Credit card fees could easily become one of the highest expenses an online business has if not kept under control.

The best way to keep credit card fees under control is by predicting cost. Cost prediction means using your knowledge of the relationship between credit card fees and sales to forecast the level of cost at increased sales levels. For instance, you have a massive marketing campaign as a result you are expecting increased sales. As part of the budgeting process, you should predict what credit card fees will be based on increased sales.

Predicting credit card fees

Cost prediction is different from cost estimation. With cost estimation you determine cost based on past data, but with cost prediction you estimate cost based on future data. Cost prediction should be used when planning for future growth. However, if you expect business as usual estimating cost is acceptable.

Credit card fees are based on so many variables. Starting out most people use credit card processing companies like PayPal as it is very convenient to setup. The advantages of services like PayPal is there are no startup costs, no termination fees and no monthly fees. However, you get charged 2.9% + .30cents per transaction. Doing a quick math, this can add up pretty quickly as your sales grows.

The other option available to growing business is using a merchant service either provided by your bank or similar institutions. These institutions provide lower fees per transaction (as low as 1% per transaction). The catch to this is you have to sign a contract and pay monthly fees. This means if your sales do not perform as expected you still have to pay the same base amount every month. So you have to weigh the effect of saving money versus being hit with a fee no matter your sales level. If you know your sales is going to exceed a certain baseline consistently, a contract will be better for your business.

Predicting sales and its effect on credit card fees allows you the opportunity to shop around for cost savings options.

Summary

I cannot emphasize enough how important it is for a business to develop a budget no matter how small. Budgeting is a great way to control costs while finding revenue opportunities. Budgeting forces you to think of issues like how credit card fees affects your bottom line. This is only one line item in a budget: Imagine how much better your business will be if you strategically planned for each line item in your financial statement.