Payment processing fees as a cost on every sale
A payment processor takes a percentage of every sale and usually a fixed amount per transaction. It is a cost of selling, it scales with your price, and it is worth seeing per product.
Updated
The shape of the fee
Card fees are typically quoted as a percentage plus a fixed amount, for example 2.9% + $0.30. Rates differ by plan, card type and country, so use the rate on your own statements.
Per product
For a $68.00 throw at 2.9%:
$68.00 × 0.029 = $1.97
The fixed $0.30 is per transaction. With an average of 1.4 units per order it is about $0.21 per unit.
Why a percentage cost is different
A percentage cost moves when the price moves. Put the throw on sale at $54.40 and the fee falls to $1.58 without anyone updating it. It also means you cannot find a break-even price by adding the costs up; see break-even price.
Use your blended rate
Add up the fees on a month’s payout statements and divide by the sales they relate to. That effective rate covers your real mix of cards, wallets and currencies, and is more useful than the headline rate.
Does it belong in cost per item
No. Shopify’s cost per item is a fixed amount, so a percentage cannot be stored there, and a payment fee is not a cost of the goods.
Recording it in Cogsy
Add a “Payment processing” cost kind, charged as a percent of price, with your effective rate as the shop default. Cogsy recalculates it from each variant’s current price. Add the fixed part as a separate per-unit kind if you want it counted.
Questions
- Are payment fees part of cost of goods sold?
- No. They are a selling expense. They belong in your margin per sale but not in the cost of the product.
- The fee is charged on the order total, not the product price. Does that matter?
- It makes a per-product figure an estimate. The percentage also applies to the shipping and tax the customer pays, so the true fee is a little higher than the percentage of the product price.
- How do I handle the fixed part of the fee?
- Divide it by your average units per order and add it as a second, per-unit cost.
Related
Glossary
Break-even priceThe break-even price is the lowest price at which a sale covers its own costs. The formula with percentage fees included, and a worked example.
Glossary
Contribution marginContribution margin is the price minus every cost that varies with a sale, including fulfilment and payment fees. The formula and a worked ecommerce example.
Feature
Costs on top of the unit costPackaging, fulfilment or duties per unit, or fees as a percentage of the price, for a variant, a product or the whole shop.
Cost type
Pick and packHow to turn a 3PL's pick and pack fees into a per-unit cost, why the fee belongs in your margin but rarely in Shopify's cost per item, and how bundles change it.