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Secret to Maximizing Revenue For Music Using PayPal Micropayments

 You can likely make simple change to your PayPal account, that could easily boost your profits by 35% or more! The artist as record label

 There is no question that the traditional 'record company' model of music sales is being obsoleted by a new digital download model. In this new model, bands can interact directly with their fanbase. Direct band-to-fan sales of digital album and song downloads net the artist several times the amount of money per sale as did the old 'recording contract' model. Indeed, under the new model, the artist performs the role of record label, receiving all the money that in the past would have been retained by this middleman.

Once the decision is made by the artist to market direct to fans via online sales, the artist must choose a means of handling the financial part of the transaction. For the overwhelming majority of artists, the logical choice in this area is to partner with PayPal for the merchant services.

PayPal is simple, trusted, and ubiquitous

PayPal is the leading provider of internet transaction processing services. In operation for over a decade, it is a widely-trusted, secure brand, easing customer fears about dealing with potentially sketchy transactions. It allows consumers to pay in the form that they prefer -- be it through credit cards, debit transactions, or from their PayPal account balances. With over 150 Million accounts, and transacting in dozens of currencies, it is a globally-recognized brand.

Using PayPal as a payment processor, money is paid from the account of the consumers' choice to your PayPal account for each digital music download. For each such transaction, PayPal receives a small amount as their compensation for their service. This is deducted from the seller's receipts.

Two payment rates

What is not widely-known, however, is that PayPal maintains two separate fee schedules (or Merchant Processing Rates) for sellers. The fee schedule specifies exactly how much of each sale would be paid by the seller to PayPal for the service of processing the transaction. Depending upon the dollar size of your average transaction, it may be advantageous to be under one or the other schedule.

The Standard Fee costs the seller a flat rate of $0.30 (in US Dollars) plus 2.9% of the total transaction. Under this cost structure, if the artist sells a single song at $0.99, PayPal charges $0.33 to the seller for the transaction fee -- a third of the entire selling cost.

There is, however, the Micropayments Fee structure. Under this structure, the Micropayments Fee costs the seller a flat rate of $0.05 plus 5%. Using our previous example of selling a single song at $0.99, PayPal would charge only $0.10 as the transaction fee -- less than one-third the cost of the Standard Fee!

Maximizing profits

As seen above, using the Micropayments Fee structure can result in dramatic increase in profitability. Let us assume a single download of a $0.99 single is a typical transaction for your act. Under this model, you would net $0.89 per transaction employing Micropayments Fee schedule, as opposed to $0.66 under the Standard Fee schedule. Or stated another way, this increases your profits by 35%!

Is it right for me?

One can readily see that the Micropayments Fee is a much better deal for small transactions. With a lower flat rate, it makes small transactions competitive. However, with a higher percentage, it becomes less of a deal as the average transaction cost increases.

So where is the crossover point? About $12.00. If you expect your typical transaction to be lower than $12.00, it would be better to employ the Micropayment Fee. This would be exemplary of most singles and albums sold as digital downloads. If you expect your average transaction to be greater than $12.00, it would be better to employ the Standard Fee -- but do you really expect your average customer to buy all your albums at once?

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