How to Calculate Payment Processing Fees
When charging clients or accepting payments online through providers like Stripe or PayPal, transaction fees reduce your net payout. Understanding these deductions ensures your business maintains healthy profit margins.
Fee Formulas
Standard Deduction:
$$\text{Fee} = (\text{Amount} \times \text{Percentage}) + \text{Fixed Fee}$$
$$\text{Net Payout} = \text{Amount} - \text{Fee}$$
Reverse Fee (How much to charge):
To ensure you receive an exact net amount after fees, calculate the gross charge as follows:
$$\text{Gross Invoice Amount} = \frac{\text{Target Payout} + \text{Fixed Fee}}{1 - \text{Percentage}}$$
Frequently Asked Questions
Why is the reverse fee calculation higher than adding the percentage directly?
Processing platforms calculate their percentage fee on the final charged amount, not your baseline invoice. Simply adding 2.9% to your baseline will leave you short because the fee percentage is applied to that new, higher subtotal.