HN Explorer

Poll: What impact do payment fees have on your margin?

41 points by tomasien ↗ HN
I've sold things on the internet for a long time, and I know the impact fees have had on my businesses - but I'm trying to get an idea on how much it's affecting other people's businesses. I've seen 20% (cart size around $20, margin around $5) to as much as 300% (charging on top of existing Credit Card fees, like Stripe does).<p>Pretend you charged the same price but had no fees - what would the impact be on your margin?

24 comments

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tomasien
Comments on monetary total per month and who you use would be FANTASTIC
patio11
FWIW, from the world of SaaS: I charge five figures a month on Stripe, over a few products. Ticket size ranges from $29 to $2,499, with the largest numeric cluster at +/- $30 and the largest contribution to revenue at +/- $500.

Margins on the products range from 60% to 90%+, so optimization on the 3~5% that Stripe accounts for is not super-meaningful to my business. (For completeness: also use Paypal, at their 2.9% tier. Have never been dissatisfied with what I pay for CC processing.)

tomasien
Pure SaaS I've found is the market least effected by the fees - thanks so much for the feedback! So it seems like you have a 4-8% effect on your margins? (3-5% of 60-90%)
tomasien
Added "5-9%" and "1-4%" because I realized 1-10% was too common
crystaln
Presumably you mean gross margin, calculated as revenue less cost of goods and excluding payment fees.

For a $100 sale that costs $75 (a 25% gross margin, typical for internet sales), and a payment fee of 5%, the fee is $5, or 20% of the $25 gross margin. Each 1% of fees represents 4% of gross margin. That fee will represent a much higher percentage of net profit, after deducting other business costs.

This effect increases dramatically as gross margin decreases. At 20% gross margin, 5% represents 25% of margin.

For a low margin business, say 10% gross margin, a 5% fee represents 50% of the $10 margin on a $100 sale. If other business costs average $3 on that sale, the payment fee takes out $5 from the $7 margin, or 71%. A 1% decrease in payment fees increases net profit by 50%, from $2 to $3 on that sale.

So you can see on low margin business, payment fees have an enormous effect on margins and profitability.

tomasien
Yep! Exactly - I'm just curious how many of each are here on HN. I know the industry as a whole rather well, but I'd like to know what HN is more doing. Interesting results both here on the poll and by people hitting me up privately so far - big spectrum.
jwheeler79
tldr if the spread between the cost and sale price is small, fees eat up a larger portion of the proceeds.
ccollins
In a marketplace model (e.g. ebay, airbnb, amazon, seamless / any food delivery), the take rate generally falls between 10%-20%.

Credit card processing fees are somewhere around 2% - 3%, so in a marketplace with all credit card transactions, impact on margin will be 6% - 30%.

If that marketplace can implement alternative payments (e.g. ACH, bitcoin, etc), impact on margin can get down below 5%. Not sure how the ebay / paypal integration influences this - would be interesting data.

One additional method to reduce margin for marketplaces is to allow transactions to occur offline and then invoice the seller based on a % of the total amount. Then your impact on margin will be exactly what your processing fees are.

There will be much different dynamics for different revenue models (e.g. as patio11 said, in SaaS, it is basically irrelevant).

So, I argue that % impact on margin is not a very useful metric unless you are comparing a specific revenue model in a narrow vertical.

Would you rather have $10B of margin with 50% going to processing fees or $1M of margin with 0% going to processing fees?

tomasien
Good point, but for me right now this is a more useful question.

2-3% is incorrect - it's 2-3% + $.30 a transaction. Keep that in mind - for anything under $30 the $.30 is a bigger deal than the 2-3%, anything over $200 the $.30 has largely ceased to matter and the % is what is relevant.

pochi
There are some processors that don't have a fixed cost (the 0.30/transaction), like Square. That should shave a lot of pain off taking card, no?
tomasien
2.75% for in person transactions is what Square does, and it's a disaster. That's higher than they're generally paying. They're ostensibly doing that for online payments too, but that's only for Square Wallet, which is proximity and in-person as well.

