May 17, 2012

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Selecting a Merchant Account

Selecting a Merchant Account

Shopping for a merchant account is a confusing and difficult process. And, unfortunately, many merchants do themselves not a big favor by going shopping without first understanding what they are really shopping for.

It’s simply not enough to research the rates of banks and independent sales organizations/merchant account providers to find out which are lowest. You must also know the different types of accounts available to determine which one is really right for you. So, why not just shop for the lowest rates?

Because the accounts that offer the cheapest rates won’t necessarily be right for your business. Retail/card swiped accounts often have the lowest rates but carry requirements that, if not met by the merchant, will result in additional fees, surcharges, and even penalties. For example, if you’re signed up for this type of account but are not able to swipe a card electronically, some processors charge you as much as 1 percent to 2 percent more. Especially being a web host means doing business on the Internet. You might not even need to look at the rates for physical transactions. It is much more important to find out the rates for virtual transactions.

Back to not being able to swipe a card electronically. In the business world, these are known as nonqualified or disqualified transactions. This means that the transaction won’t meet all the requirements and therefore it doesn’t qualify for the best rates. The real-world effect can be a monthly bill that’s much larger than what you expected, leaving you wondering what happened to that great deal you thought you were getting when signing up with this provider. Always make sure you’re using an account that’s right for your business.

Crucial Distinctions
What account types do exist? This would be easy to answer if every merchant account provider would use the same terms, fees, and structured pricing in the same way as everyone else. Unfortunately, life is never so easy. Nevertheless, please allow us to say that, in general, credit card merchant accounts are classified as one of the following account types:

Retail/card swiped accounts are designed with the typical brick-and-mortar merchant business in mind, one who can swipe the card through an electronic terminal reader as proof that the card was present.

Retail/keyed entry accounts are designed for situations in which the card is present but the merchant is unable to electronically swipe the card. The magnetic stripe might be damaged as an example. Important: The card numbers are keyed into the physical terminal.

Rates for these accounts are generally a little higher than those for card swiped accounts, but can be lower than Internet rates. Important: Retail/keyed entry merchant accounts require that the merchant can (not must) obtain a manual imprint of the card in addition to the customer’s signature. Examples of merchants that fit this account type include mobile merchants, such as locksmiths and arts and crafts dealers. Why are the rates higher? Due to the higher risk somebody using a stolen credit card number and customer name to charge an account.

Mail order/telephone order/Internet accounts are for those merchants who don’t usually see their customers and therefore cannot obtain a physical swipe read on a terminal or an imprint of the card. Not surprisingly, these transactions carry more risk and are therefore more expensive than normal rates. You will need a virtual terminal to be able to make keyed transactions. Authorize.net would be such a provider for a virtual terminal.

What kind of Credit Card Merchant Account Is Right for you?

Use a retail/card swiped account with a physical terminal if you see your customer and are able to electronically swipe 90 percent or more of your transactions. This is a good option for somebody doing local business from a physical store mainly selling non-recurring services.

Use a retail/keyed entry account if you always see your customer and can obtain a manual imprint of the card but not swipe it, or if you routinely swipe fewer than 90 percent of your sales. This sort of credit card merchant account is also a good option for a business mainly targeting the local market.

Use an Internet account anytime you don’t see your customer face to face AND have a lot of recurring payments to take care of.

When doing the research – ask the merchant account provider to provide you with a sample invoice representing a typical month. Let them explain every single fee.

When is time for you to get a real merchant account? In many cases it makes sense to have your own merchant account when your monthly sales volume that is charged to credit cards reaches $1,000 or more. Close to that point the fixed fees for the merchant account equal the higher transaction fees or 3rd party providers like Paysystems or 2Checkout.

How does credit card processing actually works in the web hosting industry?

Accepting credit card payments through your web site actually requires multiple components. There are usually 3 things involved when a customer makes an online payment.

Your Order Form – The customer decides to use your services and accesses your order form on your website. You must have code/software in place that will collect the client information and billing information. The information must be stored in a way that it can be accepted by the payment gateway.

The Payment Gateway – This is the part that will transmit your customer’s order information to an Internet merchant account provider (e.g. Authorize.net). The payment gateway does the actual credit card processing in the moment the transaction happens.

