Credit card processing

As you’d expect for a Web business, credit cards comprise at least 90% of my payments. That makes credit card processing fees a significant nondiscretionary budget item. After delving into the shady world of “merchant service providers”, as the credit card industry’s sales force is known, I eventually concluded that Merchant Express had the best deal going. (Despite the kvetching that follows, they’re probably still the best of a bad lot. If you need to accept credit cards yourself, please visit them via the link at the bottom of Curio City’s main page. I’ll get a referral bonus if you open an account.)

They charge a 2.33% discount rate – the amount that they skim off the top of every transaction. The discount rate is a merchant service provider's main competitive hook. They talk less about the 25 cent transaction fee, or the 5 cents for address verification (a basic security measure). They soft-peddle their $9.95 monthly statement fee, and they absolutely don't let on that they're going to charge you another 25 cents to process that. I have a $15 monthly minimum that prevents charge fees from scaling down properly during the slowest months. I also pay a $14.95 monthly gateway fee to another company.

American Express costs more, and is billed differently -- the discount is charged at the end of the month, rather than as each transaction is processed. Discover rates are even higher. Since that card is the least-used, it was an easy decision not to accept Discover.

When you place a credit card order with Curio City, your transaction goes to Authorize.net. They charge me 30 cents, regardless of whether the transaction is accepted or rejected. If you're rejected, I pay another 30 cents each time you retry; some customers enter invalid information four or five times before they give up. Then, when the day’s batch settles at midnight, the credit card processor (a minion of the merchant service provider) skims their 2.33%…unless, of course, you used a rewards card. Who do you think is paying for your bonus miles or cash back? The bank? Hah! No, that would be me. Rewards cards impose a surcharge on my discount rate.

Some days later, your money finds its way into my automatic bank deposit. The amount doesn’t match the sale because of the discount (unless you used Amex), and of course each day’s sales are batched. Sometimes the credit card processor deducts their monthly "statement fee" from my deposit, too; I only know that when an early-month deposit comes up about $10 shorter than it should. There’s a separate monthly charge for Amex discounts. Another monthly deduction covers miscellaneous premiums that I never can understand; these are explained on an indecipherable paper statement that arrives a week after they take the money (four pages of tiny agate type showing columns of numbers and codes). Twice, they erroneously charged me a $95 annual fee, which I had to call the merchant service provider to have refunded.

When business is slow, matching my charge receipts to actual bank deposits is vexing, but it's a minor puzzle. When it’s busy, though, reconciling deposits becomes a major challenge. Woe unto me if I neglected to enter a transaction into Quickbooks, or if I entered an Amex charge as a Visa or MC. If a dumb bookkeeping error collides with one of their unannounced fee deductions, it can take me hours to sort it out.

I was briefly excited last month when the indecipherable statement arrived with a flyer announcing that statements are now available online. Hooray! I called the signup number immediately (why would I would need to sign up for this in the first place?). The operator unhelpfully referred me to my merchant service provider, who promised to enroll me. A few weeks later, I finally got an email with a URL...and guess what? The online statement is identical to the indecipherable paper statement. It is not even updated daily. It is useless.

In ancient times, when I was setting up Kraken Enterprises, I figured that credit card acceptance would take 3% of my gross sales. For safety’s sake, I budgeted 3.25%. Thanks to all of the folderol I explained above, my actual credit card expense in 2006 was 4.16%. (Not coincidentally, that's almost exactly what PayPal charges, too).

That’s nearly 1% over budget. And that’s huge. Unless you’re the federal government, there are only 100 percents available. Believe it or not, reducing credit card costs is one factor in favor of opening a store (see “Curio City Offline”). Cash transactions could lower my overall processing costs by as much as a full percent of gross.

Another interesting tidbit: when a business attains serious sales volume, it can negotiate better rates by playing merchant service providers off against one another. We little startups are the ones who bear the full-price burden. You can bet that Amazon.com is not losing over 4% of their gross to bank fees.

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While I'm on the subject…is there any difference between Visa and Mastercard? I’m old enough to remember when Visa was more prestigious than Master Charge. That ceased to be true long ago. They are identical from a merchant's perspective. Why do the separate brands persist?

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Today’s post is a day late. Mea culpa. It’s the first time I’ve missed my Friday routine since I started this blog. Did I disappoint anyone yesterday?

Now that I’ve now blown through the history and ongoing challenges of Curio City, the blog is getting a bit harder to write. Two of the three future topics listed below are just updating previous subjects. Leave a comment if there’s something you would like to read more about. Come spring, I might start updating every other week instead of weekly. I don’t want to waste your time or mine by posting just for the sake of posting.

Future Topics:

• A Moving Target
• PPC Advertising Update
• Phases Reconsidered

Good Deeds

Recently, I learned the hard way that I can’t refund a transaction after 120 days. A customer bought a Christmas gift for somebody back in August. When she saw her friend at the end of January, she learned that the recipient’s cigarette case had broken after only a couple of weeks of use. So she complained to me.

