This is the blog of Adam Kalsey. Unusual depth and complexity. Rich, full body with a hint of nutty earthiness.
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4 May 2003
The E-Commerce Times "Hidden Costs of Building an E-Commerce Site" starts out as a good article on costs that catch many new business ownsers by surprise. Merchant account fees, secure certificates, and marketing are things that many first-time entreprenuers fail to include in their operating budgets. Unfortunately, the article glosses over each of these areas and then loses focus entirely, begining to discuss costs and concerns that are inherant in a larger, established business making its first foray into ecommerce.
If you are a small business thinking about adding ecommerce, here are some things to consider.
For the article Lynn Ward interviewed a merchant account provider about the costs involved in accepting credit cards online. What the article fails to mention is that merchant accounts, payment gateways, and banks vary widely in the amounts and types of fees they charge. It is important for a business to evaluate its needs and choose a merchant account accordingly.
If you sell mainly big-ticket items, you will want to shop for a lower transaction percentage but might be willing to accept a higher fixed transaction fee. Sellers who expect lower average order amounts should look for very low fixed transaction costs. If you sell content or services like hosting, you might have a high rate of customers who dispute their charges. In that case, you should consider paying higher per-transaction fees in exchange for lower chargeback penalties.
Like everything else in business, what’s best for someone else might not fit the unique needs of your business.
Although the article barely mentions it, Verisign is not the only company from which you can get SSL certificates. There are many companies that provide this service, and Verisign is the most expensive. Thawte has been offering certificates for many years and has services starting at $199 per year.. Comodo’s InstantSSL product works in every major browser released in the last 5 years and can be bought for as little as $49 per year. I’ve used Comodo certificates on several small business sites and they have worked very well.
The suggestion that businesses with no experience in Internet marketing hire a professional firm is a good one. But the article goes on to quote rates of $5000-$1 Million per month that will be out of the reach of most small business owners, especially ones that are just starting out. It is possible to market a site effectively for much less than this. I’ve worked with clients who have a monthly marketing budget of much less than $1000 and was able to acheive quality results. How much you need to spend depends upon the business you are in. Some businesses are able to succeed with little or no marketing at all, while others need to devote a good percentage of their revenue towards marketing in order to be successful.
If you are going to run a business online, you’ll need to let people place orders online. Simply listing your products and pricing and asking people to call or email in their orders isn’t going to be very effective. A customer that is shopping online will want usually want to buy online as well, so you’ll need software on your Web site that is capable of taking those orders.
Your options are going to range from simple $5 per month rented carts to the e-commerce software your ISP offers, to more robust software with many options for shipping, customer management, payments, and promotions. Generally, you’ll be happier with the features provided by shopping cart software that you choose than with a simple rented or hosted cart, and it really doesn’t cost that much more. Basic ecommerce software can be bought for only a few hundred dollars, and there are also quality open source ecommerce products that are freely available.
With the many choices available, it makes sense to get help choosing your software and planning your ecommerce project. An expert can examine your needs and help you with selecting software, deciding on shipping and payment options, and educate you on customer service issues that are unique to the web. An expert will also help you design and build your ecommerce site, customize and configure your ecommerce software, and guide you through the process of launching a successful site.
An ecommerce consultant can cost anywhere from a few thousand dollars to tens of thousands of dollars, depending upon your needs, their expertise, and the size of your project. As you might expect, a simple site with few products, little need for advanced features, and no integration with other technologies will cost signigificantly less than a larger project that needs to tie into existing warehouse, inventory and point of sales systems.
The best way to get pricing for this aspect of your project is to write down your needs, the features you would like the site to have, and a short summary of your business and vision. This breif can be sent to companies and consultants who will often be able to provide you with a ballpark estimate of the overall cost in implementing your site.
Excerpt: Kalsey schreibt über die Kosten von E-Commerce für kleine Unternehmen.
The main thing to remember is that it is possible to start an e-commerce site with very little money upfront if you build it on a platform such as Yahoo! Store (http://store.yahoo.com). For $50/month you let somebody else worry about secure certificates, hosting, cart software, etc.
That's true, but you also give up quite a bit of control over your site. Services such as Yahoo Store provide a great way to take your first steps into ecommerce but can be limiting when you wish to expand the store's features. Hosted services also typically charge by the number of products available. This can be prohibitively expensive for stores that have thousands of products.
