PC Magazine - February 17, 2004
Creating an Online Store

By Sheryl Canter

Online stores have become an essential element of doing business, but selecting from the blizzard of options is difficult. Every online store needs two components: a catalog to display your products and to allow customers to make selections, and a method of accepting payment. Such components are sometimes bundled and sometimes sold separately, and costs vary widely.

An online catalog can be as simple as a one-page product list. But if you want customers to be able to select more than one product at a time, you have two choices.

The simpler method is a multiproduct order page, which lets customers enter quantities next to each item. A single button labeled "Check out" finalizes the selections and brings customers to the payment page. Selections cannot be changed at this point without starting over.

If your online store contains a large number of products, you'll probably want to use a catalog with a shopping cart, which can remember customers' selections as they browse your site.

There are three options for accepting payments online: person-to-person (P2P) services, such as PayPal or Yahoo! PayDirect; payment services, which accept credit cards for you; and your own merchant account for taking credit cards.

P2P services are inexpensive (PayPal charges just 2.2 to 2.9 percent of each sale plus 30 cents) but require buyers to register, which can be a barrier to sales.

Payment services are basically resellers. Their payment pages clearly state that they are actual sellers while you are only the supplier of goods and services. Such disclosure gets around card association rules that forbid a company from accepting credit cards on behalf of another company. Costs for payment services can vary from 5 to 20 percent of each sale and may include additional fees.

Merchant accounts have lower transaction fees than do payment services (usually about 3 percent), but their service fees tend to be higher ($10 to $60 per month). This makes merchant accounts most cost-effective for high-volume businesses.

For U.S. businesses, Electronic Clearing House and payQuake offer inexpensive merchant accounts. If your business is outside the U.S., WorldPay is a good choice, though its fees are higher.

Most Web-hosting accounts now come with a full-featured, open-source shopping cart called osCommerce. Some e-commerce accounts include a commercial cart called Miva. Both of the carts require some Web development skills to set up, and you must make other arrangements to accept payments.

Digital River's Main Street Stores and Yahoo! Small Business offer hosting accounts with proprietary shopping carts, including editing tools for easy configuration. You are still responsible, however, for arranging to accept payment. Yahoo! charges a transaction fee for each sale. Main Street Stores is less costly, but it is also less flexible in configuring your store's appearance.

There are numerous payment services for digital goods or tangible (physical) goods, and some for both. Some services offer order forms but no shopping cart. Some require that you use their shopping cart. Others offer the shopping cart as an option and can integrate with third-party carts.

Pricing details are complex as well. Transaction fees usually include a flat price as well as a percent of the purchase amount, and rates can vary depending on the purchase price and sales volume. Companies also vary in how often they give you your money, whether they charge fees for doing so, whether they bill you for charge-backs (disputed charges), and whether they hold back part of the money as insurance against charge-backs. For full details on the services mentioned below, please visit each company's Web site.

CCNow offers a true shopping cart, but for selling only tangible goods. The fee is $9.95 per month plus 9 percent of all sales over $100.

ClickBank handles only digital goods. Its transaction fee is 7.5 percent plus $1.

Kagi is a reseller for both tangible and digital goods. Kagi's transaction fees range from 8 to 10 percent.

RegNow specializes in software sales. Transaction fees are a whopping 20 percent of each purchase plus 15 percent of whatever you decide to pay your affiliates.

The cheapest and most flexible of the payment services are 2Checkout and PaySystems. Transaction fees for 2Checkout are 5.5 percent plus 45 cents. PaySystems offers two options: 3.95 percent plus $1 or 5.5 percent plus 35 cents.

Hiring a consultant to set up your online store may be cheaper in the long run than paying high service and transaction fees. In general, the more work you're willing to do up front, the less you'll pay for selling goods and services online.


Sheryl Canter is a contributing editor of PC Magazine. You can visit her home page at www.sherylcanter.com.

For an expanded version of this article, click here.

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