The (Internet) Merchant Account – A credit card merchant account is an account with a financial institution (merchant account provider) or bank, which enables you to accept credit card payments from your clients. The payment gateway will transmit the billing information received when the actual transaction took place to the merchant account provider.

How much does a credit card merchant account cost?

Understanding the total costs of your merchant provider can be tricky. Typically, an internet merchant account will have several types of costs associated with it:

Application Fees
Most merchant accounts will require an up-front application fee. This fee, supposedly, is to cover the initial cost for processing your application. In case you decide not to open a merchant account or if your credit standing is really bad, they still cover their initial costs. Although good providers waive these fees in case they deny your application and I recommend that you choose a provider that does not require an up front fee (if you find one). Local banks might be a better option in those cases. They want to keep their customers and you could be moving an account to another bank and they lose the thing, makes them often do a little more.

On Going Fixed Fee
Almost every merchant account providers require you to agree to a monthly fixed fee or “statement fee” as it is often named. This is simply another way to cover their fixed costs and to make money. It’ll be almost impossible to find a provider that does not require this type of fee on a monthly basis. However, do not choose a merchant account that requires you to pay more than $10.00 per month. In addition to that, most merchant providers require a monthly minimum fee (usually $20.00 or $25.00). This will bring your fixed fees to around $30.00/$35.00 as a minimum.

Discount Rate
In most cases the discount rate will be between 2% and 4% – depending on the card provider (Visa, AMEX, MasterCard/Diners Club/Discover). The discount rate is the sales commission the provider earns on each sale (but partially has to pass it on to their upstream provider – usually the credit card company). For example, if the discount rate offered is 3%, and you receive a sale over your web site for $10, you will owe $0.30 to your credit card merchant provider.

Fixed Transaction Fee
Every credit card transaction will be associated with a fixed transaction fee. Usually the amount of the fixed transaction fee is between $0.20 and $0.30. Unlike the discount rate, the fixed transaction fee is the same for every transaction. Whether you get a $0.50 sale or a $100 sale – no matter if you have 10 transactions a month or 10,000 transactions, the fixed transaction fee will always be the same.

Termination Fees
Often hidden in the fine print of a contract, a termination fee can apply if you cancel your merchant account within a specified period of time (usually within one year). But beware; some credit card merchant account providers require a two-year commitment! Make sure you get this information upfront so that you can decide if you really want to sign a 2 year agreement.

Miscellaneous Fees
There can be additional fees. Make sure you clearly ask for all fees involved and get this in writing from the provider. An example for a miscellaneous fee would be the charge back fee. If a client disputes a charge on a credit card you might get charged back. Not that you will lose the sale – you will also have to pay a penalty (charge back fee). Be aware – many chargeback’s on your account will lead to termination of your account by the provider.

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Buying or Selling a Web Hosting Business

Buying or Selling a Web Hosting
Business

You might come to the point where you would like
grow by acquiring another web hosting business or maybe you want to sell your
own business and retire from the industry. It is easy to find a buyer and it is
also not difficult to find sellers who want to get out. But how do you put a
fair value onto a web hosting business? This part of the process is the most
difficult step. The seller always wants the highest prices while the buyer only
wants to pay a small amount of money. The gap between those two expectations
will either make or break a deal.

Here are a few consideration and
recommendations about how to determine what a web hosting business is worth and
what people are willing to pay for clients.

Clients – what are they worth
at all (money-wise) when buying a web hosting business? How do you determine the
value? What do you have to keep in mind?

The first thing to consider and
to find out – what payment terms are in place for the client payments? Do the
clients pay monthly, quarterly, semi-annual, or even yearly? This is important
to know, as it will affect your cash flow right away. Imagine you pay for
clients that have yearly payments in place. In the worst case you would have to
work almost 12 months before seeing any money. Clients with yearly payments in
place are much less worth for the buyer compared to clients who pay on a monthly
base. If a web host has different payment models in place you should split the
clients into groups according to their payment schedule. Then work out a price
for each group.

You also have to keep in mind that very often clients do
not like change. They will be leaving the new web host very soon after the deal
has been closed and the announcements to the clients have been made. From what
we have seen – the percentage of this can go up to 15% in some cases – though 5%
to 10% is a more reliable number. This should be considered when working out the
deal.

