Starting Your Own E-Business, Part 3: Critical Components

As noted in Part I and Part II of this series, setting up an online business requires gathering a number of tools &#151 in essence, building the technical infrastructure required to serve your customers (and to maintain your sanity).

Three of the truly critical tools you’ll need are a merchant account, a Web hosting provider, and an accounting package. Along with your core e-commerce platform, these three key elements form your e-business’s basic foundation.

Be aware that these three elements are often sold as part of an integrated package. Several e-commerce platforms offer their own hosting service, a built-in accounting package, and an alliance with a company that offers merchant accounts.

Many online business owners prefer these integrated packages because they know the elements work together &#151 and they don’t have to shop for each one. However, if you’re assembling your items a la carte, check out the tips below for selecting each of these three essential e-business tools.

Setting up a Merchant Account
To accept online credit card payments from your customers, you must have an Internet merchant account. You set up a merchant account with what’s called an acquiring institution, in other words a bank, or a middleman company that works with a bank. This bank authorizes the transaction &#151 or declines it, if there’s a problem with the shopper’s credit card &#151 and deposits the money into the merchant’s bank account.

Setting up a merchant account is far from hassle-free &#151 in fact, it requires serious shopping around at the many businesses that offer this service, and at no small expense.

First, some jargon. As you shop around, realize that there’s more than one type of merchant account. Brick and mortar businesses use merchant accounts that accept point-of-sale (POS) transactions, because the customer is standing right there. In contrast, online businesses need a merchant account that accepts transactions in which the customer isn’t present, or CNP (cardholder not present) transactions. This type of merchant account is sometimes called a MOTO (mail order/telephone order) merchant account.

Because there’s a higher rate of fraud over the Internet than at brick and mortar stores, the fees tend to be higher for an Internet merchant account. Because of the higher fraud rates, banks tend to be leery of Internet merchant accounts. Many banks won’t offer an Internet merchant account to a first-time online entrepreneur. Instead, plenty of new e-business owners get their merchant accounts through an ISO, or Independent Service Organization.

These ISOs are middlemen who work with banks. The ISOs are more tolerant of risk, and are geared for working with the transient population of Internet business owners. However, since the ISOs take more risk, their fees are higher.

You can tell a bank from an ISO by its URL. Banks have URLs like But ISO’s have URLs like (Actually, that’s not fair to ISOs &#151 there are plenty of reputable ones.)

Whether you get your merchant account from a bank or an ISO, you’ll face an array of fees. As you consider the offers from various ISOs and banks, it’s a good idea to write down each provider’s fees, so you can easily compare them &#151 the fees are numerous, and they present a blizzard of variables.

Setup fee: This can range anywhere from $50 to $300, in some cases more.

Monthly fee: Most providers charge a minimum monthly fee, regardless of whether a merchant makes any sales.

Discount rate: All providers charge a percentage of each transaction, known as the discount rate. This varies widely, though usually fits somewhere in the range of 1.8 percent to four percent per transaction.

Per-transaction fee: Most providers charge a fixed fee per transaction (in addition to the percentage charge). This might range from 10 to 40 cents per transaction, regardless of how much the item costs.

Termination fee: It’s not uncommon that a provider charges an account cancellation fee, usually if you close your account within a given time period. Read the fine print on this one &#151 watch out for those providers that require a two-year commitment.

Extra fees: When you give a shopper a refund, your provider will charge you a fee, and this can be a hefty, in some cases $10 to $20.

How to Choose
As you compare the various prices, think about the specific needs of your business &#151 a deal that’s good for one kind of business might not be appropriate for a different type of business.

Low or high volume? If you sell lower-cost items in high volume, you need to find a provider with low fixed fees per transaction; be willing to accept a higher percentage per transaction charge to get this lower fixed fee.

Batch or manual transactions? If you chose manual (the cheaper option) you’ll be processing transactions one by one. You’ll manually route the credit card information from your online order form to the card processing company.

If you expect a lot of transactions, you’re better off choosing batch processing. Although you’ll pay more, in many cases you’ll be able to provide faster service, and spend far less time doing it.

How turnkey is it? Some merchant account providers handle many of the technical and data flow issues that confront online business owners. For example, as part of setting up an Internet merchant account you’ll need a
payment gateway, which is a data-routing bridge from your e-business to the credit card processor. Some of the big firms that provide this service include Verisign and Authorize.Net. A number of Internet merchant account providers offer turnkey solutions, so chores like setting up a payment gateway are handled for you.

Can you trust them? In response to the many new Internet merchants that have sprung up, many new ISOs have sprung up to service them. Not all ISOs are created equal. Some of them hide big fees in the fine print. It’s a good idea to get customer references from any ISO you’re considering; find out how happy those merchants are with the service they receive.

Be careful of rock bottom rates, and those “everyone’s approved” vendors. A good ISO will have a customer service department that takes calls &#151 and then actually handles issues.

