What Are Payment Processing Fees and Why Do They Matter?

Perhaps payment processing fees aren’t the first items on your agenda when setting up an online storefront. However, it’s necessary to understand them prior to launching your store.

If you want to sell anything online (whether it’s a product, a service, or a downloadable item), you need an online payment system in place to collect money from your sales. Before you choose an online payment system, though, factor in the processing fees that each system requires.

Understanding online payments

Online payments may sound complicated in theory, but a good online solution or tool requires that you only input the amount of money that you expect to receive from each sale. The payment system that you have in place will take care of the rest.

In order to sell products or services on your site, all you need to do is set up a “pay now” button.

The leaders in the online payment space are companies like PayPal and Square. These companies provide a high level of protection by ensuring that payments are 100 percent secure when they’re processed online. PayPal and Square are also easy to use — once you sign up for one, integrate it into your site to begin making sales.

Making sales from your WordPress.com site

So, how do you integrate an online payment system into your site? As complicated as the concept sounds, setting up an actual sales mechanism on your website is rather straightforward.

All WordPress.com Premium and Business plans allow you to add a payment button via Simple Payments. Here is the full tutorial and video on how to do this. In essence, it only requires inserting a payment button from the Post or Page Editor you already use whenever you publish content on your site.

Understand payment processing fees before you add a payment button.

Once you complete this process and publish a post or page, your payment button goes live too.

For a more advanced ecommerce setup, a similar mechanism is installed when running your sales via the WooCommerce plugin. WooCommerce comes with both PayPal and the online-payment system Stripe. You can also add other online payment systems for free.

Online payment systems make selling products on your WordPress.com site possible without much effort on your end. However, there is one downside to these solutions: payment processing fees.

How payment processing fees work

Payment systems like PayPal make money through payment processing fees. For every transaction made using a payment system, you pay a fee that’s comprised of two elements: a percentage of the total amount of the product sold, and an additional fixed fee.

According to PayPal’s current documentation, when you sell something within the US, the fee is 2.9 percent of the total cost plus an added $0.30 per sale.

This is just the benchmark amount. It fluctuates based on the country where the sale is made. For sales outside of the US, you can expect fees to range from 3.4 percent, plus $0.30 to 4.9 percent plus $0.30 per sale. Here’s the official documentation detailing the pricing specifics.

Incorporating fees into your prices

If you only operate within the US, then your calculations are fairly straightforward. For example, if the price of your product is $100, then the PayPal fees are as follows:

$100 x 2.9% + $0.30 = $3.20

The amount that you will receive after making this sale will be:

$100 - $3.20 = $96.80

This doesn’t sound like much of a difference at first, but once you begin to sell dozens or even hundreds of products, the fees will add up.

Therefore, think long and hard about how fees will impact your overall profitability when pricing your items. It might be a good idea to increase the base price of your products to accommodate for the fees that you will have to pay back.

Payment processing fees are inevitable, so it’s important to account for them. Fortunately, they also tend to be small — and the convenience of the online payment systems make them worth it. As long as you don’t let payment processing fees take you by surprise, they won’t stop your online business from thriving.

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