PayPal Micropayments

Normally when you create a standard Paypal account you are automatically put into the 2.9% + $0.30 transaction fee schedule. The unadvertised option for those that frequently receive small payments (also known as micropayments) is that you can opt for Paypal's micropayments transaction fee schedule.

A closer look at the transaction fees for Paypal accounts:

Paypal Business/Premier: 2.9% + $0.30

Paypal Micropayment: 5% + $0.05

Optimally the micropayment threshold should be $11.90. So if your product is at or below $11.90 you should send the payment transaction to your Paypal Micropayment account. If the payment is over $11.90 the payment transaction should be sent to your regular Paypal account. By doing this you are ensuring that you pay the least amount of transaction fees possible. Of course you will need to have a Paypal Micropayments enabled account to take advantage of these savings.

Take a look at the transaction fees purely from the standpoint of mathematics and solve for x to see where each fee schedule meets:

2.9%(x) + $0.30 = 5%(x) + $0.05

x = $11.90

Now Paypal on their website has more generously (for themselves) indicated that a cutoff point of $12 as the recommended threshold for deciding whether to accept payment with your standard account or your micropayment account. The amount of money that Paypal might gain from this is nominal in the amounts of tenths of 1 cent, but it still favors Paypal. At $11.90 the transaction fees will always favor you.
In the $10-$12 price range, your saving may not be that substantial, but at lower amounts such as below $1.00 your savings will skyrocket. For example

Payment received on standard Paypal fee schedule
$1.00 x 2.9% + $0.30 is equivalent to $1.00 - $0.33 (fees) = $0.67 (profit) or 33% paid in fees to Paypal

Payment received on micropayment Paypal fee schedule
$1.00 x 5.0% + $0.05 is equivalent to $1.00 - $0.10 (fees) = $0.90 (profit) or 10% paid in fees to Paypal

You can use this online Paypal calcuator to see examples of these savings: http://www.rolbe.com/paypal.htm

You may not have known but you are allowed to have multiple PayPal accounts. PayPal plainly states where they stand on having multiple accounts and in fact recommends having multiple accounts if you are a seller that accepts both standard and micropayments.

Quote from Paypal's website:
"Merchants who receive both macro and micro payments should maintain two separate accounts:
1. An account to apply their standard rate to macropayments.
2. An account to apply the micropayments rate to their micropayments.
Each PayPal account is associated with only one merchant processing rate...."

Your Paypal account can be set up to receive standard payment or micropayments but not both (at least not at this time, hopefully this will change in the future). You can create a micropayments account in minutes and start accepting micropayments immediately even without adding a bank account to the micropayments Paypal account. When you receive micropayments you can send money from your micropayment account to your standard account so that you can have access to your funds.

If you don''t have a Paypal micropayments account you can get one by creating a new Paypal account dedicated to Micropayments here:

http://www.paypal.com/activate_micropayments_5pct_plus_5cents_new_account_pricing

or

You can convert an existing Paypal account into a micropayments account here: http://micropayments.paypal-labs.com

If you are a seller of intangible goods you can take advantage of micropayments by selling your ebooks, software, and other files on a marketplace that allows for both standard and micropayments. Download-Bay.com has set up such a selling environment that allows you to accept standard and micropayments. Download-Bay.com will automatically send your payments to the your standard PayPal account or your micropayment PayPal account based on the price of your product in relation to the $11.90 payment threshold.

Give it a try, and you will be surprised see how much you will save on transaction fees over the long run.