I've designed websites for years but all small scale. Now I want to learn about e-commerce. Your article is wonderful, but it fails to mention anything about the credit card process. I've found it difficult to find information about who/what/how. I've got a shopping cart, but (I think) that doesn't mean I can accept credit cards. Got any websites that'll explain it?
That's what the merchant account is for. Processing credit cards online typically involves three parties, a payment gateway, a merchant account, and your bank. The payment gateway acts performs the role of a retail store's credit card machine. The gateway checks the validity of the card and processes the transaction. The merchant account is a special bank account that accepts the funds from your customer's credit cards and then deposits them into your bank account. You may also hear the term "acquiring bank." This is the actual bank where your merchant account resides. The acquiring bank might be the same company as your merchant account or it might be a different bank that you rmerchant account provider uses. You typically don't need to worry about the acquiring bank, since your merchant account provider will set all that up for you. The merchant account provider will deposit the money received from credit card payments into your business's bank account on a preset schedule, usuallly once a day. Now here's the tricky part. Each payment gateway has a different interface, so in order for your shopping cart to work with a payment gateway, the cart's developer had to write a connection to it. Since each connection is different, carts usually support a limited number of payment gateways. Most support more than one gateway, but that still means your choice of payment gateways will be limited by the shopping cart you are using. Each merchant account provider also supports a limited number of payment gateways. So you need to choose a merchant account that works with a gateway that your shopping cart also works with. Most carts aimed at small businesses support both Authorize.Net and Verisign's payment gateways. Most merchant accounts that cater to online businesses also support Authorize.net and Verisign, so that makes those two gateways attractive options for small businesses. The best way to get started with accepting credit cards is to talk to your bank, a merchant service provider, or a consultant experienced in creating ecommerce sites.
what do you think of a internet marketing company storesonline. Have you heard of them? Are they legitimate? Are they over charging for the imformation they are giving out>
I haven't heard of them, but looking at their site, they would seem to be offering services that compete with mine, so I don't think it would be appropriate for me to comment.
I had a Yahoo store for three years and found it frustrating because in order to get listed in the most prominent store directories I was told I needed to come up with at least another $300, and similar upcharges for submission to search engines, etc. Sometimes people could not even find my store when going the the Yahoo Stores site. It was very easy to do my own web design with their templates, but a lot more expensive to do effective business with them than their sign-up offers indicate.
Does anyone know where to find statistics that compare top appearing sites before they added e-commerce and after adding it. I would like to evaluate how e-commerce will affect my current successful business. I have a weebsite that shows first on Google and others, but my customers cannot actually buy on-line, they must call or e-mail.
Excerpt: Accepting credit cards from a website can be easy. To begin, you need to know your credit card processing options. Credit card merchant accounts, credit card processing gateways, and person-to-person credit card payment systems will be considered. Belo...
I just finished a site with Miva Merchant www.nattyproducts.com ... Miva had pros and cons... What shopping cart software would you suggest for my next projects?
