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What card processing fees really cost, and how to price around them
Stripe, Square, PayPal and most other card processors charge the same way: a percentage of the payment plus a small fixed fee per transaction. The headline rate looks small, and on a large invoice it is. On small payments, and once you add the extras, it can take a surprising share.
How the fee is built
The standard structure is:
fee = payment × percentage + fixed fee
you receive = payment − fee
Rates differ by country, card type and plan, and processors change them, so always use the current figure from your own account's pricing page. As an example only, take a rate of 2.9% + 30c. On a $100 payment:
fee = 100 × 0.029 + 0.30 = $3.20
you receive = $96.80
Why small payments suffer
The fixed part does not shrink with the payment, so it matters more the smaller the sale. With the same example rate:
| Payment | Fee | Fee as % of payment |
|---|---|---|
| $5 | $0.45 | 9.0% |
| $10 | $0.59 | 5.9% |
| $25 | $1.03 | 4.1% |
| $100 | $3.20 | 3.2% |
| $1000 | $29.30 | 2.9% |
A $5 sale loses nine cents in every dollar to fees, three times the headline rate. This is why cafés sometimes set card minimums, why micro-subscriptions are hard to make work, and why selling a $2 digital download one at a time is barely worth it. Bundling small items into one larger payment saves the fixed fee on every item after the first.
Grossing up: charging enough to receive a set amount
Sometimes you need to receive an exact sum, for example when passing the fee on to a client, or invoicing a cost you have already paid. Adding the percentage to the price does not quite work, because the fee is then charged on the fee as well.
The correct formula divides instead:
charge = (amount wanted + fixed fee) ÷ (1 − percentage)
To receive exactly $100 at 2.9% + 30c:
charge = (100 + 0.30) ÷ (1 − 0.029) = 100.30 ÷ 0.971 = $103.30
Check: 103.30 × 0.029 + 0.30 = $3.30 in fees, leaving $100.00. Adding 2.9% to $100 and then 30c gives $103.20, which would leave you ten cents short.
Before passing fees on to customers, check the rules where you trade. Some places restrict or cap card surcharges, and card networks have rules of their own about them.
The fees on top of the headline rate
The headline rate is usually for a domestic card in a standard checkout. Many payments cost more:
- International cards. An extra percentage when the card was issued in another country.
- Currency conversion. Another percentage when the payment is converted from one currency to another.
- Premium and business cards. In some regions these carry a higher rate.
- Disputes. A chargeback usually has a fixed fee, whether or not you win, on top of losing the money if you do not.
- Refunds. On many processors, refunding a payment does not return the original fee.
- Extra products. Subscriptions billing, invoicing, tax calculation and fraud tools may each add their own small percentage.
A shop selling mostly to overseas customers in another currency can pay two or three percentage points more than the headline rate on most orders. Look at the fee column in your payout report for a real month; it is the honest number.
Fees in your margin
Processing fees are a cost of every sale, like shipping or packaging, and they belong in your margin calculations. They are easy to leave out because they come off before the money arrives, so they never show up as a bill.
When working out a price, include the fee on the full order value, including any shipping you charge. A product that looks like a 40% margin before fees might be 36% after them, which changes how much you can spend on ads, discounts or free shipping. The margin calculator shows margin and markup side by side once the costs are in.
Invoices and larger payments
For larger invoices, the percentage is the part that bites. 2.9% of a $5000 invoice is $145. For business clients, a bank transfer is often cheaper for both sides, and many invoicing setups offer it next to card payment for exactly this reason. Some businesses offer a small discount for paying by transfer rather than adding a surcharge for cards.
Work it out
The Stripe fee calculator works out what lands in your account after the percentage and fixed fee, or how much to charge to receive a specific amount. The rates are editable, so it works for any processor that charges a percentage plus a fixed fee. For setting prices in the first place, see the pricing section, and for quotes and bills, the invoicing tools.