Now it comes down to determine – how much are the clients worth?!
Common values put on clients in the web hosting industry range from 3 to 9
months of the monthly revenue. In some cases even up to 12 months revenue has
been recorded. It really depends on the business model and the quality of the
clients. Small business clients are to leave the hosting company less likely
than a customer with a personal website.

What else needs to be
considered? If you are buying just the clients to integrate them into your
business and under your business brand name, you’ll be fine with the model
introduced above. But what if you buy the complete business – including the
name? Building a brand is a difficult and time-consuming process. Buying an
existing brand gives the buyer a short cut. The result is that the business
brand name is worth quite a bit. How much is it worth? It depends on each single
case. One way to determine the value of a brand name is to see what the expected
number of sign-ups per month is. 50 new clients per month on average will give
you a good ballpark number. As it is more difficult to get new clients compared
to keeping existing ones, the value put on these possible clients is less than
the value put on existing clients. A 3 to 6 month value of the expected revenue
from this seems to be a fair value to determine the brand name value. But again
- this might vary and each case needs to be looked at separately.

If a
complete business is being sold, it might include hardware and software
licenses. Determine the value of these items per age (especially hardware) and
what kind of software licenses you would sell/buy.

Buying a business (not
just the customer base) might also bring liabilities. Are there any employees to
take onboard? Are there existing contracts with vendors (data center, software,
etc.) that need to be served? Determine the outstanding $$$ amount per item.
Make sure that the supply cost is reasonable and that you are allowed to
buy/sell the contract/agreement. Under normal circumstances this should not pose
a problem. But if the cost or contractual agreement is limiting your way of
taking advantage of the business this should be considered when making an offer
for a business.

How about the terms of the payment when selling a web
hosting business? Paying for everything 100% is not a good thing. The seller
walks away and you just have to hope that everything will go on as ‘advertised’.
A 60% payment when the deal closes gives the seller security to get his money.
The buyer also knows that he is not risking 100% of his investment right away.
The outstanding amount should be split into smaller payments. Depending on the
overall amount of the outstanding money, the time frame for the payment should
be split between 3 to 12 months before 100% are paid out. The smaller the amount
is, the shorter the time frame should be.

A good way for the buyer to
make sure he gets what he is paying for is to keep the seller around for 3 to 6
months. The contract should clearly state that the seller is available a certain
amount of time or the outstanding price is not being paid. The seller should
also sign a non-compete agreement and eventually a no-disclosure agreement to
protect the buyer.

Buying an existing business also requires a good
strategy upfront. Would you be integrating the clients into your business or run
the new business under its old name? Do you want to move the clients to your
hardware and consolidate or leave them where they are? How about support? Does
your staff have the skills and knowledge to support the different environment?
Do you have staff at all or do you eventually need to hire someone? Would you
rather buy one big business or maybe many smaller ones? Consider these things
when being in the market for buying a web hosting business.

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The True Cost of Self-Employment

The True Cost of Self-Employment

Now you think you are ready to make that jump and go from being an employee to full self-employment? The profit from your part-time (up till now) business is already matching your normal paycheck. You think it’s the time to fire your boss now and make a living without that paycheck from your employer.

Before you take that final step to personal freedom, make sure you really understand what you are giving up in that moment. Do you know that your employer paid benefits that may cost you more than you realize if you have to pay for them yourself. For most people it will take much more than $50,000 of profit per year to replace a $50,000 annual salary from a job. On average an employer pays 25% – 35% on top of your salary for your benefits (this number may vary for businesses with less than 50 employees).

When we talk about that your employer pays for the benefits we’re not referring to the “free” office supplies, subsidized or free soft drinks, coffee, or tea, or even the occasional free meal at the holiday party. The items that you need to think of are the benefits that are going to cost you the most money. We are talking about the employers part on your health insurance premium, unemployment, life insurance, 401K, and so on. So, to make up for all those things your $50,000 salary suddenly needs to be around $65,000+ per year.

Based on the US Chamber of Commerce’s survey medical insurance cost approximately 15% of an employee’s salary. However, employers also cover the cost of many other forms of insurance. They include

-Dental

-Vision

-Health

-Life

-Disability

-Unemployment

-Long Term Care Insurance

-Workers Compensation

You might be thinking that you pay premiums for these products already. Even if you do, your employer is most likely paying the bigger share of the cost. Not to mention that many times the premiums you are paying are using pre-tax dollars. This means you end up paying less in taxes because the amount of your premium is deducted prior to calculating your taxable income. Also keep in mind that the cost for health insurance has been going 10% per and more for the last 4 years. A number that is most likely to stay in the double-digits.

