resources. Bills website is a membership
based website, and therefore could potentially be approved for
both third party processing and an internet merchant account.
Bill starts off processing his business with a popular third
party processor who offers him the following plan:
Start Up FeeNone Monthly FeeNone Transaction Fees 13.5% (Initial or One Time) 15.0% (Recurring)
Bills sets up his business with this popular third party
processor and charges $30 per month. He has built an extensive reciprocal link exchange directory, has purchased some PPC advertising on a few of the best search engines, and has reached a excellent spot in the content based search listings for the top 5 search engines. His customer base has grown from zero before accepting credit cards, to 150 members, is just one month. Bill can't believe his success at internet marketing, and is planning on building even more web based resources and tools for his website, thus increasing the value and content. He is ecstatic at the initial results, so let's take a look at Bills numbers:
$30 (Per Membership Sold) x 150 (Memberships Sold)= $4,500.00
$4,500 x 13.5% (Initial or One Time Transactions) - $ 607.50
$4,500.00(In total sales) - 607.50 (Total fees) = $3,892.50(Net
profit after all processing fees have been deducted)
Ok. Well Bill certainly had an excellent first month accepting
credit cards with his new business venture. But let's see how
Bill would have made out if he would have secured an internet
merchant account for his new business:
Start Up FeeNone Monthly Fee$15.00 Discount Rate 2.35% (Initial,
One Time or Recurring) Per Trans Fee.30 cents Gateway Mo.
Fee$15.00 AVS Fees.10 cents
Now the first thing we see is that the merchant account company
is showing us more fees. This may be disheartening at first
sight, but we should really explore what these fees are, and how
they affect our bottom line.
Start Up Fee: This remains the same. Bill paid zero to get setup
with his new merchant account, just as he paid zero to get setup
with the third party processing account.
Monthly Fee: The third party processor offered us no monthly
fees, yet we must pay $15.00 with the merchant account company.
Discount Rate: The merchant account has labeled one of their
fees as "discount rate." These fees are the fees Bill will pay
as a percentage of each transaction. They are similar to the
main fee charged by the third party processor. This fee when
charged by the merchant account company is substantially smaller
than the high percentage charged by the third party processor.
But we will wait till the end of this experiment to see who
offers the better comprehensive deal.
Per Trans Fee: The merchant account company charges Bill .30 per
transaction he processes through his merchant account. Of
course, we have already established that Bill will pay no per
transaction fees with the package he received from the third
party processor.
Gateway Monthly Fee: Because Bill will also need an internet
payment gateway for his merchant account to work online with his
website, he will also be paying $15.00 a month for his Gateway
Monthly Fee.
AVS Fees: The AVS fee stands for Address Verification Service.
Bill will want to use this service, to help reduce potential
fraud, and customer chargebacks to his merchant account. He will
now pay an additional per transaction fee of .10 per transaction.
Let's see the numbers behind processing with a merchant account
as opposed to a third party processor:
$30 (Per Membership Sold) x 150 (Memberships Sold)= $4,500.00
$15.00 (Merchant Account Monthly Fee)- $15.00 $15.00 Gateway
Monthly Fee)- $15.00 2.35% (Discount Rate) x $4,500.00- $105.75
.30 cents (Per Trans Fee) x 150 (Memberships Sold)- $45.00 .10
cents (AVS Fees) x 150 (Memberships Sold)- $15.00
Total Fees (With Merchant Account)= $195.75
$4,500.00(In total sales) - 195.75(Total fees) = $4,304.25(Net
profit after all processing fees have been deducted)
With the merchant account, Bill was able to keep substantially
more of his sales for himself, as profit. Bill could use these
extra resources to advertise more, expand his operation, and
even hire someone to work for him, even if only on a part time
basis. The point is that that the better deal in credit card
processing is always with a merchant account as opposed to using
a third party processor. Most third party processors leverage
the high levels of risk and chargebacks they must face everyday,
by charging enormous fees and rates to their entire customer
base. Third party processors are synonymous with Adult related
websites. This is the reason for their increased exposure to
risk. They must charge high rates to overcome the losses they
are subject to by processing for a category of merchants that,
unfortunate as it may be for them, falls into a certain level of
risk and fraud that most other merchants do not. Because the
merchant account company restricts its clientele to only
companies with non adult related content, they are able to offer
an entrepreneur like Bill, selling online content through his
membership based marketing website, a much better deal in credit
card processing.
$4,304.25(Net Profit with Merchant Account) - 3,892.50(Net
Profit with Third Party Processing) = $411.75(Total Savings with
Merchant Account)
This experiment has shown that the average website owner can
save substantially by choosing wisely when it comes to their
credit card processing solution. We have proved that most any
entrepreneur can and will save substantial amounts of money by
using a merchant account for their online credit card
processing, as opposed to processing with a third party
processor. In our little test, Bill saved $411.75, and that was
just in the first month alone. Remember, that the third party
processor will charge more, 15.0% to be exact, per transaction,
once the customer is charged on a recurring basis. This means
that for the second month, Bill would have paid even more to his
third party processor; $675.00 to be exact! And that is just on
the first months returning 150 customers. Every time Bill has a
recurring payment processed through his third party processing
account, he would be subject to a 15.0% transaction fee on all
those sales. Not a very thrifty choice for credit card
processing.
As with any business decision, be smart. Compare rates and
plans, and make sure the "simple" setup is really worth the
cost. In most cases, your Merchant Service Provider can setup
your merchant account in as little as 24 hours. This is faster
than your third party processor, and adds even more value to the
otherwise already vastly superior deal you are receiving with
your very own merchant account.
Make the decision that is best for your business, and best of
luck! Please visit Josh Greth at CardStreet.com. Copyright 2003
Josh Greth. All rights reserved.