There are many factors that go into determining a rate quote for any given freelance writing project. We have to look at the overall scope of the writing project, for example, as well as the amount of research or background work that is needed. If I need to purchase a specific product or subscribe to a specific service especially for the project, then that cost needs to be passed on to the client just as an auto mechanic would charge a customer for required parts.
But what about the costs associated with the actual transaction itself? In the case of online payments, this naturally lends itself to a discussion of PayPal fees. A friend and colleague of mine recently posed the question of whether or not you should be charging clients extra in order to cover the PayPal fees involved in collecting payments.
How Much Does PayPal Charge?
When you have a standard business account with PayPal, the fee structure is typically as follows:
PayPal Fee = (Amount Received x 2.9%) + $0.30
The fee for receiving $1,000 via PayPal from a client, for instance, works out to $29.30. This is a significant amount!
Put another way:
Net Received = (Amount Received x 97.1%) – $0.30
Net Received = (1,000 x 0.971) – 0.30
What this means is that when a writing client remits a payment of $1,000 to me through PayPal, I only get to see $970.70. Extend this over multiple clients with multiple invoices and you really start to see how much money is really going through a payment processor like PayPal, cutting straight into the margin of an online business.
On the Issue of Covering Costs
If you wanted to net $1,000 from the transaction, then you’d have to invoice the client for $1,030.17. Just do a little bit of reverse math (exercise your high school algebra knowledge!) to arrive at that figure. Some people may say that is a legitimate thing to do and they’ll put a line in the invoice specifically for covering that fee, telling the client that the fee could be waived if payment was received in another manner that did not involve a transaction fee, like a paper cheque.
But I disagree with this practice.
I view my independent company as a business like any other and this means that there are certain costs involved in running said business. There are a number of home office expenses to keep in mind, like maintaining the basic infrastructure of the business. This is no different than Best Buy paying to keep the lights on in its physical stores or a plumber needing to maintain his hand tools. Transaction costs are just a part of doing business.
A Patty by Any Other Payment
When you go to a restaurant for a meal, you’re told that your burger costs $10. You’re not told how much of that $10 goes towards staff, raw ingredients, utilities, insurance… or how much of it goes towards paying the bank when you decide to pay with your Visa or MasterCard. The restaurant rolls those costs together to arrive at the $10 menu price, effectively averaging out some of those costs across all customers.
If that $10 credit card transaction costs the restaurant 50 cents in bank fees, but the next customer pays cash for another $10 purchase, then the average transaction cost is 25 cents. Continue this along all customers and you arrive at an overall average, an average that is factored into that $10 price. You don’t charge $10.50 to the Visa-paying burger eater and $10.00 to the cash customer, at least not typically.
Too Much Information?
For what it’s worth, when I’m coming from the perspective of a customer, seeing an actual line item for transaction costs puts a bad taste in my mouth. It gives me the impression that the company is nickel-and-diming me on this transaction. I expect to see some level of itemized breakdown, but I don’t need to see how much of my payment is going to a third party like PayPal. It’s just not necessary. As a freelancer wanting to avoid some of these fees, I may request alternative payment, but I don’t charge any differently.
What are your thoughts on the question of PayPal fees, both from the perspective of the client and the service provider? Do you want to see a line item explaining transaction costs? Would you like to see a discount or added fee based on method of payment?
While I don’t have the experience invoicing anyone for something, I’ve had my share of invoices to pay and can assure you I get a little ornery when I start to see the various fees I pay on top of what I believed I was paying for a service or product. In fact, I’ve found that most other people do as well.
This is where I agree with you that the “cost of doing business” is just that, though I can appreciate that someone might suggest that having the option to pay for something extra (i.e. luggage on an airline) or saving a little on the side (i.e. 5% discount if paying with cash) is not different. I just feel that by alienating a client or customer by through a “nickel and dime” mechanism unnecessarily scares off business.
Even though charging a levy or offering a discount are effectively the same thing, the latter is a little more transparent and “feels” better.
It’s the difference between “I thought it was $100. Why am I paying $120 now?” and “I thought it was $120. Now I’m only paying $100? Good deal!”
I belong to a Facebook group where people buy and sell relatively expensive briefcases. Some sellers list their price and then add a line saying, “buyer to also pay PayPal fees”. Personally, I will not do business with these people. To me, that is the seller’s cost and I am not willing to pay that cost.
And I bet there are more like you (and me) out there. How many sales get passed up by looking to individually recover the fees? Guaranteed that’s not something that was considered when adding that fine print.
One other little detail that I feel is worth noting, is that the larger the total transaction is, the smaller the impact of the fee.
If you’re making a mere $5 transaction, the seller is only seeing a little over 91% of the money. With your $1000 transaction, the seller gets only a tad under 97.1% of it.
Those fees are gonna hurt you a lot more if you make a lot of small transactions, rather than a few large ones. (For example, if you were selling small trinkets you made on a site like Etsy — not that I actually know how the selling works there, I’ve neither sold nor bought through them before.)