Strategies to offset credit card and payment provider fees for your ecommerce store

Running an ecommerce store offers tremendous opportunities for entrepreneurs, but it also comes with its fair share of challenges. One such challenge is dealing with credit card and payment provider fees, which can eat into your profit margins. However, there are proactive steps you can take to offset these fees effectively. In this article, we will explore some smart strategies that can help you navigate the world of fees, maintain healthy profits, and provide transparency to your customers.

Include fees in product prices

One approach to offset credit card and payment provider fees is to incorporate them into your product prices. By slightly increasing the prices, you can cover the fees without explicitly charging your customers.

Pros

• Simplicity: This approach can help maintain simplicity and avoid confusion during the checkout process. Customers are used to seeing prices that include all fees, so this can be a more straightforward way to do things.
• Competitiveness: By increasing prices slightly to cover fees, you can still keep your prices competitive with other businesses that are charging fees separately. This can help you avoid losing customers to businesses that are more transparent about their fees.
• Transparency: Some customers may prefer to see all fees included in the price, so this approach can help you be more transparent with your customers.

Cons

• Customer perception: Some customers may not like the idea of paying higher prices, even if they know that the extra money is going to cover fees. This can lead to customer dissatisfaction and lost sales.
• Competition: Including fees in your prices could result in customers shopping from competitors who have lower prices.
• Increased costs: If you increase your prices to cover fees, you may need to increase your prices more than the actual cost of the fees. This is because you will also need to cover the cost of processing the higher prices.

Display an explicit fee line

Another option is to add an explicit fee line to the order, clearly stating the fee the shopper is paying on behalf of the merchant. Consider A/B testing with the previous solution or surveying your customers to gauge their preferences.

Pros

• Transparency: This approach provides transparency, as customers can see the breakdown of costs associated with their purchase.
• Customer satisfaction: Some customers may appreciate the transparency and feel like they are getting a fair deal.

Cons

• Customer perception: Some customers may not like the idea of paying an additional fee, even if they know that the fee is for a legitimate purpose. This can lead to customer dissatisfaction and lost sales.
• Competition: Displaying an explicit fee line could result in your customers going to a competitor who does not have explicit extra fees.
• Increased costs: If you display an explicit fee line, you may need to increase your prices slightly to cover the cost of processing the fee.

Consider offline payment methods

While online payments are convenient, they often come with higher fees. Another option is to offer offline payment methods, such as bank transfers or cash on delivery (COD)

Pros

• Reduced fees: Offline payment methods often have lower fees than online payment methods. This is because there is no need to process the payment through a third party, such as a credit card processor.
• Increased flexibility: Offline payment methods can be more flexible than online payment methods. For example, customers can pay with cash or check, which may not be possible with online payment methods.
• Improved customer satisfaction: Some customers may prefer to pay offline, as they may not trust online payment methods or may not have access to them.

Cons

• Increased operational complexity: Offline payment methods can be more complex to manage than online payment methods. For example, you may need to collect and deposit cash, which can be time-consuming and risky.
• Increased risk of fraud: Offline payment methods are more susceptible to fraud than online payment methods. This is because there is no record of the transaction, which makes it easier for fraudsters to commit fraud.
• Reduced customer reach: Offline payment methods may limit your customer reach. This is because not all customers have access to offline payment methods, such as cash or check.

Encourage preferred payment methods

Certain payment methods, such as direct bank transfers or ACH (Automated Clearing House) payments, incur lower fees compared to credit card transactions. Consider offering incentives, such as discounts or loyalty points, for customers who choose these lower-cost payment methods. By encouraging the use of preferred payment methods, you can minimize your fees while providing benefits to your customers.

Pros

• Reduced fees: Offering incentives for customers to use preferred payment methods can help reduce fees for your business. For example, you could offer a discount or loyalty points for customers who pay with direct bank transfer or ACH.
• Improved customer loyalty: Offering incentives for customers to use preferred payment methods can help improve customer loyalty. This can lead to repeat business and positive word-of-mouth marketing.

