Online payments: Merchant fee estimating

Is the missing piece worth it?

There are a lot of options when picking an online payment gateway to accept credit cards from your clients. And there are few factors to consider: features, support, or what it integrates with. However, the biggest factor is usually price. When pricing payment gateways, there is some guesswork, but you can easily estimate your monthly cost to see how the gateway is priced. Especially if you see it’s at a premium, which can be worth it.

First, you need to understand the following: transactions fees, discount rates, and a monthly fee. Transaction fees are what the payment gateway and/or merchant accounts charge you every time you process a payment. A discount rate is how much, in percent, the payment gateway and/or merchant account charges you from each transaction. And the monthly fee is a flat fee each month – usually for more premium offerings.

These terms and pricing will also depend on your combination and choice of a merchant account and payment gateway. For example, PayPal does not require a merchant account but it has discount rate like one, while’s payment gateway does have a discount rate, but the merchant account required to use it does. You may want to read “Online Payments: How do online payment gateways work.”

If you have time to compare gateways, then you just need to understand a fees and need to do the math. This is roughly what the monthly cost will look like:

Monthly fee + Transaction fee x number of transactions + Total amount of transactions x discount rate = monthly cost

If you’re already running a business, you’ll have an idea of your total amount of cash and number of transactions so you’re able to calculate it. If not, start small with your estimate or just use an online payment gateway that has no setup cost such as PayPal until you get a better grasp of your numbers. Be aware that a lot of setup fees are non-refundable.

To help you understand the math, here are two examples using and PayPal Standard.

Example 1: $20,000 a month in 200 transactions
Payment Gateway
Monthly Gateway = $17.95
Per Transaction = $0.10
Batch Fee = $0.25 (charged each day you run a transaction)
Payment Gateway: = $17.95 + $0.10 x 200 + $0.25 x 20 = $42.95
Merchant Account
Monthly Service/Statement Fee = $9.95
Transaction Fee = $0.25
VISA/MasterCard Qualified Discount Rate = 2.19%
Merchant Account = $9.95 + $0.25 x 200 + 0.0219 x $20,000 = $497.95
Total = $540.90
PayPal Standard
Discount Rate at $10,000/month = 2.19%
Per Transaction = $0.30
Payment Gateway = $0.30 x 200 + $0.0219 x $20000 = $498.00

As you can see, PayPal is cheaper by about $40 in this scenario.

Example 2: $3000 a month in 3 transactions
Gateway = $17.95 + $0.10 x 3 + $0.25 x 3 = $19.00
Merchant Account = $9.95 + $0.25 x 3 + 0.0219 x $3000 = $76.40
Total = $95.40
PayPal Standard
Discount rate = 2.9% for $3000 and less.
PayPal Standard = $0.30 x 3 + 0.029 x $3000 = $87.90

In this example PayPal is barely cheaper. However, with these low numbers, PayPal makes sense as it is free to setup and get up and running.

If you were to try this over hundreds of scenarios, you’ll find that is always a little more expensive (tens of dollars) than a product like PayPal Standard. However, offers a number of great features such as auto-billing, automatic deposit into your merchant account, storing your client’s credit card, and is a simple paying experience for your client – just like some of the other online payments offerings that work with FreshBooks. A lot of businesses that do a lot of billing think it’s worth the investment.

Share this article
Share on FacebookTweet about this on TwitterShare on LinkedIn
  • Jason E. Havens

    I just submitted the official add-on request, but please consider (and others please request) adding Intuit’s GoPayment credit card processing service to FreshBooks. This is one of the best merchant account deals that we’ve used in years. It seems to me that this merchant processing option will quickly gain traction in the small and medium business arena. Thank you for considering. We could not imagine billing/invoicing our clients without FreshBooks.

  • Randy Mills

    I would like to second Jason Havens’ comment about adding GoPayment credit card processing to FreshBooks! I use it consistently and am very happy with it!

  • John Coates

    Hi Jason and Randy,

    Thanks for the suggestion – I’ll pass it on to the appropriate people. Demand is always the primary reason for integrating with a new payment gateway, so both of you asking helps us decide.

  • Brian Adams

    I LOVE Freshbooks. LOVE IT! I also love the simplicity and low fees of GoPayment and I would LOVE to see it integrated as a method of payment on Freshbooks invoices. Thank you for all that you do!

  • The Webscaper

    I also would like to throw a vote or ten in for GoPayment integration, and/or Square integration. For small businesses it’s not cost effective to use payment gateways/merchant services and GoPayment, Square, etc. have finally provided us a solution we can work with.

  • adjen13198

    I also would like to have added as a payment gateway.

  • Mark Cuda

    Integrating GoPayment would be AMAZING for my business as stated above!

    Freshbooks is amazing, and GoPayment integration would be awesome.

  • Louis Gephardt

    Would LOVE to see GoPayment integration with FredhBooks!!!!!!!

  • Payment Gateway Services Provi

    hey nice concept used by you regarding online payment gateway and its uses. you clearly depicted by pic.

  • Brendon

    Square integration would complete fresh books. Otherwise it seems great so far.

    • JaclynTanner

      Hey Brandon,

      True story, a Square integration would be a great addition to our list of payment gateway options. At present, Square doesn’t have an open API for us to build an integration with. But if they ever do, we’ll be ready.

      Thanks for the love :)


      • studuncan
        • JaclynTanner

          Hey there Studucan,

          Yes, the square API is now public (huzza)! Our product team is aware of the recent development and is evaluating for our future roadmap. Fingers crossed we see some forward action in the not-too-incredibly-distant future.



  • Pingback: New: PayPal Business Payments – $0.50 flat fee online payments()