Internet companies and merchant account limits

If you run an internet business with the potential for rapid growth, and you use a merchant account for processing credit card transactions, please check your merchant account monthly limit before you encounter the problem that we experienced over the weekend.

Wikipedia has a decent article on Merchant Accounts, but until I edited it today it said nothing about monthly transaction limits.

The merchant account limit bit one of our Provo Labs companies this weekend. Here’s what happened:

WorldVitalRecords.com started selling subscriptions to its web site on October 4th. We had some initial subscribers from blogs and news releases, but we didn’t turn on our online marketing efforts until last Friday. Our first email campaign went out to 80,000 genealogists. We invited them to get 2 years access to our databases and online courses for the price of 1 year. Our expiration date on this offer is today, October 31st. (MarketingExperiments.com has demonstrated how important it is to have special offers that include urgency.)

The email campaign brought us a large number of new subscribers. Our team had a contest to see who could guess how many subscribers we would get in the first 24 hours. I won the contest–my guess was within 4 of the actual number.

The large numbers of signups continued into Saturday, but then came to an almost complete stop. On Sunday, our numbers were tiny.

Upon investigation yesterday, our team discovered, much to our dismay, that we had reached our monthly transaction limit on our merchant account. Between Saturday and Sunday 113 credit cards were declined, costing us more than $5,000 in revenue.

Yesterday, when our bank helped us get the limit increased temporarily, we saw the subscription numbers soar once again. Hopefully, we can recover the lost revenue from the denied cards. But more importantly, we hope to get an increase to our limit so we won’t have this problem again.

I remember many internet companies had problems with merchant account limits years ago. A 2002 story about profitable internet companies in Southern California describes the trouble that one internet startup had with their merchant account:

The toughest part, they agree, was establishing credit as a totally Internet business. The first weekend they received $10,000 in orders. “Our merchant account (for payments by credit card) would take 12 days to clear our money,” Livdahl says. “Suppliers wouldn’t ship because we hadn’t paid. We just had to wait. It was terrible.”

InternetRetailer.com sells a report that lists 500 retail ecommerce companies that had 2005 revenues of more than $3 million. Many of these companies are fast growing. I wonder how many of them have run into the merchant account limit problem at some point in their history? I bet this is a pretty common thing.

Does anyone have insights into this problem or first-hand experiences with it? What can be done to avoid it? (It’s actually a nice problem to have, in comparison with other problems that many startups have, like not having enough customers.)

P.S.

Interesting thing from Google Trends when you look at the cities where people are searching for “merchant account” or “credit card processing.” Apex, NC has far more queries than any other US city. Does anyone know why?

And Pakistan has far more searches on “merchant account” than any other country. Pakistan is listed by MSNBC as one of the top 5 countries involved in credit card fraud.