These days, the typical E-Commerce provider is lowering prices, which is a good thing, right?  Take a closer look.  You'll see a number of requirements tacked on to ensure that this "price reduction" doesn't cut into the bottom line.

Some standard requirements are:

• You must offer a CD on each product sold
• You must offer some type of archival protection for your software
• You must offer the purchase of a registration license key backup service
• You must subject your customers to unwanted spam by your payment processor

Sure, many people offer the product CD for purchase with the sale, so is it really so bad?  Let's take a closer look.  If you were not already offering the CD, why could that be?  Do you provide a shipment from your company headquarters?  Is there some other type of product you sell that does not require/cannot offer a CD?  Too bad.  No CD, no "lower" rate.  The same goes for the backup insurance requirements.  Would you have already provided those to your customers?  For no cost?  Yes, likely, but the decision is no longer yours.

Well, you think, my customers can opt-out of these add-ons, and I'm getting a lower rate, right?  It depends on the sale, and it's the difference between your Commission Rate and your Effective Commission Rate.  Your Commission Rate is the contract rate you've agreed to pay.  The Effective Commission Rate is the rate you actually pay per sale once your sale is totaled up.  So let's look at a sale based on the commission for a typical E-Commerce provider and see how it compares to Take Two Solutions. We've created Service A and Service B and used a couple of common pricing strategies for our comparisons.

Example 1: $29.95 sale, no tax or VAT.  Total: $29.95 USD

Registration Service	Commission Rate	Calculated on Gross Order Total?	Commission	Effective Commission Rate (on Gross Order Total)
Service A	6.90% + $1.00 USD	Yes	$3.07 USD	10.25%
Service B	4.90% + $1.00 USD	Yes	$2.47 USD	8.25%
Take Two Solutions	7.90%	No	$2.37 USD	7.90%

Using these pricing plans as an example, you can see how the Effective Commission Rate can be much higher than would seem possible at first glance.  However, there might not be enough of a difference for you to move your payment processing over, and it's a valid point.  Let's take a look at a few more examples and see if the difference becomes more significant.

Example 2: Purchase of two $29.95 products, 7% US Sales Tax.  Total: $64.09 USD

Registration Service	Commission Rate	Calculated on Gross Order Total?	Commission	Effective Commission Rate (on Gross Order Total)
Service A	6.90% + $1.00 USD (per item)	Yes	$6.42 USD	9.98%
Service B	4.90% + $1.00 USD (per item)	Yes	$5.14 USD	8.02%
Take Two Solutions	7.90%	No	$4.73 USD	7.38%

Keep in mind that in the above examples for Service A and Service B, the $1.00 USD is applied to each line item in the order, so you're paying an extra dollar for each additional product in the cart.  In essence, you're being punished for selling more of your product!

In addition, when the commission is based on the gross order total, guess what?  You are paying commission in the above examples on SALES TAX!  Again, the examples above are representative and you should certainly make any comparisions against your current registration service contract, but this is more common than you might think.  Add a CD to the order?  Commission goes up.  Add some kind of insurance add-on?  Commission goes up.  Let's take a look at one final example.

Example 3: Purchase of two $29.95 products, 17% VAT, $10.00 CD.  Total: $81.78 USD

Registration Service	Commission Rate	Calculated on Gross Order Total?	Commission	Effective Commission Rate (on Gross Order Total)
Service A	6.90% + $1.00 USD (per item)	Yes	$7.64 USD	9.34%
Service B	4.90% + $1.00 USD (per item)	Yes	$6.01 USD	7.34%
Take Two Solutions	7.90%	No	$4.73 USD	5.78%

The above examples should serve to illustrate that the Effective Commission Rate is a much more useful number when it comes to comparing registration services and their commissions.  It should also begin to show how misleading some of the numbers being thrown around can be at first glance.  Only after working out some examples can you begin to see what you're really paying your E-Commerce provider.