Stripe vs. Paypal: the definitive profitability comparison.
So, I decided to investigate deeply the economics of the two solutions to craft a definitive profitability comparison.
Whatever you sell online, you should integrate to your website a solution to accept online payments.
The solutions to accept online payments are many, as many as the factors you should take into account for the evaluation, from customer experience to total cost of ownership.
But, when it comes to the business profitability, which is the solutions to prefer in the fight of stripe vs paypal?
This is the question I’m going to address through a basic assumption: sales are made in Europe.
Stripe vs. Paypal raw costs
Stripe’s costs are deadly easy to understand and apply to a financial model: €0,25 per transaction + 1,4% of the transferred money.
Paypal makes our life a bit more complicated for a few reasons. First, because there are two plans: basic and Pro.
The basic plan has higher costs per transaction and no monthly fixed cost, while the Pro plan has lower costs per transaction with a fixed monthly cost.
Anyway, even Paypal, for every sale we close, applies the same cost scheme as Stripe’s: a fixed cost per transaction plus a percentage cost on the transferred money.
But, since Paypal Pro has a monthly fixed cost, we can’t immediately understand how this fixed cost impacts on each transaction. To have this information we should divide the monthly fee by the number of transactions.
Then, since the price scheme of both players has a fixed cost per transaction, we should assume an average sales ticket in order to translate such cost in a percentage value and have a unique value to compare.
The average sales ticket assumed is €50 and the following is the impact costs have on the revenues.
Be careful, because the attribution of the monthly fixed costs of Paypal Pro was made on the threshold sales. Hence, Paypal Pro, in case of sales lower then the threshold values (i.e: €2.500, €10.000 and €100.000), has a greater impact on the profitability.
Got you covered with a proven method and an easy tool (a spreadsheet), free forever.
Based on the average sales ticket of €50, we can compare the cost of Stripe vs. Paypal.
Clearly, Stripe has a constant percentage impact on our sales, since its pricing scheme doesn’t rely on the sales per month.
Stripe results to be more profitable for small businesses. When the business size grows, the benefits shrink.
Stripe vs. Paypal price sensitivity
What happens when the average sales ticket is not €50 as assumed so far? Is still the battle of Stripe vs. Paypal won by the first player?
We will use as metric to answer this question Paypal’s markup over Stripe cost.
What can we deduct from the sensitivity analysis?
When sales volumes are high, Paypal Pro performs better than the basic Paypal plan and, almost regardless of the average sales ticket, Paypal Pro has a markup of about 30% over Stripe.
When sales volumes are low, Paypal basic plan performs better than Paypal Pro and the impact Paypal has on our profitability is two times greater than Stripe has.
Why understanding Stripe vs. Paypal economics is so important?
Understanding how the payment gateway you employ impacts your business profitability is a key point because it affects the Customer Lifetime Value.
In fact, the cost of the payment gateway is one of the variable costs to take into account when computing the contribution margin.
So far, we have highlighted the economics behind the choice.
But, many potential customers, without having the chance to pay via Paypal do not have either any means for paying or enough trust in our brand.
Paypal, besides providing payment processing services, lowers purchase barriers on the web thanks to its customer protection policies.
In my opinion, you may consider an all-in-one payment solution like Braintree in order to get the most out of Paypal and card payments.