Business
How business accounts can save you money

How business accounts can save you money

We all know that accepting credit cards is the key to online sales. Unfortunately, most merchants don’t realize that getting a merchant account can save them money. And in many cases, a lot of money!

For this experiment, we will use a fictional character named Bill. Bill owns and operates an excellent online resource for marketing tools and resources. The Bills website is a membership based website and therefore could be approved for both third party processing and an internet merchant account. Bill starts processing his business with a popular third-party processor that offers him the following plan:

Initial 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. It has built an extensive reciprocal link exchange directory, has bought some PPC ads on some of the top search engines, and has achieved a great place in the content-based search listings for the top 5 search engines. Their customer base has grown from zero before accepting credit cards, to 150 members, in just one month. Bill can’t believe his success in internet marketing and is planning to build even more web-based tools and resources for his website, thereby increasing the value and content. He’s ecstatic with the early results, so let’s take a look at Bills’ numbers:

$30 (per membership sold) x 150 (membership 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 deducting all processing fees)

Well, Bill certainly had a great first month accepting credit cards with his new business venture. But let’s see how Bill would have fared if he had gotten an Internet merchant account for his new business:

Initial fee None

Monthly Fee $15.00

Discount Rate 2.35% (Initial, Single or Recurring)

Transaction fee 0.30 cents

Gateway Month 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 daunting at first glance, but we really should explore what these fees are and how they affect our results.

Start-up fee: remains the same. Bill paid zero to set up his new merchant account, just like he paid zero to set up the third-party processing account.

Monthly fee: The third-party processor did not offer us monthly fees, but we must pay $15.00 with the merchant account company.

Discount rate: The merchant account has labeled one of its rates as a “discount rate”. These fees are the fees that 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 less than the high percentage charged by the third-party processor. But we will wait until the end of this experiment to see who offers the best comprehensive deal.

Per Transaction Fee: The merchant account company charges Bill .30 per transaction that you process through your merchant account. Of course, we have already established that Bill will not pay transaction fees on the package he received from the third-party processor.

Monthly Gateway Fee – Because Bill will also need an online payment gateway for his merchant account to work online with your website, he will also pay $15.00 per month for his monthly Gateway fee.

AVS Rates: The AVS rate stands for Address Verification Service. Bill will want to use this service to help reduce potential fraud and customer chargebacks to his merchant account. You will now pay an additional transaction fee of .10 per transaction.

Let’s look at the numbers behind processing with a merchant account instead of a third-party processor:

$30 (per membership sold) x 150 (membership sold) = $4,500.00

$15.00 (Merchant Account Monthly Fee) – $15.00

$15.00 monthly gateway fee) – $15.00

2.35% (Discount Rate) x $4,500.00 – $105.75

30 cents (per transaction 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 deducting all processing fees)

With the merchant account, Bill was able to keep a substantially larger portion of his sales as profit. Bill could use these additional resources to advertise more, expand his operation, and even hire someone to work for him, even if only part-time. The point is that the best deal on credit card processing is always with a merchant account rather than using a third party processor.

Most third party processors take advantage of the high levels of risk and chargebacks they face every day, by charging huge fees and charges to their entire customer base. Third party processors are synonymous with adult related websites. This is the reason for your higher risk exposure. They must charge high fees to overcome the losses they are subject to when processing for a category of merchants who, unfortunate as it is for them, fall into a certain level of risk and fraud that most other merchants do not. Because the business account company restricts their clientele to only companies with non-adult content, they can offer an entrepreneur like Bill, who sells content online through his membership-based marketing website, a much better deal. in credit card processing.

$4,304.25 (Net Income with Mercantile Account)

– 3,892.50 (Net Income with Treatment to Third Parties)

= $411.75 (Total Savings with Mercantile 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’ve shown that most business owners can and will save substantial amounts of money by using a merchant account for their online credit card processing, rather than processing with a third-party processor. In our little test, Bill saved $411.75, and that was just in the first month.

Remember, 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 the third-party processor even more than him; $675.00 to be exact! And that’s just in the first few 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 cheap option for credit card processing.

As with any business decision, be smart. Compare rates and plans, and make sure the “simple” setup is really worth it. In most cases, your merchant service provider can set up 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 much higher offer you’re receiving with your own merchant account.

Make the decision that is best for your business and good luck! Visit Josh Greth at CardStreet.com.

Copyright 2003 Josh Greth. All rights reserved.

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