Most companies would say “tough luck” to somebody who spent $14 five months earlier, and I’d have been entirely justified in doing the same. But I’m out to make customers, not just sales. So I offered to either replace the case or refund the customer’s money.

She opted for the refund. That’s when I discovered an inviolable 120-day limit on issuing charge credits. After going a few rounds with the credit card processor, I ultimately had to send this customer a check. Duly impressed with the amount of attention I gave her small transaction, she gave me an unsolicited compliment for my “Testimonials” section. That is worth the $14 that it cost me.

(Incidentally, this complaint was my second indication that my smoking accessories are not up to snuff, so I am looking for a better supplier. Smokers are such pariahs that I am attracting substantial traffic at the bargain rate of only 3 cents per click…and the markup on smoking accessories is pretty good. I sense an underserved market. Being a former tobacco addict (and still an occasional smoker) myself, I’m happy to satisfy that demand. If anyone reading this has a cigarette case or lighter that you especially like, please tell me where you got it and why you like it.)

This week somebody approached me about a $900 institutional order – that’s nearly half of my sales plan for the whole month of February. Although ours wasn’t the lowest price on the item that she needs, she chose Curio City because of our “reputation for customer service”. Holy crap! That’s what I’ve been struggling to establish for the past year. It can only have come from the Testimonials page.

I offered (without being asked) to cover the cost of shipping. The $25 in foregone profit will buy invaluable word-of-mouth that could lead to even more institutional business, and will surely generate some positive mentions. Today the purchase order came through, and I ordered the merchandise. The revenue won’t come until March or April, but the sale went on the books as soon as I created the invoice. It went a long way toward offsetting the $1400 in taxes and accounting fees that hit me in February.

Future Topics:

• Credit Card Processing
• PPC Advertising Update
• Phases Reconsidered

The St. Valentine's Day Massacre

First, I want to thank those readers who plowed through the whole series of “Possible Future” posts. Writing them was a very useful exercise for me. They can’t have been very gripping reading, though. If you’re still with me, you’re a real Curio City groupie.

I’ll try to break up the more ponderous posts with shorter, snappier entries (like this one) from now on.

* * * * *

Valentine’s Day is the worst of the “Hallmark Holidays”. There are maybe three courting couples in America who are so love-besotted that they think this holiday is a great idea. Many of us grudgingly bestow flowers, candy, or embarrassing underwear upon our significant others from a sense of duty or fear of repercussions. Most of us will buy a goofy card and let it go at that. Some brave souls will ignore it entirely. Most of the unattached singles that I know say that they resent Valentines Day’s annual reminder of the absence of romance in our lives. (Personally, I waver between the “buy a card” and “ignore completely” camps from year to year.)

Since Curio City doesn’t sell flowers, chocolate, or frilly underthings, I figured it could safely sit out Valentines Day. I brought in a couple of items bearing heart designs, but I don’t want Curio City to be about selling kitsch. I hoped that I’d benefit from the overall shopping uptick that accompanies Valentines Day, as some discerning shoppers would consider my merchandise appealing despite the lack of cuteness.

And so Curio City went into late January and early February with business in the toilet. This past week started out as one of the worst ever; as of Wednesday morning, we’d grossed about $25, and I was facing a $30 return credit, making it a net negative week. Traffic was flat and nobody was buying anything. On a whim, I rewrote the text for my front-page signboard to say “Happy Valentine’s Day! Same-day shipping is standard. See our News page for more details.” Then I updated the News page with shipping advice.

I did $300 in the next two days.

Damn.

There are only four standard gift-giving occasions on the calendar: Valentines Day, Mothers Day, Fathers Day, and Christmas. I run a gift shop. Why did I think I could ignore one of them? I don’t need to stock frilly chocolate heart-shaped underthings. I just need to acknowledge that people are shopping with the holiday in mind. I probably lost a couple of hundred dollars worth of sales learning this obvious lesson.

* * * * *

Yesterday I had an unexplained rush on golf balls – four orders, one of them rather large, within an hour. Today I discovered that three of those customers were referred by the Cork Jester. One of my ill-fated press kits went to the Rocky Mountain News last November. They picked up on the discontinued switch plate covers that I am trying to unload at cost. It turns out that the Cork Jester works there. She not only linked to the remaindered switch plates on her own site, but yesterday she added my “Bunch of Grapes” golf ball on her “Presents for Winos” page. Cha-ching!

Well, not so much. The Bunch of Grapes is out of stock. After yesterday’s flurry of orders, I need to reorder golf balls anyway, so this morning I called the manufacturer. More bad news: Bunch of Grapes is indefinitely discontinued unless they should get an order for 144 sleeves (at $5 per sleeve). The Cork Jester link is welcome...but not that welcome.

Damn.

