By sean

Most online retailers collect all their revenue from credit and debit cards.  They are also charged higher rates than their offline counterparts and bear the risk in the case of chargebacks, which offline stores do not.

I recently spent some time with the financial statements of Blue Nile, a large online retailer selling jewelry.  BTW – I highly recommend Blue Nile, I bought my wife a pair of diamond earrings there about a year ago, got a great deal and was highly pleased with the quality of the product and customer service.

From Blue Nile’s 2007 10-K Annual Disclosure (P.28):

Credit card processing fees increased approximately $1.3 million in the year ended December 30, 2007 compared to the year ended December 31, 2006 due to the increase in sales volume.

On P.23 we can find that sales in 2007 were $319.2M compared to $251.6M in 2006, an increase of $203.2M. If credit card processing fees increased $1.3M when sales increased by $203.2M then we can reasonably conclude that Blue Nile paid an average rate of about 1.92% in 2007.  That means that they paid about (319.2M x 1.92%) = $6.12M in credit card processing fees in 2007.

Since credit card processing fees have two components 1. a percentage of the sales volume and 2. a per-transaction fee, retailers that do larger transactions typically pay less (since they have fewer transaction fees) than a retailer with the same volume but small transactions.  Blue Nile sells expensive stuff, with an average sale of about $1500, which keeps their processing costs lower than many other online retailers.

To examine the credit card processing fees of your own business, to see if they are reasonable, check out our free credit card processing calculator.

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