Transaction fees are a part of life for eBay sellers, and PayPal fees can often take something of a bite out of profits. This can seem to be especially true for sellers with very tight margins, who usually happen also to be sellers of very inexpensive items. Margins can be so tight, in fact, that it can start to seem as though it’s not possible to be competitive.
Fortunately, PayPal has created a program with exactly your type of business in mind: PayPal Micropayments. Here's how it's described on the PayPal site:
Micropayments is ideal for businesses that process payments under £5 ($8) for any type of low-value purchases - from digital goods, online gaming, music or software downloads, to membership fees, donations or small items such as stationary. Whether you sell on eBay or your own website, you can take advantage of our lower rates to increase revenue.
If this sounds like you and you aren’t using PayPal Micropayments, now may be the time for you to learn more about the program and consider using it.
Different Fee Structure
PayPal Micropayments offers sellers a different fee structure that is more advantageous for high-volume, low-margin, low-value items. Some sellers increase their profit margin by as much as 20-30 percent upon switching, though your results may vary. To determine whether Micropayments is right for you, be sure to run some numbers before you switch. You can also look at Paypal's comparison table to get a good idea of how your sales volume and costs would change if you switched to Micropayments.
With PayPal Micropayments you’ll pay 5 percent plus 5 cents per transaction (for U.S. accounts) versus 2.9 percent plus 30 cents per transaction at the usual PayPal rate. If a sizable percentage of your transactions fall under the $12.00 mark, there’s a good chance you’ll find that PayPal Micropayments will save you money.
Caveats and Limitations
The catch is that each PayPal account is either a micropayment or a standard account, and there is no way to switch back and forth between the two on a per-transaction basis. To use PayPal Micropayments, therefore, you’ll either need to:
- create a separate PayPal Micropayments account (with a separate bank account, since PayPal won’t let you use the same bank account twice) and remember to carefully switch between your two accounts as you list items for sale, or
- convert your existing PayPal account to micropayments rates entirely, losing the ability to conduct business at non-micropayments rates.
You'll want a separate Micropayment account if you sell both high-priced and low-priced items on a regular basis. Alternatively, you'll want to convert your existing account if you sell only low-priced items.
Making it Work
That’s all there is to it! Payments you receive in micropayments accounts are automatically charged at the alternate micropayments rate. If you’re having trouble making a high-volume, low-cost business model work, PayPal Micropayments can be one part of a strategy (along with things like good fee control) for getting back on your game.