I know that a lot of eCommerce businesses try and ignore or disregard the importance of managing the costs of selling online but it is something you MUST do before even considering selling online. By costs, I don’t just mean your website build, there are so many additional costs you need to consider;
Monthly fee to Payment gateway
Monthly fee for Merchant account
Fixed transactions fee
% per transaction fee
You are going to have to face the facts when it comes to selling online, there are no two ways about it; you need to accept online payments and to do this, you need to use some form of payment provider.
You have two options when it comes to online payments. You can either take payments immediately without having to create a Merchant ID or, create your own Merchant ID, which can take anything from 2 days to 6 weeks, with companies like SagePay or Worldpay and pay a monthly fee and/or percentage per transaction.
If you DON’T want to create a merchant account, you can work with providers like Stripe, Google Checkout, Amazon Payments and PayPal, which allow you to start taking payments from Visa and Mastercards almost immediately. With Stripe however, your consumer will be kept on the same page and will not be diverted to another website, giving your customer a greater user journey.
Regardless of the company you use, you will be look at a charge of upto 3.4% on the processing fee and a 30p transaction fee for every item sold. These costs vary according to your monthly turnover. Here is a great converter, giving you an overview of all the options in the UK and the total costs per month. Be Careful of the hiddens costs, like 3D secure, mobile terminal, quick checkout all of these might be an extra charge.
Lets say you bought a Necklace from a wholesaler for £1.00 + VAT = £1.20, if you sold the item for £3 on your website, you have to pay 20% VAT leaving you with £2.40. The cost of processing the sale would be 10p (3.4%)+ 30p, leaving you with £2.00 and lets say your shipping to the customer was free of charge and cost you another 40p, leaving you with £1.60. You are left with 60p profit, and out of this you have to pay, website costs, wages, warehouse etc etc. Can the business exist on this type of profit margin?
If you go down the Merchant ID route, you will still need a gateway to take payments. Some PSP (payment service providers) and ISO (independent sales organisation) can charge a small business up to £25 as a monthly minimum fee and for this you will get between 350 and 1000 transactions depending on the company you go with. The likes of SagePay, PaymentSense, Authorize.net, Realex, eWay, Securetrading, Paypoint andOgone, to name a few offer a payment solution for those wanting to go down the Merchant ID route. If you are looking to set up a merchant account but unsure how to do so, here is a great blog to help you.
I know that it can be scary when thinking about the cost of selling online but you really need to consider the best route for you, your business and most importantly, the smoothest journey for your consumer.
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