LETS DO THE MATH!
| Category: Online Payments | Date: 2002-05-13 |
Its funny how sometimes several things seem to happen at once which will call our attention to a place where its needed. Ive received correspondence - and read comments - recently that turned my attention to some of the online payment processing companies.
I decided to take a look at whats going on here and couldnt help but be appalled. Im always appalled when I find unfair advantage being taken of those who are trying their darndest just to run their businesses in a professional manner.
Heres the saddest part of all. Our colleagues from countries outside the USA and Canada are practically forced to use these services. They face special challenges in paying and charging their own fees through North American companies.
Lets take a look at how some of these payment processing companies are operating. I dont want to name names here (Ill save that for the web site) but we might as well go with the details of one of the best known ones. Well just call them "The Service."
First of all, I was informed that The Service "only" charges 7.5% to process online payments. Now, this isnt what it says at their web site - but it IS what people seem to see. The truth is that they charge 7.5% PLUS $1.00 per transaction!
In fact, everyone was excited when they reduced the percentage from 10% to 7.5% - but did anyone notice that they also raised the transaction fee from 50 cents to $1.00? Who do you think is making out on THAT deal? The customer? Not bloody likely!
Lets do the math! Well keep it simple and just work in round numbers of 10.
If your customer is paying you $10 for a service or product, you will pay The Service 75 cents (7.5%) PLUS $1.00. Total $1.75 - or 17.5%!!! And thats UP from the price "reduction." Before, it would have only cost you $1.50 (15%)! Well, PLUS the additional costs Ill mention below.
If your service/product costs $20 - youll pay 12.5%. In fact, your product would have to sell for $1,000 before you would even come CLOSE to only paying 7.5%. My only point here is - pay attention to the full payment when calculating your cost!
Okay - now heres where you start being taken advantage of. 10% of each check that should be paid to you by The Service will be deducted and held for 90 days before its ever paid to you! Their explanation is that its to cover any potential charge backs or returns.
Again - lets do the math! And again, well keep it simple.
Lets say that you had 20 sales of $30 apiece. Total sales - $600. All of your 7.5% ($45) PLUS your $20 in transaction fees have been deducted. Total deduction - $65. You are now owed $535 by The Service. But, WAIT!
First, they are going to deduct another $53.50 to put in the charge-back fund for 90 days. You will actually receive $481.50 - or less the amount of 18 of your actual 20 sales!
You might think thats okay. After all, youll get the money in 90 days. Before you think like that, lets take a look at a couple of more facts.
Remember, they took $53.50 to hold back for refunds and cancellations. Thats 9% of your actual $600 worth of sales. Almost 10% of your 20 sales. Do almost 10% of your customers ask for their money back? Are one out of every ten of your sales returned? I doubt it! This hold-back percentage is unrealistic - and unreasonable!
Of course, this wouldnt be the case if you have one sale for $600. BUT - lets BE realistic. How much ARE your single sales? And, how different are your sales from the majority of online businesses? What is the HUGE majority doing? Lots of small sales or a few big ones? Believe me, The Service knows!
And, why are they taking more than they need? Undoubtedly to cover their butts for those who quit on them - then have charge-backs later. The money must be on hand and they wont hesitate to use yours in the interim. It isnt the practice of lending institutions to use their own money.
PLUS! Whats happening to this (unrealistic) amount of YOUR money that theyre holding for 90 days? Do you think its just lying around in a checking account someplace, waiting to be returned to you? Guess again!
That money is being used to make additional income for The Service! Remember, youre not their only customer. Your $53.50 is multiplied thousands of times by thousands of other customers - every month! More money is being earned on that money! And, not by you!
Which brings us to the next question. Wheres yours? Is The Service going to pay YOU to use YOUR money for 90 days? Are they going to share what they make on that money with you? Are they even going to pay you interest on that money? In your dreams!
Now, lets add insult to injury! You are also going to pay The Service $2.50 for every payment The Service makes to you to pay you YOUR money! "Accounting fee," they call it.
This is in addition to what theyre earning on your percentage payment - your transaction fees - AND the use of your money FREE for 90 days to make themselves MORE money - which they are NOT sharing with you!
Surely, I dont even need to say any more about that outrageous little practice! Not to mention that you can add that $2.50 to your costs which further raises the percentage youre paying!
Of course, you might rationalize that youll make all this back by joining their affiliate program. Thats what they WANT you to think - and this is one of the things that irks me more than any other. Its used as justification for gouging people with ridiculously high costs.
RARELY does anyone ever make it all back! And, why should you have to MAKE your money back to balance out your costs? What kind of nonsense is that? Dont you - first and foremost - have your own business to run?
Now, even after everything Ive already shown you - they are still going to nail you ONE MORE TIME.
Remember that 90 day hold-back period for 10% of each payment they make to you? Well, guess whats going to happen at the end of that 90 days? They are ALSO going to hold back ANOTHER 10% on the money theyve been holding!!!
In the interests of brevity, Ill simply show you portions of an email exchange between The Service and one of our MONDAY MEMO! subscribers. Brace yourself.