A Possible First Step
One highly popular and well-respected Internet merchant accounts provider is Paymentech. If you’re brand new to the idea of merchant accounts, it’s worth your while to browse this site and find out the terms, conditions and services it offers before venturing off to try and find a cheaper price. Yahoo Merchant Solutions is one of many popular e-commerce solutions that partners with Paymentech.

Or, PayPal?
PayPal this year launched an aggressive program to build up its Internet merchant account business. In the old days, a seller who used PayPal to accept credit card payments needed to route a shopper to the PayPal site to accept payment. Now, with PayPal’s Website Payment Pro option, buyers can make credit card payments directly on the merchant’s site, and PayPal processes them in background. During this program’s introductory period, the fee structure is highly competitive.

Choosing A Web Host
Unless you’ve got a hefty computer server in your house (along with a fat pipe to the Internet) you’re not going to host your online store yourself. Some other business needs to do this for you. And there are a zillion choices.

As you compare Web hosting companies, be wary of the ones that offer rock-bottom price hosting. There are some good, cheap ones. But if they’re that cheap, will they really provide customer service?

This is the big one. Your entire business is sitting on the host company’s servers &#151 they must guarantee virtually 100 percent uptime. And they must stand behind that in writing. A reputable host will offer some kind of refund if it falls beneath its uptime guarantee.

As shoppers browse your site (and make purchases) they transfer bytes of data from your site. The transfer speed is referred to as “bandwidth.” The more bandwidth a host company offers you, the better. Hopefully, you’ll need a lot of it.

But be careful: Web hosts give you a set bandwidth allotment, and then charge you based on how much you go over. Sometimes these extra charges are buried in the fine print, but make sure you know what they are &#151 a sudden spike in traffic could result in a huge bill.

Tech Support
This is another big one. You want phone access, 24 hours a day, seven days a week. Run, don’t walk, from hosting companies that offer “free e-mail support.” The phone support should be included. Also, before you buy, you should actually call them at 9:30 Sunday night and see if A) they pick up the phone, and B) they can really answer technical questions. In the middle of a busy season you’ll need a live human to handle a problem, and high-quality phone support that’s available 24/7will make a huge difference.

Software Tools: PHP, Perl, CGI Bin Directory, etc.
Some hosting companies include a full range of these software tools (which are necessary for a site’s full functionality). But some hosts offer only a few of these tools, while charging extra for others. Because Web hosting is so competitive, you should expect a full range of these tools included as part of a reasonably priced package. It’s also important to know: what are the host’s database options? Do they include support for your database software as part of the monthly hosting fee, or is this extra?

E-mail options
At this point, most decent packages offer a bunch of e-mail options. All of them, of course, let you have your own e-mail address at, with enough e-mail boxes for you and many employees. The host should also offer virus and spam protection and options like AutoResponder, which lets you send automated messages to your customers. You should also be able to forward your e-mail to any of your other e-mail in-boxes (those not hosted by the host company.)

A really good host will offer an important e-mail extra: a basic e-mail marketing package, to help you reach your customers.

Accounting Packages
Ah, the poor accounting package &#151 no one gets excited thinking about accounting software (and if you do, well, I’m sorry but you’re a little odd). But your accounting program is vitally important. As one e-tailer so aptly stated, “this business is all about numbers.” You can’t track that ever-important profit and loss statement with pen and paper (although some small merchants try to, to their great detriment.)

Again, there are integrated e-commerce platforms that come with their own accounting package; the advantage is that the accounting software is integrated with the inventory tracking software &#151 a huge plus.

However, if you’re looking for a stand-alone program, the key is “simplicity,” notes Jeff Binder, CEO of Saffron Rouge and an expert in e-business setup. “You want to buy software that gives you what you need to grow, but is not incredibly cumbersome to operate.”

Specifically, it’s important that your accounting package be upgradeable; as you take on more employees, or more business functions, your number crunching software must grow with you. What does it cost to upgrade?

It’s worth your while to find out what package your accountant or tax person uses. If you can simply send them data in the format they already use, that can lower your tax prep bill.

Be aware that some accounting software companies offer phone support for an added fee. This option can be worth its weight in gold if you’re in crunch time and you need information from an expert.

Perhaps the default small business accounting package is QuickBooks by Intuit. “QuickBooks is relatively easy to use &#151 it’s a very nice basic package,” Binder notes. Intuit claims that QuickBooks 2006 is a big step forward from its previous QuickBooks releases.

Microsoft hopes to take a large chunk of Intuit’s small business accounting market share with its new Microsoft Office Small Business Accounting package. Microsoft’s obvious advantage is its accounting software’s interoperability with the existing Office suite. Industry observers expect the Microsoft accounting app to offer stiff competition to QuickBooks.

Binder is a big proponent of NetSuite’s accounting software, which is sold on an ASP basis. “I’ve used it for three years, and I’ve never used anything that can compare to it.”

But don’t stop your shopping with QuickBooks or NetSuite. The list of well-known packages includes Peachtree, Simply Accounting (both Peachtree and Simply Accounting are owned by SageSoftware, and MYOB.

Adapted from, part of’s Small Business Channel.

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