Cons

• Increased costs: Offering incentives for customers to use preferred payment methods can increase your costs. For example, you may need to pay for the development and maintenance of a loyalty program.
• Complexity: Offering a variety of payment methods can increase the complexity of your business operations. This can lead to increased errors and customer frustration.
• Security risks: Offering certain payment methods, such as direct bank transfer, can increase the risk of fraud. You should take steps to mitigate these risks, such as using a secure payment processor.

Leverage alternative payment providers

Credit card fees can be substantial, especially for small businesses. One effective way to reduce these fees is to explore alternative payment providers that offer lower transaction costs. Platforms like PayPal, Stripe, or Square may provide more favorable rates or discounted fees for certain types of transactions. Research and compare different payment providers to find the best fit for your business.

Pros

• Reduced fees: Alternative payment providers (APPs) often charge lower transaction fees than traditional credit card processors. This can save businesses money, especially if they have a high volume of credit card transactions.
• More flexibility: APPs often offer more flexibility than traditional credit card processors. For example, they may allow businesses to accept payments from customers in more countries or using more payment methods.
• Improved customer experience: APPs can improve the customer experience by making it easier and more convenient for customers to pay. For example, they may offer mobile payments or in-store payments.

Cons

• Security risks: APPs may pose a greater security risk than traditional credit card processors. This is because they may not have the same level of security measures in place.
• Customer confusion: Customers may be confused about which payment provider to use. This is because there are many different APPs available, each with its own set of features and fees.
• Increased complexity: APPs can add complexity to a business's operations. This is because they may require businesses to integrate their systems with the APP's system.

Negotiate with payment providers

Don't hesitate to negotiate with your payment providers to secure more favorable terms. If your business has grown, you may be eligible for volume discounts or reduced transaction fees. Reach out to your provider's account manager or support team to discuss potential cost-saving options. Building a strong relationship with your provider can lead to mutually beneficial agreements.

Pros

• Reduced fees: If you are able to negotiate a lower transaction fee, you can save money on your credit card processing costs.
• Increased flexibility: Some payment providers offer a variety of features and services, such as fraud protection and recurring billing. By negotiating with your provider, you may be able to get the features and services that you need at a lower cost.
• Improved customer service: If you have a good relationship with your payment provider, you may be able to get faster customer service and resolution of any issues that may arise.

Cons

• Time-consuming: Negotiating with your payment provider can be time-consuming and may require a lot of research and preparation.
• Unsuccessful negotiations: If you are unable to reach an agreement with your payment provider, you may be stuck with the current terms and conditions.
• Negative impact on relationship: If the negotiations are unsuccessful or if you are perceived as being difficult to work with, it could damage your relationship with your payment provider.

Optimize inventory and shipping costs

While not directly related to payment fees, optimizing your inventory management and shipping processes can help offset the impact of fees on your overall profit margins. By reducing carrying costs, improving order fulfillment efficiency, and exploring cost-effective shipping options, you can free up resources to counterbalance payment fees.

Pros

• Reduced carrying costs: By optimizing your inventory levels, you can reduce the amount of money you tie up in inventory. This can free up cash that you can use to offset payment fees.
• Improved order fulfillment efficiency: By streamlining your order fulfillment process, you can get orders out the door faster. This can improve customer satisfaction and reduce the risk of chargebacks.
• Cost-effective shipping options: By exploring cost-effective shipping options, you can reduce the amount you spend on shipping. This can help you offset payment fees and improve your bottom line.

Cons

• Initial investment: Optimizing your inventory and shipping processes can require an initial investment of time and money. However, the long-term savings can offset these costs.
• Complexity: Optimizing your inventory and shipping processes can be complex. It is important to have a good understanding of your business and your customers' needs.
• Risk of errors: There is always a risk of errors when making changes to your inventory and shipping processes. It is important to have a plan in place to mitigate these risks.

Conclusion

Managing credit card and payment provider fees is an important aspect of running a successful ecommerce store. By employing a combination of strategies such as incorporating fees into product prices, displaying explicit fee lines, exploring alternative payment providers, and encouraging preferred payment methods, you can effectively offset these fees while maintaining transparency and customer satisfaction. Remember to regularly assess your options and adapt your approach as your business evolves. With the right strategies in place, you can navigate the fee landscape and keep your ecommerce store thriving.