3 Points of Choosing A Provider Point 1: Do you need a merchant account? If you are a new business, with limited funds and you anticipate processing less than $1000 a month in credit card payments, we do not recommend a formal merchant account. The associated monthly minimums and bank statements of accepting credit cards may not be cost effective. You might want to consider a 3rd party processor such as PayPal, 2checkout and others as they have a Pay As You Sell model. There are risks involved with 3rd party processor such as lack of charge back protection and legitimacy. However, shoe-string business’s may find the saving out weigh the risks and lack of legitimacy. Point 2: If you are an established business, or a new business anticipating more than $1000 in credit card payments a month, then begin by comparison shopping online. Do not settle for what your local bank offers. All major processing banks use independent sales offices and agents called ISO’s and ISA’s, who often have web sites offering their merchant services. You can find an extensive non biased list of retail and e-commerce providers at Merchant Service Directory. Many of the listed ISO’s will have agents in your area and will be available to meet you in person. By comparison shopping online you may discover your bank is charging much higher fees than you need to pay. This is a very common occurrence with local banks and can be avoided with a few minutes spent on line. When comparison shopping, look at the discount rate, per transaction fees, bank statements, monthly minimums, length of contract, and cancellation fees. A) Discount Rate and Per Transaction Fees. The discount rate and per transaction fees are usually the most important items to consider. The discount rate is the percentage of each sale the processing bank will keep. The standard rate for a “swiped” merchant account is around 1.59%. This means for every $100 you accept in credit card payments, the processing bank will keep $1.59. A “non swiped” rate is usually around 2.29%. Both require a per transaction fee of some sort. Per transaction fees are an additional fee per transaction ranging between $.10 and $.99. A common pitfall of merchants is thinking lower discount rates and higher transaction fees are more cost effect. This may be, but you have to do the math to be sure. If you average small sales less than $20 a ticket, you will be better served by negotiating a contract with a higher discount rate and lower per transaction fee. Here are 3 examples to consider. 1.49%, $.30 a transaction x 100 transactions of $20 each = $59.80 1.59%, $.20 a transaction X 100 transactions of $20 each = $51.80 1.69%, $.10 a transaction X 100 transactions of $20 each= $43.80 You see, the 3rd rate is better for high volume low ticket price merchants. The opposite is true for low volume, high ticket merchants. 1.49%, $.30 a transaction x 10 transactions of $200 each = $32.80 1.59%, $.20 a transaction x 10 transactions of $200 each = $33.80 1.69%, $.10 a transaction x 10 transactions of $200 each = $34.80 As you comparison shop please use our Merchant Account Rate Calculator to help you. B) Bank Statements. The bank statement is a paper print out of your monthly activity. This should be between $10-$15. C) Monthly Minimums To assure a sufficient amount of revenue to cover the costs of providing good customer service, most ISO’s reguire a monthly minimum of transactions totals. This is usually around $25. This means you must process at least $25 worth of associated fees. Generally speaking, if you process over $1k in transactions you will meet the monthly minimum and this becomes a non-issue. However, there are some ISO’s who will waive this fee. This may seem like a bargin, but consider this. If an ISO is willing to lower their standard just to get a low level client, then it’s likely they will have numerous low level clients. Low level clients tend to consume more customer service resources. This burdens an ISO with less profitability and fewer customer service representatives to assist you when you need them. Good customer service is as important as fair rates. What you save in the upfront costs of rock bottom rates, you will pay for in the back side when you need good customer service. And, you will need good customer service at some point. D) Length of Contract and Cancellation fees. Most banks require a 3 year contract. The longer the term of the contract, the better the rates should be. If you are going to commit to a long term contract, then use it to your advantage. Demand better rates. In junction with the length of contract most banks have a Cancellation Fee. This fee is usually the sum of the remaining months times the monthly minimum. A monthly minimum of $25 x 12 remaining months = $300. There are some banks that do not have 3 year contracts, though they charge application fees, set up fees, programming fees, over “cap” fees, and a whole handful of other fees that can total more than the cancellation fees. E) Other fees Other fees include mid and non-qualified rates, batch fees, charge back fees, AVS fees, gateway fees, terminal programming fees, customer service fees, annual membership fees and more. To make a thorough comparison, we recommend that you create a spreadsheet with all associated fees. To download a free example, please use this link. Be sure to read the fine print of each contract you review as there are many hidden fees buried there in. Point 3: Now, that we’ve discussed the fees you should consider the last and final point of choosing the right merchant account. ALL, and we do mean ALL, processing banks are subject to rates set by Visa, Mastercard, American Express, Discover, etc. These rates are called the “Interchange Rate”. Essentially interchange is the “buy” price for all banks, ISO’s and ISA’s. Anything over this rate is what the ISO and ISA makes. It is not fair to expect an ISO or ISA to make nothing on the service they provide for you. However, it is not fair for the ISO or ISA to overcharge you either. What this point tells you is EVERYTHING IS NEGOTIABLE. If an ISO or ISA will not negotiate, move on. Another ISO or ISA will. Just make sure whomever you process through is an FDIC insured bank.
hi im studying ICT @ A Level and am currently analysing a case study which requires producing a cost benifit analysis. I have absolutly no clue how much it would cost for a company to build a website allowing customers to purchase goods onlin... please can you make up a believable estimate price for me to use!! Thank you!
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May 4, 2003 7:14 PM
The Cost of Starting a Business
Excerpt: Adam Kalsey wrote a great intro to small business costs in response to an article he read that wasn't up