How Merchant Accounts Can Save You Money
We all know that accepting credit cards is the key to online 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 Fee – None
Monthly Fee – None
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 merchant tools 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 Fee None
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.