Hack 14 Pay Seller Fees when Buying

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Send a payment along with the respective seller fees using the Mass Pay feature, so that your recipient gets precisely what you promised.

Whether a product is sold or a service is performed, most people generally accept that the product or service provider is responsible for paying any applicable processing fees. But there are plenty of scenarios in which the recipient of your payment is not expecting or willing to pay any fees:

  • Someone who has loaned you money should not have to pay a fee to get paid back.

  • Members of your web site's affiliate program [Hack #77] are not likely to expect to lose 2.9% of their referral fees.

  • Those new to selling on eBay often don't realize that accepting PayPal for their auctions generates enough additional business to be worth the applicable PayPal fees. If you're buying something from an eBay seller who is unwilling to accept PayPal because of the fees, you can often grease the wheels by offering to cover the fees yourself.

Of course, PayPal doesn't charge seller fees for payments received into Personal accounts, but these accounts have their own limitations (described in the introduction to Chapter 3), rendering them useless for this purpose. If you need to make a payment to a recipient's Premier or Business account for a specific amount without generating fees for him, you have two options: calculate the seller fees yourself or use Mass Pay.

2.6.1 Calculating the Fees Yourself

The first solution is to include the applicable fees with your payment, so that when PayPal deducts the fees, the recipient ends up with the intended amount. The equation (yes, there's some math involved) to calculate the total amount received is as follows:

Amount Received = Amount Sent - PayPal Fees

Seller fees for Business and Premier accounts are typically 30 cents plus 2.9% of the amount sent. If you send someone $40, PayPal takes $1.46 (2.9% x $40 + $.30), leaving $38.54 for the recipient.

Non-U.S. account holders and those doing business with non-U.S. account holders might be subject to additional fees or a different fee rate. See [Hack #7] for a way to determine whether your recipient has a Personal account, in which case, no seller fees at all will be incurred.

If you're having trouble remembering your high-school algebra, you might think that all you'd have to do is pay an extra $1.46 for the recipient to get the correct payment, but it doesn't turn out that way:

Amount Received = Amount Sent - PayPal Fees
Amount Received = $41.46 - (2.9% x $41.46 + $.30)
Amount Received = $41.46 - $1.50
Amount Received = $39.96

It's close, but you've still underpaid by 4 cents. The reason is that the goal, $40 in this case, was plugged into the wrong part of the equation. Here's the correct calculation:

Amount Received = Amount Sent - PayPal Fees
$40 = Amount Sent - (2.9% x Amount Sent + $.30)
$40 + $.30 = Amount Sent - (2.9% x Amount Sent)
$40 + $.30 = Amount Sent x (1 - 2.9%)
($40 + $.30) / (1 - 2.9%) = Amount Sent
$41.50 = Amount Sent

Plugging $41.50 back into the original equation, you can see that it does indeed work:

Amount Received = $41.50 - (2.9% x $41.50 + $.30)
Amount Received = $41.50 - $1.5035
Amount Received = $39.9965 or $40.00

When dealing with fractions, PayPal rounds to the nearest penny.

Here's a general equation you can use to calculate seller fees:

Amount to Send = (Amount to be Received + $.30) / (1 - 2.9%)

2.6.2 Covering the Recipient's Fees Using Mass Pay

Another, more direct way to cover the seller fees is to use an underused PayPal tool called Mass Pay [Hack #77] . With Mass Pay, PayPal deducts the fees from the sender's account rather than the recipient's account. In addition to being a simpler method than the arithmetic above, using Mass Pay in this way can make your bookkeeping easier, because the fees appear in your transaction history more clearly.

But the best part about Mass Pay is that the fee is a flat 2% and is capped at $1.00 per transaction (e.g., per recipient). In the scenario described earlier in this hack, the recipient would get the full $40 and you'd be charged only $0.80 instead of $1.50.

See [Hack #23] for other ways to reduce PayPal's seller fees.