Web Talk & Tips - August 2006
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Clients and new businesses occasionally ask about selling their products or services on the web. The question is, should I setup a true merchant account or use a 3rd party like PayPal to accept credit cards online? Here is a brief comparison of the two methods.
Method 1: Merchant account
With a true merchant account, you apply with a processing bank for the right to have a merchant account. The merchant account is for your business alone. You're also responsible for providing a gateway to it which is what connects your ecommerce website to your merchant account. Basically, your merchant account is an account with Visa and MasterCard (and American Express and Discover Card, should you choose to accept these).
Some costs:
- Monthly fee for the merchant account
- Monthly fee is charged if a certain minimal level of activity is not met
- Monthly gateway fee, as well as the gateway setup fee (Note that gateway providers like Authorize.net, and some others, do not sell their gateway services to the public. You need to go through one of their authorized resellers.)
A typical merchant is looking at spending a few hundred dollars or so just to get started. Thereafter there will be monthly fees of about $50. And the monthly fees are charged whether you have sales or not. So for a small business that only processes a few hundred dollars of transactions a month, the monthly fees could totally eat into their profits.
When should a business consider a true merchant account?
- Large amount of transactions are processed each month.
- Merchants need to have total control over the account.
- Merchant accounts offer transparent checkout which means the purchaser will complete the purchase on the merchant website and won't be taken to 3rd party site like PayPal to complete the online transaction.
- Merchants will generally display a more professional image.
Other Points to Consider:
- In applying for a true merchant account you'll need to go through a full credit check.
- High-risk businesses will pay much higher rates.
- Rates and fees are negotiable.
- The merchant account can be used with a separate processing gateway.
- Your business name appears on your customer's credit card statements.
- You may be locked into a contract with the merchant provider.
- Funds are deposited within 3 business days.
- You'll likely need to hire a web developer to setup the online shopping cart.
Here is a list of fee types associated with a true merchant account:
- Setup fee: how much you need to pay to create the account
- Discount rate: the percentage of sales that the processor takes
- Transaction fee: the flat fee the processor charges for each transaction
- Monthly fee: the monthly fee associated with keeping the account active
- Gateway setup fee: the cost to set up a gateway
- Gateway monthly fee: the monthly fee charged by the gateway provider for use of their
payment gateway services
Average merchant account fees:
- Setup Fee: $100.00
- Discount Rate: 2.20%
- Transaction Fee: 35¢
- Monthly Fee: $15.00
- Gateway Setup Fee: $99.00
- Gateway Monthly Fee: $15.00
Method 2: 3rd party account
A 3rd party that can handle your online transactions makes it easy to accept credit card payments online. And you won't need a merchant account. One of the largest and most used services of this type is PayPal and we usually recommend this method for clients that don't expect huge sales online. And this method is usually easy for the client or web developer to setup. Once online sales grow they can always move to a true merchant account and complete online shopping cart method.
PayPal fees:
The monthly volume is less than $3,000:
- Setup Fee: $0.00
- Discount Rate: 2.90%
- Transaction Fee: 30¢
- Monthly Fee: $0.00
When the volume is more than $3,000 the discount rate is adjusted to the following rates:
The monthly volume is between $3,000 and $10,000:
Discount Rate: 2.50%
The monthly volume is between $10,000 and $100,000:
Discount Rate: 2.20%
The monthly volume is greater than $100,000:
Discount Rate: 1.90%
Currently with PayPal there is no setup fee or monthly fees for any volume of monthly sales, which makes this method a great choice for many small businesses and one-person operations.
As with any big decision, take the time to explore all your options. You may want to ask other merchants what methods they've used and what kind of results they have had. The more research you do, the more likely you'll be to find a cost-effective solution that best suits your needs.
Note: The rates and information above may have changed since this newsletter has been published.
What your Webmaster can do to help you market your business or organization via email:
For businesses that have a website, here is a simplified list of the steps needed to administer an email newsletter.
- Create a web page so visitors can subscribe to your newsletter. Make sure that there is opt-in functionality so that anyone that subscribes gets a confirmation email. This keeps your email subscriber list clean and insures that only those that really want your email will be subscribed. Once a user is subscribed their email address will be in a database that you will have access to.
- There should be an unsubscribe link on any newsletter or email campaign that you send. This way if anyone doesn't want to receive your newsletter, they can easily unsubscribe. You could also have an unsubscribe page on your website as well. This will give your subscribers the confidence that they can easily unsubscribe at anytime.
- Ability to create and send your email newsletters to your database of website subscribers. There will be an administration section of the website that you'll login to where you can create and edit your newsletters. This includes adding text, uploading images and basically creating your unique newsletter. This should include the ability to send to all or a subset of your subscribers and may include statistics of each newsletter that is sent.
For those that don't have a website, fear not, email marketing is available for everyone. Many web designers can create your email newsletter for you with the content and images you'd like included. This can include your company logo and should have a design and look that will represent your business or organization.
You should be able to send your web designer your email list. This may mean exporting your email addresses from your address book or database or wherever you have your email addresses.
Once the newsletter is created, you'll be able to approve the proof of your newsletter ensuring it looks the way you want. Then the newsletter will be sent to your subscribers and you'll be able to monitor the results.
The results are statistics for your email campaign, including who received your newsletter, when it was opened and which links were clicked from within the newsletter.
This is important because it gives you information about what is working and what isn't so next time you can make adjustments and fine-tune your email campaign. You'll also be able to subscribe and unsubscribe users from within the administration section of your email campaign.
Wow, and I don't even need a website to do this?
That's right, and you can send email newsletters as often as you want. The cost of this method is very low, especially if your list of recipients isn't extremely large. For most of our clients this may be anywhere from 250 to 2000 subscribers.
So start saving those email addresses of your prospects and clients and get ready to send your first email newsletter. And if you have great information and articles your subscriber list will grow quickly and they will look forward to receiving your next email.
Please feel free to contact us if you'd like more information about email marketing and how it could help your business or organization.
Best regards,
NJE Design
