Decide when the fee reaches the pricing decision
A higher effective fee rate does not automatically require a price increase. Reconcile contribution before and after the fee across the actual order mix, then compare the result with the user-selected contribution floor and other feasible responses.
| Field | Required record | Unit / boundary |
|---|---|---|
| Order economics before processing | Price less product, fulfilment, returns allowance and other included cost | CU per order, one indirect-tax basis |
| Processing contract | Fixed fee, percentage fee, fee base and contract date | CU/order and percentage |
| After-fee contribution | Contribution before processing less complete processing fee | CU per order and CU per stated period |
| Decision boundary | User-selected contribution floor plus capacity/customer constraints | Not a market benchmark |
State the fee contract as inputs
Before comparing order values
- Use the percentage rate and fixed amount from the current contract or settlement record. (not complete)
- State the fee base, currency, market, account or plan, and contract date. (not complete)
- Keep the order values on one indirect-tax basis. (not complete)
- Record refund, reversal and conditional-fee treatment separately. (not complete)
fee = fixed amount + (percentage rate × order value); effective fee rate = fee ÷ order value
- fixed amount
- Entered per-transaction amount (currency units per order) — current contract or settlement record
- percentage rate
- Entered variable fee rate expressed as a decimal (ratio) — current contract or settlement record
- order value
- Transaction amount on the contract-defined fee base (currency units per order) — business record or user scenario
- effective fee rate
- Total fee divided by order value (percentage of order value) — calculated output
A value at or near zero needs separate handling because the effective-rate denominator becomes zero or extremely small.
Worked example: compare 10, 50 and 100
Invented scenario only: a 2% variable rate plus a 0.30 fixed fee. These inputs are not a provider offer or market benchmark.
At an order value of 10, the fee is 0.30 + (2% × 10) = 0.50. Divide 0.50 by 10 to get a 5% effective rate. Repeat the same chain without changing the fee contract.
| Order value | 2% component | Fixed component | Total fee | Effective rate |
|---|---|---|---|---|
| 10.00 | 0.20 | 0.30 | 0.50 | 5.0% |
| 50.00 | 1.00 | 0.30 | 1.30 | 2.6% |
| 100.00 | 2.00 | 0.30 | 2.30 | 2.3% |
Add the full order boundary before deciding
- Enter the actual contract and order mix in the payment comparison tool.
- Reconcile the resulting fee with settlement records and contract rules.
- Add the fee once to the full order contribution stack.
- Compare retained contribution, not the effective fee rate alone.
Small-order fee questions
- Why does the fixed amount matter more on a small order?
- The same fixed amount is divided by a smaller order value. Its absolute amount does not change, but its share of the transaction does.
- What happens when order value is zero?
- The effective-rate calculation is undefined because it would divide by zero. Treat reversals, refunds and zero-value events under the actual contract rather than forcing them into this formula.
- Does this example identify the cheapest provider?
- No. It uses an invented schedule to explain sensitivity. A comparison needs current contract terms, the real transaction mix and consistent fee bases.
Methodology source
- Payment Processing Comparison methodology — Margin101: Product-owned fee and effective-rate formulas; the article fixture is fictional.
Test the complete decision
- Payment Processing Fee Comparison
Compare two payment fee structures at an expected transaction volume
- Ecommerce Order Profitability Planner
Test order contribution after the full fee stack