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Methodology

Payment Processing Fee Comparison methodology

Compare weighted payment cost with an alternative fee structure.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Weighted Fee Per Transaction
weightedFeePerTransaction = sum(payment share × fee after refund recovery)

Where

weightedFeePerTransaction
Weighted Fee Per Transaction (currency units, ex tax)Source: Calculated output
Weighted Effective Rate
weightedEffectiveRate = weighted fee / average order value

Where

averageOrderValue
Average order value (currency units, ex tax)Source: Business record
weightedEffectiveRate
Weighted Effective Rate (decimal rate)Source: Calculated output
Total Current Fees
totalCurrentFees = weighted fee × transactions

Where

transactions
Transactions (operational units)Source: Business record
totalCurrentFees
Total Current Fees (currency units, ex tax)Source: Calculated output
Total Alternative Fees
totalAlternativeFees = fixed period fee + alternative fee after refund recovery × transactions

Where

transactions
Transactions (operational units)Source: Business record
alternativeFixedPeriodFee
Alternative fixed fee (currency units, ex tax)Source: Business record
alternativeFixedFee
Alternative transaction fee (currency units, ex tax)Source: Business record
totalAlternativeFees
Total Alternative Fees (currency units, ex tax)Source: Calculated output
fixedFee
Fixed fee (currency units per successful transaction)Source: Business record
Crossover Transactions
crossoverTransactions = ceil(fixed period fee / unit saving)

Where

transactions
Transactions (operational units)Source: Business record
crossoverTransactions
Crossover Transactions (units)Source: Calculated output
fixedFee
Fixed fee (currency units per successful transaction)Source: Business record
Billed potential revenue
subscriptionBilledPotentialRevenue = scheduledMonthlyTransactions × monthlyPrice + scheduledAnnualTransactions × annualPrice

Where

transactions
Transactions (operational units)Source: Business record
scheduledMonthlyTransactions
Scheduled monthly charges (whole transactions)Source: User decision
monthlyPrice
Monthly price (currency units)Source: Business record
scheduledAnnualTransactions
Scheduled annual charges (whole transactions)Source: User decision
annualPrice
Annual price (currency units)Source: Business record
subscriptionBilledPotentialRevenue
Billed potential revenue (currency units)Source: Calculated output
Collected gross revenue
subscriptionCollectedGrossRevenue = successfulMonthlyTransactions × monthlyPrice + successfulAnnualTransactions × annualPrice

Where

transactions
Transactions (operational units)Source: Business record
successfulMonthlyTransactions
Successful monthly charges (whole transactions)Source: Business record
monthlyPrice
Monthly price (currency units)Source: Business record
successfulAnnualTransactions
Successful annual charges (whole transactions)Source: Business record
annualPrice
Annual price (currency units)Source: Business record
subscriptionCollectedGrossRevenue
Collected gross revenue (currency units)Source: Calculated output
Failed revenue
subscriptionFailedRevenue = subscriptionBilledPotentialRevenue − subscriptionCollectedGrossRevenue

Where

subscriptionBilledPotentialRevenue
Billed potential revenue (currency units)Source: Calculated output
subscriptionCollectedGrossRevenue
Collected gross revenue (currency units)Source: Calculated output
subscriptionFailedRevenue
Failed revenue (currency units)Source: Calculated output
Subscription gross fees
subscriptionGrossFees = subscriptionCollectedGrossRevenue × percentageFee + (successfulMonthlyTransactions + successfulAnnualTransactions) × fixedFee

Where

transactions
Transactions (operational units)Source: Business record
successfulMonthlyTransactions
Successful monthly charges (whole transactions)Source: Business record
successfulAnnualTransactions
Successful annual charges (whole transactions)Source: Business record
percentageFee
Percentage fee (decimal rate)Source: Business record
fixedFee
Fixed fee (currency units per successful transaction)Source: Business record
subscriptionCollectedGrossRevenue
Collected gross revenue (currency units)Source: Calculated output
subscriptionGrossFees
Subscription gross fees (currency units)Source: Calculated output
Subscription fee refunds
subscriptionFeeRefunds = subscriptionGrossFees × refundRate × refundableFeeRate

