What to Do When Shopify Reserves and Transaction Fees Are Beating You Up?
Well today I have 4 answers for you, some better than others… But rejoice! The end of that pain is near!
First, let’s cover the problem. Then I’ll show you some answers, and I’ll show you exactly how to set this up so you can implement the best of the options right away.
Anyway, I’ll keep this short and sweet while adding a bit of detail/context for anyone who isn’t aware of what this all means. Basically, even though Shopify themselves advertise “dropshipping” guides in Facebook and promote their services as dropshipping friendly… THEY ARE NOT.
On the norm, no matter what type of business you’re running Shopify takes a cut, a percent of every single sale you make. Adding to that, if you’re dropshipping they are going to continue taking their cut while also placing a 25% of all sales HOLD on your money, a reserve for 90 days! Very hard to run a business like that right? Well it’s even harder since most dropshipping businesses usually have a 30% profit margin, which means they’re holding almost all of your profit.
I went to open another store, and received this gem the very same day I created the store… Before I sold even a single item…
They monitor which apps you’re using, if you install an Aliexpress fulfillment app such as Oberlo or Dropified (formerly Shopified) you are automatically flagged as a dropshipper and will be getting one of these lovely emails. It’s not a matter of if, it’s a matter of when. In this case I got it the same day I opened my store, in other cases I’ve seen people get theirs months later.
Oh, and note the red arrow… they have the audacity to send you their affiliate link for Authorize.net while they’re telling you how they’re putting the kabosh on your store!
The problem here is that Shopify, as much as I dislike it, is still the best game in town for e-commerce. Their system is super fast to setup, super easy to use, and has nearly unlimited options for apps and integrations.
I currently have a developer building me a woocommerce solution, and I’ll be the first to tell you that it’s been a rough road there. Everything requires custom coding, paid plugins, and in some cases just doesn’t work as well – most notably the options for Aliexpress fulfillment stink.
Bigcommerce isn’t very good, I recently tried to help a student of mine with one of her clients’ Bigcommerce stores and the backend was… well it was scarce to say the least.
And to be honest, I’ve never tried Magento.
Say you haven’t gotten one of these emails yet? Well for each sale you’re also paying them a transaction fee.
Here’s the fees for the basic plan:
And they do get a little better if you upgrade and get Shopify’s most costly per month plan – stress the “a little better” part.
So what are our options?
- Continue paying transaction fees and/or struggling to run your business with the reserve on your account.
- Switch payment providers
- Custom coding
- Highly specialized upsell apps:
Let’s dig deeper.
Shopify is a shrewd company. If you switch payment providers they flat out punish you by adding their own 2% transaction fees on top of the other providers fees. But, it could be a better option then a reserve, right?
This is the very best option if you choose to go the different processor route, keep in mind I’m going to explain what I recommend later, I just want you to understand each option first.
Authorize.net takes about 24 hours to get approved, and if you’re outside the US, I’m sorry I don’t know their rules for you so please don’t message me saying they declined you. Just read their terms of service please.
Authorize.net takes a 2.9% + $0.30 cent transaction fee for each sale + $25 per month. Off the bat it’s a little higher then Shopify payments, and keep in mind Shopify will tack their own 2% transaction fee on top of this (ouch).
BUT – Authorize.net will not put a reserve on your account/payments.
They pay out every 5 business days for the first 6 months, then after 6 months you can have it lowered to every 2 days like Shopify Payments.
This is a relatively easy thing you can setup quickly if you get slapped with the reserve – I recommend using it as a temporary option… see the blueprint later on for my instructions.
You’ll still have to pay Stripe’s standard transaction fees of 2.9% + $0.30 cents per transaction but you will not incur Shopify’s additional 2% fee or risk getting slapped with a reserve.
Stripe pays out the first time after 5 business days, then every 2 business days after that.
This is an awesome option but it has some big downsides:
- Costly: expect to pay a good developer anywhere from $500 to $2,000 to have this done.
- Support: as Shopify does upgrades or Stripe changes it’s API there’s a potential for this to randomly break and your sales process could be dead in the water. Not accepting payments, or worse accepting payments but not creating the new customer and their order in your system.
- Not happening quickly: a good dev will need a few weeks to make this happen for you, so if your payment processor suddenly shuts you down or you get hit with a reserve this won’t be a quick fix.
Overall this is a solid option if you do it proactively, in other words, get someone to start building this before you run into any shut downs or reserves.
Specialized Upsell Apps
First let’s discuss Carthook.
It’s a post-purchase one-click upsell app that let’s you build upsell funnels after a customer makes their initial purchase (awesome).
The upsells are AMAZING but the real magic here is that it replaces Shopify’s default checkout with their own – which connects directly to Stripe.
It runs through Stripe so the stripe fees apply, but… Using their cart you will not pay any additional Shopify transaction fees and you will not have to worry about the reserve of death.
It’s not all roses and candy though, folks. Carthook costs $300 per month.
Still, $300 per month is a small price to pay to avoid Shopify’s extra 2% transaction fee and skirt the chance of a reserve (or get around the reserve completely if you’re already on one).
Think about this…
Carthook’s checkout is a true one-page checkout, which means it will convert much better than Shopify’s default checkout – making you more money. To simplify that, if your checkout converts at 1% – simply bumping that up to 2% is doubling your business.
Add in the fact that the upsell funnels here will make you a ton of cash. Seriously these one-click post purchase upsells are FIRE.
Next There’s OneClickUpsell
One Click Upsell is just like Carthook in that it is post-purchase one-click upsells. It also connects directly to stripe.
OCU costs $47 per month + 1.5% of your upsell revenue and then Stripe’s transaction fees per sale.
It works, it’s not that expensive, but it’s not a total solution.
What Should You Do?
The answer depends on your scenario…
Are you already being hammered by a reserve and not making much money?
- Switch to Authorize.net asap – take the hit per transaction and get out of that reserve. That reserve will hold you back from really scaling and making good money.
Are you already on the reserve but making good money?
- Switch to one of the upsell apps and cut those pirates out of your checkout process (and out of your wallet)
Not on a reserve but tired of their transaction fees?
- Go with one of the upsell apps
Want to prevent a reserve and cut Shopify out all together?
- Hire a custom coder to build your checkout
What Do I Recommend?
Here’s a quick blueprint/action plan for you that I recommend doing, after much research on this situation:
- If you’re already on a reserve and strapped for cash get Authorize.net immediately.
- Once your store can afford it, get Carthook and bypass all that nonsense all together.
- Similarly, if you’re on a reserve and can afford it, just go get Carthook right now.
- If you’re not on a reserve but want to proactively guard against it – go get Carthook.
Carthook is pricey, but it will easily pay for itself with the upsells and getting around the transaction fees. Plus the upsells will make you a ton of extra cash on top of all that.
If you’re not worried at all, then go get OCU – you will make a bunch of extra profit and it won’t cost nearly as much as the other options.