About the author:
dr. jl scott is the Director of the International Council of Online Professionals (iCop) - and also the publisher of MONDAY MEMO! - the ezine dedicated to upgrading Professionalism on the Web. For your FREE subscription: Monday-Memo-on@MondayMemo.org
jlscott@i-Cop.org
http://www.i-cop.org/
I decided to take a look at whats going on here and couldnt help but be appalled. Im always appalled when I find unfair advantage being taken of those who are trying their darndest just to run their businesses in a professional manner.
Heres the saddest part of all. Our colleagues from countries outside the USA and Canada are practically forced to use these services. They face special challenges in paying and charging their own fees through North American companies.
Lets take a look at how some of these payment processing companies are operating. I dont want to name names here (Ill save that for the web site) but we might as well go with the details of one of the best known ones. Well just call them "The Service."
First of all, I was informed that The Service "only" charges 7.5% to process online payments. Now, this isnt what it says at their web site - but it IS what people seem to see. The truth is that they charge 7.5% PLUS $1.00 per transaction!
In fact, everyone was excited when they reduced the percentage from 10% to 7.5% - but did anyone notice that they also raised the transaction fee from 50 cents to $1.00? Who do you think is making out on THAT deal? The customer? Not bloody likely!
Lets do the math! Well keep it simple and just work in round numbers of 10.
If your customer is paying you $10 for a service or product, you will pay The Service 75 cents (7.5%) PLUS $1.00. Total $1.75 - or 17.5%!!! And thats UP from the price "reduction." Before, it would have only cost you $1.50 (15%)! Well, PLUS the additional costs Ill mention below.
If your service/product costs $20 - youll pay 12.5%. In fact, your product would have to sell for $1,000 before you would even come CLOSE to only paying 7.5%. My only point here is - pay attention to the full payment when calculating your cost!
Okay - now heres where you start being taken advantage of. 10% of each check that should be paid to you by The Service will be deducted and held for 90 days before its ever paid to you! Their explanation is that its to cover any potential charge backs or returns.
Again - lets do the math! And again, well keep it simple.
Lets say that you had 20 sales of $30 apiece. Total sales - $600. All of your 7.5% ($45) PLUS your $20 in transaction fees have been deducted. Total deduction - $65. You are now owed $535 by The Service. But, WAIT!
First, they are going to deduct another $53.50 to put in the charge-back fund for 90 days. You will actually receive $481.50 - or less the amount of 18 of your actual 20 sales!
You might think thats okay. After all, youll get the money in 90 days. Before you think like that, lets take a look at a couple of more facts.
Remember, they took $53.50 to hold back for refunds and cancellations. Thats 9% of your actual $600 worth of sales. Almost 10% of your 20 sales. Do almost 10% of your customers ask for their money back? Are one out of every ten of your sales returned? I doubt it! This hold-back percentage is unrealistic - and unreasonable!
Of course, this wouldnt be the case if you have one sale for $600. BUT - lets BE realistic. How much ARE your single sales? And, how different are your sales from the majority of online businesses? What is the HUGE majority doing? Lots of small sales or a few big ones? Believe me, The Service knows!
And, why are they taking more than they need? Undoubtedly to cover their butts for those who quit on them - then have charge-backs later. The money must be on hand and they wont hesitate to use yours in the interim. It isnt the practice of lending institutions to use their own money.
PLUS! Whats happening to this (unrealistic) amount of YOUR money that theyre holding for 90 days? Do you think its just lying around in a checking account someplace, waiting to be returned to you? Guess again!
That money is being used to make additional income for The Service! Remember, youre not their only customer. Your $53.50 is multiplied thousands of times by thousands of other customers - every month! More money is being earned on that money! And, not by you!
Which brings us to the next question. Wheres yours? Is The Service going to pay YOU to use YOUR money for 90 days? Are they going to share what they make on that money with you? Are they even going to pay you interest on that money? In your dreams!
Now, lets add insult to injury! You are also going to pay The Service $2.50 for every payment The Service makes to you to pay you YOUR money! "Accounting fee," they call it.
This is in addition to what theyre earning on your percentage payment - your transaction fees - AND the use of your money FREE for 90 days to make themselves MORE money - which they are NOT sharing with you!
Surely, I dont even need to say any more about that outrageous little practice! Not to mention that you can add that $2.50 to your costs which further raises the percentage youre paying!
Of course, you might rationalize that youll make all this back by joining their affiliate program. Thats what they WANT you to think - and this is one of the things that irks me more than any other. Its used as justification for gouging people with ridiculously high costs.
RARELY does anyone ever make it all back! And, why should you have to MAKE your money back to balance out your costs? What kind of nonsense is that? Dont you - first and foremost - have your own business to run?
Now, even after everything Ive already shown you - they are still going to nail you ONE MORE TIME.
Remember that 90 day hold-back period for 10% of each payment they make to you? Well, guess whats going to happen at the end of that 90 days? They are ALSO going to hold back ANOTHER 10% on the money theyve been holding!!!
In the interests of brevity, Ill simply show you portions of an email exchange between The Service and one of our MONDAY MEMO! subscribers. Brace yourself.
About the author:
dr. jl scott is the Director of the International Council of Online Professionals (iCop) - and also the publisher of MONDAY MEMO! - the ezine dedicated to upgrading Professionalism on the Web. For your FREE subscription: Monday-Memo-on@MondayMemo.org
jlscott@i-Cop.org
http://www.i-cop.org/
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