Most small businesses accept online payments with PayPal or with other payment processors known in the industry as “Hand-Off” Processors. These options, like 2Checkout, are certainly a valid starting point for doing business online. But like most other things in today’s world, small businesses must have a plan for growth.
So, when does it make sense for a small business to start accepting credit cards?
Over the next three weeks, we’re going to answer the basics of accepting credit card payments, including: when to consider accepting credit cards; the components of accepting credit cards; and how to choose the right credit card processing vendor.
So, to kick off this series, let’s discuss what PayPal and other “Hand-Off” payment processors offer and why they are ideal to get started. After all, we have to know where we are coming from to get to where we are going…
A Hand-Off Payment Processor is a service such as PayPal or 2Checkout. These services require a small business owner to “hand-off” his or her buyers to their service in order to process a payment—kind of like a third-party transaction. When this happens, the buyer is physically transferred to the provider web site (PayPal, 2Checkout, etc…) where payment information is required to complete the order.
Based on the needs of the business, using a Hand-Off Payment Processor can be very beneficial; such benefits include: a uniform cost of doing business, ease of use, and keeping things simple. Notice, we mentioned these as benefits for the business… not the buyer.
So, how does a small business owner know when his or her business is ready to accept credit cards on their own? Well, when he or she starts asking these questions, it might be time:
- How much am I really paying and could I be paying less?
- Who are my potential buyers?
- Will accepting credit cards increase my sales?
Okay, so asking the questions is only the first part to this process. As we all know, every question needs an answer if we hope to shed any light on certain situations. So here goes…
How much am I really paying and could I be paying less?
Let’s say Sally the Small Business Owner pays 2.9% for the money she accepts and a $.30 fee for each credit card transaction. For a $100 order, Sally’s cost would be $3.20.
Now, if Sally the Small Business Owner is only selling $100 per month, accepting credit cards may not be the best route… it can get very expensive for her.
However, if Sally the Small Business Owner sells $1000 over ten separate transactions, the picture changes drastically and her cost then becomes only $32.
At this point, Sally the Small Business Owner should consider accepting credit cards because the cost of doing business and accepting this form of payment on her own is almost equal to what it would cost to pay a “hand-off” processor.
So, when it comes to how much she’s really paying, she’ll need to look at the dollar volume of revenue and the number of transactions that it takes to get there.
Bottom line: If the costs Sally pays for services to Hand-Off Payment Processors is greater than the cost she would pay for accepting credit cards on her own, she knows it’s time to consider accepting credit cards.
Whew! Next question…
Who are my potential buyers?
Knowing potential buyers (store’s target audience) is a big part of deciding whether or not to accept credit cards. As a general rule of thumb, buyers that are more tech savvy are usually okay with using “hand-off” services when compared to non-tech-savvy buyers. By knowing the buyers and what level of convenience they need, a small business owner will know if accepting credit cards is best for his or her business.
Moving on…
Will accepting credit cards increase my sales?
Anyone who has ever purchased anything from a website that requires payment via PayPal or another Hand-Off Payment Processors understands how it works, the complexity of the transaction, and how much simpler it would be to just pay directly with a credit card. If a small business owner wants his or her customers to have a better experience, it’s time to consider accepting credit cards.
Well, there it is…
In conclusion, today’s post has taught us that using PayPal and other Hand-Off Payment Processors is a great starting point, but a small business owner must know his or her costs associated with the payments (whether via credit cards or “hand off” transactions)… they must also know their potential buyers… AND know what makes doing business easy for those potential buyers.
Next week, we’ll talk about the components of a merchant account. Until then…