stevenclark.com.au

Jacob Cass is asking whether or not we should pass on the PayPal transaction fees to our clients / customers, particularly if it constitutes a large dollar value for us over the year. He’s got a short list of good for and against reasons but I’m going to skin the cat from another angle. I’d file this under business operational costs and pose these questions in return.

When you freelance / contract do you factor into your billing structure:

• hardware replacement
• software upgrades over the year
• power and facilities overheads
• travel fees
• lost time due to secondary tasks
• days / times / holidays when not able to work
• business insurance
• time for training and upskilling
• accounting requirements

My point is that transaction fees are simply a part and parcel of your business operation. The real question is not whether passing on fees directly offends the PayPal Terms of Service (which it does). The real question is whether you are charging a fair and competitive price for your services? And whether the client is receiving a fair return for their investment? Don’t sell your value short.

When you’re freelancing / contracting you’re going to learn the hard way that competing for the bottom dollar isn’t the road to success (or riches). So it shouldn’t be about being the cheapest option out there. And, if you’re in business to make a living, then it’s a living you have to make. A tree arborist, for example, won’t work on windy days so he charges more for his hours on those working days to cover a wage throughout the year. If you’re selling quality work then money won’t necessarily be the primary factor that clients will use to value your business.

Quality, service, relationship management, turnaround, your business reputation and more should impact their perception of whether to employ you. By competing on price alone you are marketing yourself into a highly competitive corner with small margins and early morning hours at the computer. When you start absorbing costs to remain competitive simply because your marketing strategy is a pricing strategy then you’ll quickly find yourself pressured to absorb many or all your business costs. Who are you selling to? What are you selling to them? Why are they going to be interested in you? And, importantly, what are you selling that everyone else isn’t? Ka…ching… you have identified something about your own value. That is what should determine your pricing structure.

As a rule of thumb you should be offering your clients / customers as many possible ways to pay you as you can achieve for your own investment. But don’t fall for the argument that large department chains don’t pass on credit card fees, because they do. They factor everything into their pricing structure. The way to approach it is to be both fair and transparent. What is unfair is to implement a billing system that charges different people different amounts based on their method of payment.

Factor the true cost of transactions into your business pricing structure along with overheads like power, insurance, etc. That’s just the cost of doing business. Avoid the mental judo of the fees themselves. Take it on a three monthly / yearly basis and do the math.

But feel free to disagree and absorb those fees. This is just my 2 cents…

This entry was posted on Thursday, November 13th, 2008 at 11:07 am and is filed under business, design, programming. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.