Where

refundRate
Refund rate (decimal rate)Source: User assumption
refundableFeeRate
Refundable fee share (decimal rate)Source: Business record
subscriptionGrossFees
Subscription gross fees (currency units)Source: Calculated output
subscriptionFeeRefunds
Subscription fee refunds (currency units)Source: Calculated output
Failed-payment cost
subscriptionFailedPaymentCost = ((scheduledMonthlyTransactions − successfulMonthlyTransactions) + (scheduledAnnualTransactions − successfulAnnualTransactions)) × failedPaymentCostPerAttempt

Where

transactions
Transactions (operational units)Source: Business record
scheduledMonthlyTransactions
Scheduled monthly charges (whole transactions)Source: User decision
successfulMonthlyTransactions
Successful monthly charges (whole transactions)Source: Business record
scheduledAnnualTransactions
Scheduled annual charges (whole transactions)Source: User decision
successfulAnnualTransactions
Successful annual charges (whole transactions)Source: Business record
failedPaymentCostPerAttempt
Failed-payment cost per attempt (currency units per failed attempt)Source: Business record
subscriptionFailedPaymentCost
Failed-payment cost (currency units)Source: Calculated output
Net fee leakage
subscriptionNetFeeLeakage = subscriptionGrossFees − subscriptionFeeRefunds + subscriptionFailedPaymentCost

Where

subscriptionGrossFees
Subscription gross fees (currency units)Source: Calculated output
subscriptionFeeRefunds
Subscription fee refunds (currency units)Source: Calculated output
subscriptionFailedPaymentCost
Failed-payment cost (currency units)Source: Calculated output
subscriptionNetFeeLeakage
Net fee leakage (currency units)Source: Calculated output
Effective leakage rate
subscriptionEffectiveLeakageRate = subscriptionNetFeeLeakage ÷ subscriptionCollectedGrossRevenue

Where

subscriptionCollectedGrossRevenue
Collected gross revenue (currency units)Source: Calculated output
subscriptionNetFeeLeakage
Net fee leakage (currency units)Source: Calculated output
subscriptionEffectiveLeakageRate
Effective leakage rate (decimal rate)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Weighted Fee Per Transaction
3.07 currency units
Weighted Effective Rate
3.1%
Total Current Fees
3,072 currency units
Total Alternative Fees
2,596 currency units
Crossover Transactions
174
Billed potential revenue
4,000 currency units
Collected gross revenue
3,400 currency units
Failed revenue
600 currency units
Subscription gross fees
131.4 currency units
Subscription fee refunds
6.57 currency units
Failed-payment cost
18 currency units
Net fee leakage
142.83 currency units
Effective leakage rate
4.2%

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

The fee comparison shows whether the alternative contract costs less for the entered transaction cohort and where its fixed fee crosses over.

3. Validation and boundary checks

  • Scheduled and successful charge counts must be finite non-negative whole numbers; successful charges cannot exceed scheduled charges.
  • Prices, fixed fees and failed-payment cost per attempt must be finite and non-negative.
  • Percentage fee is below 100%; refund and refundable-fee rates remain between 0% and 100%.
  • Billed potential, collected and failed revenue reconcile exactly; fees apply only to successful charges.
  • Net fee leakage equals gross fees less fee refunds plus explicit failed-payment cost before display rounding.
  • Effective leakage rate is explicitly unreachable when collected gross revenue is zero.
  • All values must be finite and inside the visible validation boundaries.
  • Rates are entered as percentages and calculations retain decimal precision.
  • Money uses one consistent ex-tax currency and planning period.

4. Assumptions and source classification

  • Provider fees, exchange rates, return behaviour and operating performance are user-entered scenarios.
  • No provider plan, jurisdiction, tax rate or market benchmark is embedded.
  • The engine retains full precision and display formatting never feeds back into calculation.
  • Monthly and annual cadence values are editable user scenarios inside the owner workflow.
  • The entered refund rate and refundable-fee share apply symmetrically to the current and alternative payment contracts.
  • No processor fee, refund rule or billing-cadence benchmark is embedded.

This comparison calculator has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model does not forecast demand, provider changes, exchange rates or operational performance.
  • It does not replace accounting, tax, legal or financial advice.
  • Processor fees, refundability and failed-payment costs are editable contract inputs; chargeback rules, reserves, settlement timing, tax and provider eligibility are not modelled.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this comparison calculator. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

Return to the comparison calculator