Learn to balance Product Pricing & Payment Gateway Charges
Product pricing is a crucial juncture that can make or break a business. Every business performance metric is directly impacted by this single most important factor. There are several different ways a business can price a product- Cost-plus pricing, Value-based pricing, Competitor-based pricing, Dynamic pricing, etc. The most used method in the marketplace is currently cost-plus product pricing method. This blog attempts to explain how digital payment impacts product pricing.
Digital Payment transaction is easy, quick, and hassle-free on the front-end but there are multiple parties involved in processing the transaction- the customer, customer’s bank account (issuing bank), merchant, merchant’s bank account (acquiring bank), card issuer, payment instrument, payment service provider, etc. Each of these parties might charge a transaction fee or interchange fee for facilitating a smooth transaction.
With businesses gradually adapting digital payments, the cost of Payment Gateway and different Payment Modes used by the end-user, needs to be factored into the equation of product pricing. Pricing the product right involves extensive research into balancing the incurred cost, competitor pricing, market dynamics, product growth, and scalability. Here is a simple 3-step process to factor in Digital Payment in cost-plus product pricing, without compromising on the profitability.
Step 1: List the Fixed Cost
Business expenses that do not change with increase or decrease in the number of products produced or sold, is the Fixed Cost. They tend to be recurring expenses like rent, bills, interest payments, depreciation, etc and are independent of any specific business activities. For effective product pricing, the fixed cost needs to be the foundation for building a per unit pricing that is sustainable in a dynamic marketplace.
Step 2: Identify the Variable Cost
Business expenses that change in proportion to production output or sales is referred to as Variable Cost. This includes product production cost, raw materials, packaging, labour, utilities, commission, marketing, logistics, and distribution costs, etc. For sustainable product pricing, the Variable Cost is a central part in determining product’s contribution margin, a significant metric used to determine business’s break-even or target profit level.
Step 3: Add PG (Payment Gateway) Charges & Profit Margin
Currently, there are several different Payment Modes that customers prefer to use when making a digital payment such as: Debit/Credit Card, Net Banking, UPI (Unified Payments Interface), Wallets, etc. Each mode is charged distinctly, as agreed upon by the business (merchant) and the Payment Service Provider at the time of onboarding. The consolidated Payment Gateway charges (Merchant Discount Rate) and the profit margin (Needs to be within the acceptable price range in the market) are added to the total selling price /per unit, giving the final product price / per unit.
Why is it important to choose the right Payment Gateway?
Choosing the right Payment Gateway is critical to the success, growth, and scalability of a business. The best payment solution needs to offer a seamless balance between a customer-centric payment experience and merchant-friendly payment solutions, while being able to offer a nominal MDR for your business. Any minor fluctuation in the MDR can indirectly impact the profit margin. Hence, it is of utmost importance to choose the right Payment Gateway that caters to your business needs.
Pay10 Payment Gateway offers seamless balance between positive payment experience for the customer and merchant friendly payment solutions with competitive transaction fees, advanced security features, hassle-free integration, exceptional customer support, dynamic payment routing. Our ultra-efficient Payment Gateway with top-of-the-line security features, supports several payment modes, and powers an analytical dashboard; Payment Links, Billing service, Reseller services, Payout services, and more.
Frequently Asked Questions
- 1. What is MDR?
- MDR (Merchant Discount Rate) is the rate charged to a merchant for the payment processing
of debit and credit card transactions. The service is set up by the merchant, and they must
agree or commit to the rate before accepting and/or authorizing debit or credit cards for
payment processing.
- MDR (Merchant Discount Rate) is the rate charged to a merchant for the payment processing
- 2. How does MDR impact Product Pricing?
- The MDR is specific to the Payment Gateway and certain Payment Modes, and it is borne
by the business (merchant). Although there are several different payment modes available to the
customer, the MDR remains an important cost factor for the business, indirectly impacting the
product pricing.
- The MDR is specific to the Payment Gateway and certain Payment Modes, and it is borne
- 3. How does Pay10 Payment Gateway impact Product Pricing?
- Pay10 Payment Gateway offers seamless balance between positive payment experience for the
customer and merchant friendly payment solutions with competitive transaction fees, advanced
security features, hassle-free integration, exceptional customer support, dynamic payment routing,
and more.
- Pay10 Payment Gateway offers seamless balance between positive payment experience for the