How To Reduce Fees With PayPal Micropayments!

As anyone who sells on eBay will know – the PayPal fees can make up a fairly large portion of your total selling fees, especially with certain products!

We saw this in our recent eBay vs Amazon Fees competition (check it out here if you missed that: eBay vs Amazon – Which Is Cheaper?).

But what do I mean by “especially for certain products”? After all PayPal fees are a set 3.4% + 20p right, so there shouldn’t be any difference…?

Well, yes and no, as while PayPal fees are the same for all products, that 20p can work out very differently. Let’s take a quick look at exactly what I mean:

Product 1 – £100

If I sell a product for £100, say a used mobile phone, then I’ll pay the following PayPal fees:

3.4% = £3.40
+ 20p
= £3.60

So total PayPal fees of £3.60

Product 2 – £4

Now looking at a different product, a Blu-ray movie for example, which I sell for £4:

3.4% = £0.14
+ 20p
= £0.34

So total PayPal fees of £0.34 for the cheaper item.

And that means for the cheaper £4 Blu-ray, I pay 8.5% in PayPal fees (0.34/4 x 100) compared to just 3.6% for the £100 item!!

That is a huge difference of nearly two and a half times higher fees, in effect, for the cheaper item!

And this is a problem that I am emailed about all the time! For low value items, the 20p per transaction charge from PayPal can completely destroy your margins!

After all, at 8.5%, you’re paying more to PayPal that you did to eBay to actually make the sale.

Thankfully though there is a simple and effective solution. But for some reason it’s something that very few people seem to know about or use.

It’s called – PayPal Micropayments.

Put simply, this is a special rate you get from PayPal when processing “low value transactions”.

It works in exactly the same way as regular PayPal, so there is change whatsoever for your customers. The only difference is the rate you pay.

Instead of the usual 3.4% + 20p, you’ll pay 5% + 5p.

Basically a higher percentage but lower fixed cost.

Let’s take a quick look at how that affects the total PayPal fee at a few different sale amounts:

As you can see, Micropayments actually works out cheaper for anything up to £9.

BUT – you can only apply for Micropayments if your average transaction amount is under £5.

It doesn’t matter if you only sell items worth £6 and therefore you’d be better off on Micropayments, as PayPal will only accept applications from businesses with an average order value of below £5. So bear that in mind when looking at the above table.

How to Apply for Micropayments

Now that we’ve gone over what Micropayments is and who it applies to, how can you actually use it for your business?

Well that’s incredibly easy as there are really only two requirements –

1. That you’re signed up for a PayPal Business account &
2. You have an average transaction amount of less than £5

As long as you meet these two requirements, then you can simply give PayPal a call to apply.

There is one last thing I want to mention though and it’s something you should be aware of before deciding to switch to Micropayments.

There are no volume discounts/price breaks for Micropayment fees!

While you can get slight discounts on the regular PayPal percentage charge, depending on your monthly volume of sales, Micropayments are always charged at 5% + 5p.

Well that brings us to the end of today’s post. I hope you found this useful and better yet, I hope it saves some of you a little money on your selling fees!

Until next time!

All the best,
Andrew