It’s more usual to roll the credit card fee into the price the online shopper pays. Otherwise shoppers can perceive the credit card fee as a “hidden” charge and decide not to buy.
It’s also usual that the payment gateway provider, also takes their own % from the transaction. Payment gateways will also usually charge an initial set-up fee, and may also charge a fixed annual amount for the service, particularly where there are a low number of transactions.
Credit card and payment gateway fees can vary between markets and suppliers. But it would be normal to factor in anywhere from 1% to 3% to cover these fees.
Cost of goods
Like any normal transaction, you then have to cover the cost of the item itself. This cost of goods is how much the item cost you to produce in terms of materials, staff and any other relevant production costs.
You then need to account for all the delivery costs to move the product from where it is stored to where the consumer receives it.
As we cover in our guide to D2C costs, the cost of delivery of a single item can be much higher than the delivery costs associated with delivery to a retailer. The delivery charge to pick, pack and deliver is usually a much higher % of the sale, when selling online.
It’s much more cost efficient to move trucks loaded with pallets to a central location such as a retailer’s warehouse, than to move single items to an individual shopper’s house. You also need to consider any additional packaging costs required to protect the product while it’s en route to the customer.
Products that are fragile or temperature sensitive for example, will require additional packaging. This adds more cost.
All these costs add up to your operational cost of doing business and are seen as variable costs. They vary in direct relation to the sale.
However, that’s not all. There are also fixed costs to consider.
We talked about about all the marketing requirements to drive traffic to the store and to generate sales through market research, brand identity and digital media These all come with costs which you need to cover from the sales income of the store.
There are also a number of other operational fixed costs to consider.
For example, do you own the warehouse where your goods are stored? If so, what about all the costs associated with storage such as staffing, security and utility bills? Even if you rent space in someone else’s warehouse, your rent is an on-going fixed cost you need to pay, whether you sell or not.
What about the website you set up to run your online store? You need to consider operational costs like server hosting and maintaining the URL license. Then you need to consider costs to generate content. If you need to create photography, video or write sales copy, each of these takes time and money to produce. That doesn’t even take into account the time and effort to set up and design the website in the first place.
As we mentioned above in the section on payments, there are also the costs associated with chargeback and fraudulent transactions. These costs will also appear as part of the “debit” section of your profit and loss account.
But once you factor all those in, then you get to the reason why you set up an online store in the first place.
Because, what’s left is your profit.