When you own your business not only are are you going to be responsible for the full cost of all forms of insurance using after-tax dollars, you are going to be responsible for self-employment taxes, too. Self-employment taxes include the employer paid portion of Social Security and Medicare taxes. This means your bill for these taxes will most likely double. Instead of paying 7.65% of your income for these, you will now pay 15.30%.

And don’t forget about having to pay estimated taxes. You will have to file and pay taxes 4 times a year now, instead of just once per year. Keep in mind that not paying taxes properly in advance will eventually come back as a boomerang in form of late fees and penalties. Not only do your taxes increase so do the headaches and the cost of filing! If you have not yet an accountant – it is time to think about this more closely.

If you have received an employers match to your 401K – this money will have to come out of your own pocket now. You might not even be eligible for a 401K and have to look into different forms of retirement accounts. A big learning curves lays ahead.

These are only a few of items that make up the 30 – 40% of your salary that will suddenly show up when you become self-employed. Then there are things like discounted shopping at car dealerships, banks, or certain stores. If you highly depend on these perks – keep this in mind and budget those numbers properly.

I hope you don’t think we are trying to discourage you from finally doing the big step to become self-employed. But this last step requires a little more than just walking into the boss’s office and slap him with your letter of resignation. ;-)

Good Luck

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Credit Card Processing (Basic Version)

Credit Card Processing (Basic Version)

Doing successfully business on the Internet requires some sort of automated payment processing in place. Imagine a customer ready to buy your services but then not being able to sign up and pay because there is no payment (credit card) processing in place. Don’t let this happen.

During the process of building/starting a business there are several stages of payment processing that you can implement. When you are starting out your own credit card merchant account might be hard to get. Your business has to establish credit first. It might also be way too expensive for you. A real merchant account adds a monthly fee of at least $30.00 to your budget. You also have to sign a contractual agreement requiring at least 1 year of commitment + the payment of a hefty application fee. Many newcomers do consider this a burden they do not want to carry right away. And they are correct. Especially in the beginning it is very important to keep a close look at your expenses. Do not spend money when not really needed.

There are a few low-cost alternatives that you can look at. They require only a small application fee (if at all) and no monthly or yearly commitment. If you do not have anything to process there won’t be any fees. Can’t beat that. What are your low-cost options at all?

Take a look at www.2checkout.com, www.payquake.com, or at www.PayPal.com.

These low-cost payment processors offer everything you need when starting out. No monthly fees are required to pay. These companies offer payment processing for slightly higher transaction fees than it would cost you having your own merchant account, but that is a fair trade-off. They also offer fraud checking on orders, which you would not have when operating on your own merchant account.

So, why is not everyone using these services? What is the catch? We already mentioned the higher fees for the transaction. Reliability is another issue. Your business depends on the reliability of the partner chosen. Either Paysystems (Update: Paysystems is no longer doing business as a 3rd party payment processor) or 2Checkout are having problems every once in a while. Their sites do not respond properly during these times and you are basically stuck – no payments can be processed. You might lose a customer in a situation where you are unable to close the deal. Fortunately these things do not happen too often and especially newcomers do not have to expect new customers every minute. Still, this is something to keep an eye on. Due to legal requirements by the large credit companies your customers will technically not be your customers when it comes to the payment processing with these 3rd party providers. 2Checkout and Paysystems (Update: Paysystems is no longer doing business as a 3rd party payment processor) require you to post a message accompanying the sale that your clients are buying your services from them and not from you. This can be very confusing and misleading to the potential customer. Your are also depending on the payout schedule and procedure of the payment processor. Not every business owner feels confident when using a 3rd party provider and trusting them the majority of their business cash flow. By using the 3rd party providers your clients will also not see your business name on their credit card statements but the name of the 3rd party provider. This can be confusing and problematic (possible charge-backs because the client does not associate the business name of the 3rd party provider with the services bought from you.