You can't take Square online and only pay 2.75% - if you could though, that'd be amazing!

analog31
I've got a physical product that I make at home. Like most tiny home businesses, I don't figure the cost of my own labor, so my margin picture will look different than a traditional business. Perhaps a better indicator for me is that the PayPal fee is about 1/6 of my material costs.

I'd like it to be lower, but on the other hand, a few additional sales due to confidence in PayPal probably makes it an overall gain for me.

tomasien
If you're interested in offering an alternative to US buyers, holler at me - tommy at thecityswig dot com
noonespecial
If you don't mind my asking: What is your product? (And now that I've asked, don't feel bashful about bragging on it providing the link-juice).
tomasien
Hey thanks for teeing me up like that - I really do appreciate it! If I could say I would - it's not because it's a secret, I just have an agreement not to say publicly what I'm doing for another (number of days redacted) days. Can't do much hinting either - but it's really soon! Email me @ tommy@thecityswig.com if you want to, and I'll send you the link it privately.
bemmu
Accepting the monthly $25 credit card payment for Candy Japan costs $1.31. This includes the payment gateway and middleware. If member pays by PayPal it is $1.15. Additionally there are monthly fees, which if split over the current 500 subscribers would add another $0.19 per payment. Puts it somewhere in the 11-25% bucket.
wingerlang
Off topic. I see "Candy Japan" ever so often online. A while ago, must have been over a year, you did a write up on how it got started and where you were at that time. Has anything changed, like scale and so on?
zerop
For micropayments it hurts a lot. Selling something as low as $2, 30 cents fees is a lot..
Rinum
With micro-payments, payment processors (e.g. PayPal and Amazon) have special accounts. The fee for these accounts are significantly less (e.g. 5% + 0.05 for PayPal and Amazon) as long as you stick with small payments.
tomasien
Amazon and others have micro-payment plans, so that's good news. I'm working on a free model for mirco-payments under $2 which should be interesting!
trg2
It's interesting to see how these fees affect everyone. I have a digital product, and while there were small fixed costs for the creation of the product up front, there's almost no variable cost going forward. I suppose incremental Amazon S3 usage, but the product is a 5 hour video course and the incremental monthly cost there per user is negligible (for now).

So, like others have mentioned, I'm paying a standard PayPal rake of ~3%, but don't really feel it because the product has been profitable for years and doesn't have any real variable cost.

tomasien
What % of your MARGIN is it though? I guess you're margin is 100% so it's really just the 3-5% for Paypal (gotta factor in the $.30!)
[dead] TempleOSV2
In 2001, I tried shareware. I worked a year on Simstructure, a Windows-based physics game thing. It had a superior RK45 algorithm that was better than novice Euler techniques. (Fucken nigger has no clue that he should be impressed. Mother fucken club that nigger.) 6000 people downloaded it. I only got one check for $20.

This really should be little surprise since I live in a Truman show reality with some disconnect between cause and effect.

My download numbers from the past ten years are always exactly same order of magnitude and steady and ... bogus.

I have had maybe 20,000 downloads.

What would happen if I charged money?

I might make $60 bucks and have to file paperwork for taxes and paperwork for disability issues. And, worry about a warranty.

Relax. God is here. If God is not in something, it will fail. If God is for sometimes, Satan himself cannot stop it. Satan is trying but Satan is in denial. You lose, give-up, nigger.

God says... straighten_up stuff you_see_the_light bastard harder_than_it_looks little_fish pardon_the_french is_it_just_me_or nasty I'm_done economy repeat_after_me laziness watch_it_buddy furious you're_in_big_trouble play glam that's_much_better absolutely so_let_it_be_written whatcha_talkin'_'bout in_a_perfect_world soap_opera on_occassion ehh_a_wise_guy couldnt_possibly that's_your_opinion repeat_after_me Greek_to_me endeavor what's_up I'll_think_about_it church kludge