That makes two precious links to products that I either don’t carry or can’t get. I reactivated the Bunch of Grapes page with a teaser message, hoping that shoppers will browse my other styles (as indeed three people did yesterday).

Future Topics:

• One Customer At a Time
• Credit Card Processing
• PPC Advertising Update
• Phases Reconsidered

Possible Future 5: Exile on Main Street

I’ve saved the hardest of this series for last. It is simultaneously the most logical thing to do, and the least likely to happen.

High Boston-area rents are the main deterrent to moving Curio City out of the house. Whichever future I choose in 2008 must produce a huge leap in sales – at least quadrupling my 2007 plan – in order to cover even a modest rent expense...not to mention a monthly debt payment. What I consider decent gross monthly sales right now would not even cover rent alone. As long as I live in this metro area, I have to concentrate on making huge sales gains – in the medium run, a full order of magnitude more than I’m doing now -- because it’s impossible to cut costs any further.

Future 5 would break that requirement by moving Curio City to a low-rent environment. Right now, CC is portable. A web-based business can run equally well from Boston’s Back Bay or the slums of East Boondock, as long as convenient and reliable shipping/receiving services exist. Only personal ties keep me in the Boston area.

Every summer, Anne and I vacation in the beautiful, sophisticated, liberal arts college town of Williamstown, Mass. In fact, one of Curio City’s original inspirations was a store in Williamstown called Where Did You Get That?!? Someday in the next few years, the Fates willing, we will buy a summer home near Williamstown.

A few short miles from Williamstown lies the depressed mill town of North Adams. The Mass. Museum of Contemporary Art keeps a pulse going in North Adams, but that’s far from being a revival. North Adams is a perpetually depressed town populated by lowbrows and lowlifes.

Laughably cheap rents and real estate are a corollary of North Adams’ condition. A small retail space in their attractive but forlorn little shopping district can be had for a few hundred dollars a month. (equivalent space in South Braintree Square goes for $3,000+) In Future 2 (“Curio Metropolis Online”), Curio City just needs a basic office with good shipping and receiving facilities. Any over-the-counter retail sales only help offset the major expenses of rent, telephone, internet, insurance, utilities, etc. In high-rent Braintree, OTC sales rapidly grow in importance to the point that Future 2 inevitably compels Future 1 instead (“Curio City Offline”). And, as I type this, I realize that I prefer Future 2 to Future 1.

A sales counter located on Main Street in North Adams would be under very little financial pressure to perform. A dozen OTC sales per week would almost surely produce enough revenue to cover the whole operation’s small rent. A store in Braintree, in contrast, would need to turn about 100 transactions each week just to cover its own expenses. That’s really quite a lot.

Objectively speaking…if OTC sales are beside the point, as in Future 2, then moving CC to a low-cost environment is the logical choice. We are already serious about living part of the year near Williamstown. North Adams, then, is a very logical low-cost home for Curio Metropolis Online. I could easily live in our Williamstown home and commute the few miles into North Adams every day.

The drawbacks are personal:

1. I’ve lived in Braintree for 20 years. I have friends here. There’s a lot to like about the town. Although I don't go into the city often, I'm accustomed to having Boston nearby. I am rooted. I don’t want to move away entirely.
2. I lived in a low-rent backwater (Elmira, N.Y.) once before for several years. It was boring and depressing – possibly the low point of my adult life. In too many ways, North Adams reminds me of Elmira. And even Williamstown is probably too small and isolated to satisfy me year-round. It could easily become stifling in the winter.
3. I’m married. She could move out west with me, but she doesn’t want to any more than I do. Neither of us wants to have a commuter marriage again, so I’m not going to move without her (besides, I’ve grown accustomed to her).
4. Our Williamstown house is supposed to be a summer getaway that we can rent out when we’re not there, and that Anne can use as a base for her classes and seminars. It loses those qualities if I’m living out there permanently.
5. Wherever CC ends up, I’ll be tied to it full time – even more so than I am already. With no employees, I don’t get any days off. I could theoretically make it nomadic and truck my merchandise from Braintree to Williamstown and back again once a year, if we were really living out there for months at a time. But that would be a difficult and expensive logistic to perform every year…particularly as my business, and my inventory, keep growing.
6. North Adams is even more seasonal than most of the Berkshires. AFAIK, its paltry summer tourist trade depends entirely on MassMoCA, and disappears the rest of the year. Even my extremely modest OTC sales expectations might not pan out. There’s got to be a good reason that most of their storefronts are deserted. I can easily imagine going days between customers during the winter.

If I were 25 years old again, I might consider this an adventure. But I’ll be 50 in a couple of months. I don’t want to uproot. I’ve lived here for over 20 years, which is longer than I ever lived anywhere else. This is my home. Despite all the sense that it makes, I don’t think Curio City will undergo an exile on Main Street.

Forthcoming Topics:

• Startup Phases Reconsidered
• Credit Card Processing
• PPC Advertising Update