A good strategy for the new business owner can be to use more than one 3rd party provider. Sign-up fees are low (around $50.00) or non-existing (PayPal). You can rotate through the providers on a weekly base. Therefore your monthly sign-ups would go through different providers on average and you would be spreading the risk accordingly. If one provider goes out of business, you would only lose part of your money until all clients are switched to a different provider. Plan your credit card processing procedure carefully. If you buy 3rd party software for credit card processing – make sure you leave a backdoor open for the time when you switch to your own merchant account.

PayPal: PayPal should not be your only way of processing credit card payments. Not every customer has a PayPal account or wants to use his PayPal account for these kinds of payments. It is a good idea to offer PayPal as an additional option though. But – make sure you keep your business and personal stuff separated. ALWAYS have different PayPal accounts for your personal stuff and for your business. You can use the following link to sign up for a free PayPal merchant account (Business or Premier). PayPal offers great tools to implement everything into your website.

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Success From Failure Is As Simple As Focus, Plan, Execute 1

Success From Failure Is As Simple As Focus, Plan, Execute

You excitedly signed up for that pre-made money generating website you saw in a popbehind window. You signed up for the affiliate IDs. You set up your autoresponder and signed up for several “traffic generators”. You read the writings of all the internet gurus. Then you sat back and waited to pull in those MASSIVE PROFITS!

Its now a year later and what do you have to show – 150 subscriptions to your ezine and a couple of downline affiliates. You are disgruntled, dejected and more broke than you were when you started this venture. You feel that it is time to give up.

Don’t.

A major breakthrough leading to increasing success in your home business may be just around the corner. Here are a few steps to take before throwing in the towel.

Why did you start?

When you first signed up there were circumstances in your life that led you to look for a home business opportunity. These may have been due to a job loss, desire for more time with your family or need to supplement retirement income. Whatever the reason, most likely they still exist. Write them down. Put it in big letters on a single page and post it where you will be likely to see it several times a day – on the bathroom mirror, on the refrigerator, on a kitchen cabinet, the bedroom door – somewhere that you will see it and remind yourself of the ultimate goal.

Focus

When you started you become excited about a product or service. But along the way you have been bombarded with the “next best thing”. It’s easy to get started but then but when it comes down to DOING what you start, it gets hard and doesn’t happen as fast as you would like it to.

Jack Humphrey, in his article “Focus and Fear of Success – The Biggest Monkey on Your Back?” http://tinyurl.com/5zr6e says “The problem lies with your focus and your fear of success. You must CHOOSE the opportunity you are passionate about, or create a product you stand behind and love, and then hunker down for the long-haul! Make yourself do everything you are taught to do to build your business and build it – all the way or not at all.”

Create/retool your marketing plan

You may or may not have created a plan for marketing your opportunity. The two must haves to be successful are a large and growing opt in list and massive traffic to your website. In all those forums you probably learned several methods to boost your online presence, including:

1. Listing your ezine in ezine directories
2. Signing up for pay-per-click advertising
3. Exchanging links
4. Buying leads from a lead generator
5. Signing up with traffic generators, such as searchestate
6. Buying ezine advertising

You may have tried these and several more. But did you have a plan?

Stone Evans, the Home Biz Guy, in his free ebook, 30 days to success http://tinyurl.com/63rfj, says ”Some of the key marketing activities that you should perform on a regular basis are starting to show up once every week: write and article, submit your article, create links back to your site, network in forums… I strongly recommend that you keep these vital practices up for the life of your business.”

“ You see, it is very unlikely that one BIG event is suddenly going to make you an Internet marketing success story and cause you to become rich overnight. In truth, it’s all the small things you do that add up over time and ultimately allow you to become successful in this or any business undertaking.”

Execute the plan

Now that you have refocused on your goals, narrowed in on your product and built a marketing plan all that’s left is to execute that plan. Set aside time every day that you will spend on your plan. Write an article on Monday, submit it on Tuesday, exchange links on Wednesday and so on.

Ultimate Success

You had your reasons for deciding to start your own home based business. You must always keep your reasons in the forefront of your mind. You must always be able to rely upon your own self and your dedication to the success of your business. Success is within your reach, if only you can stay focused on your goals. You must decide to reach for your goals, and then, you must have the discipline necessary to reach them.

About The Author
Timothy Spaulding is the owner of the Work At Home Business Resource Center www.workathome-awesomeopportunities.com. He has been employed in the restaurant, retail and aerospace industries.

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