Dragil Blog – San Francisco Bay Area Web Design and Web Development Company Located in Palo Alto California

If you are using PayPal to invoice your clients, you will ask yourself sooner or later how to calculate the fees PayPal is charging per transaction. If you know about the rate details, you can possibly pass the fees onto your clients as convenience fee (which is justified since it allows the client to have you started on the project without any further delay [a check usually takes about a week to arrive and then to clear]).

Depending on your monthly sales you will be charged either 2.9%, 2.5%, 2.2% or 1.9% per transaction (plus 30 cents regardless of what rate is applied). For transactions processed with the Virtual Terminal you will be charged 3.1%, 2.7% or 2.4%  per transaction (plus 30 cents).

In order to take advantage of the lower rates, you have to apply for PayPal’s Merchant Rate as soon as the first threshold of $3,000 is passed. This can be done online once logged in. For higher monthly sales volumes the rate will be adjusted automatically and it is no longer necessary to apply for it.

First Formula: If you want to receive X dollars from your client after PayPal’s fees, you have to charge X plus PayPal’s fees which I will call Z. The entire amount to be charged is then Y (= X + Z). Y is calculated as (X + $0.30) divided by (1 – <applicable rate>). Z is then Y minus X.

Example: You want to charge your client $1,000 and you have a monthly sales volume of $5,000 (applicable rate is then 2.5% and no longer %2.9). Y is $1,000.30 divided by 0.975 (= 1 – 0.025). Y is then $1,025.94. So you would have to charge your client an extra $25.94.

Please keep in mind that the rate that needs to be applied varies if you are using the Virtual Terminal to charge the client’s credit card.

Second Formula: If you want to know how much of the client’s payment will be left after PayPal deducts their Fees (Z), you will have to look at the following formula.
X (amount that you will receive at the end) is calculated as Y (amount that you will charge your client) – $0.30 – <applicable rate>*Y. Z is then obviously Y minus X.

Example: You are about to charge your client $1,000 and you have a monthly sales volume of $2,000 (applicable rate is then 2.9% and not %2.5). X is $999.70 minus 29 (=0.029*1000). What you would receive in your PayPal account is then $970.70.