Start Teaching
Back to Stories
How to use PayPal to sell digital products
  • Nov 18, 2020
  • 10 minutes

How to use PayPal to sell digital products

If you're just getting started with e-commerce, that is, selling products or services online, then take a good look at PayPal. If you're going to sell just a few products, PayPal Website Payments Standard is made for you. If you're going to sell dozens or hundreds of products, you'll want to get a shopping cart and merchant account, but still offer PayPal as a payment option. So let's begin with a basic overview.

PayPal's Basic Operation

Once you have signed up for a free business account with PayPal, you'll want to set up an order button for a product or service. Here's the simplified version of how this works:

  1. Specify an order button. Go to the "Merchant Services" tab, then click on the button you prefer, such as the "Buy Now" button. Then enter the product name and an optional SKU or item ID. You'll assign a price and specify your preferred currency. Then make any changes necessary to your standard shipping and tax policies and press the "save changes" button.
  2. Copy the code. The program generates HTML code for your button. You copy the code, paste it into your webpage at the appropriate spot, and upload or publish your webpage. A "buy now" button will appear on your page.
  3. Payment. When someone clicks on the button, they're taken to the PayPal site, where your customer makes payment with a credit card (or with a PayPal account).
  4. Shipping. You'll receive an e-mail informing you that payment has been made. Now you can ship the item they've ordered based on the shipping information they've given to PayPal.
  5. Withdraw funds. Finally, you can withdraw the funds they've paid and have them automatically transferred to your own checking account.

Simple. Well, in reality, it's more complicated, but that's a quick overview.

Uncomplicating E-commerce

The thing I like about PayPal is that it uncomplicates e-commerce. I can remember the days when, if you wanted to receive credit card payments online, you'd either need to set up a merchant credit card account and install a payment gateway or pay some third party 5% to 10% to do it for you.

PayPal takes credit cards for you with no set-up or monthly fees. The payment gateway is built-in; you'd don't need a merchant account. You pay fees only when a purchase has been made: typically 2.9% plus a 30 cent transaction fee. Sweet! In addition, high security is built into PayPal for you and for your customer. You're able to take payment in as many as 18 currencies (at this writing). And merchants in dozens of countries can use PayPal to sell products - primarily merchants in countries that have more sophisticated banking systems and good enforcement of credit card fraud. Now let's look more closely at what's involved.

Business Account

If you're selling products or services online, you'll want to set up a business account with PayPal. It doesn't cost anything, but it opens up more features and sales capacity to you than what you get with a personal account. Pricing has come down a bit since I last looked at PayPal. You can choose PayPal's regular rates or their micropayment rates, but you can't have both in the same account. To set up a separate account you'll have to tie it to a different bank account. I think PayPal's rates are pretty fair. Yes, they charge the small merchant more than they charge higher revenue merchants, but they don't assess set up and monthly fees.

The other cost you need to consider is how much you have to pay to get money out of the PayPal system in the form of a check or a deposit to your bank account. This varies from country to country. In some countries you aren't able to get money out of PayPal easily, so check first. In the USA, transfers can be made to your bank account via ACH at no charge. ACH transfers take about three business days to complete.

Order Buttons

Over the years, PayPal's order buttons have become more and more sophisticated. You can also create drop-down menus to designate color and size (with or without prices), plus a text box for engraved items.

In the bad old days, PayPal buttons could be altered by unscrupulous customers to contain a lower sales price. No more. Now the primary order parameters for a given product are stored on PayPal's webservers, so prices and your e-mail address aren't embedded in the order button code on your site, visible to hackers. Since buttons are hosted on PayPal, you can now designate the number of products in your inventory. If you get close to selling out your stock, PayPal will e-mail you a reminder. And when you sell out, you can prevent customers from purchasing an out-of-stock item, if you like. Other optional items are the ability to allow customers to change the quantity of an item in the shopping cart and add special instructions to the order. You can designate whether or not the customer's shipping address is required. And advanced HTML code options are available for power users. Order buttons aren't limited to just "Buy now" and "Add to cart." You can also specify buttons that say "Donate," "Buy Gift Certificate," "Subscribe," etc.

Shipping and Sales Tax Calculations

As you set-up your account, you'll want to set up shipping and sales tax rules, so that purchasers of tangible products are charged the correct tax and shipping rates. Do this before creating order buttons for your products.

PayPal allows you to indicate sales tax rates for various regions, either by state or for ranges of ZIP codes that you specify. It can also apply VAT taxes in countries that use that system.

You have your choice of several shipping methods based on (a) total order amount, (b) total weight, or (c) item quantity. I've found that for my business, shipping by weight works best, so I set up two shipping options: (a) an "Economy" listing (reflecting Media Mail prices plus the cost of a shipping envelope) and (2) a "Priority" option (based on domestic US Priority Mail rates). International shipping options are set separately from domestic shipping.

When you set up your order button for a product, your default settings for shipping and tax can be used. But you can override them if you like. Intangible items, of course, require no shipping charge. And event tickets and e-books, aren't taxable in some states. Fortunately, the order button lets you override the normal sales tax and shipping settings you've made, and insert instead of a "0" for intangible products.

Selling Downloadable Products

If you want to sell downloadable products using PayPal to take your order, one option is to specify with your order button a URL to which a customer is taken after successful payment. You set another URL for those who cancel the payment in the shopping cart. Since these URLs are hidden from view, they provide a crude way to take paid customers to your download page for an e-book or MP3 music. This isn't the recommended way to sell digital products, however. Possible problems are that:

  • Your customer could send the download URL to his or her friends, who might then download the product for free.
  • Since your download page can't be easily password protected, it's possible that search engines could index your download page, and then show that page when someone makes a search.

However, if you're just getting started, this gives you a quick and dirty way of delivering your downloadable product without fuss or bother. It just doesn't protect you from people taking advantage of your simplicity to defraud you. PayPal does provide a much more sophisticated method. You can set up a feature known as IPN (Instant Payment Notification). IPN works in conjunction with a shopping cart or digital download service you might use, which would e-mail a download code to your customer as soon as the IPN "payment made" signal is received by the shopping cart or service. The e-mail would include a special key or download URL that can be only used a few times or for only a day or two before it is automatically disabled. This protects you from the URL being distributed to non-paying friends.

If you are only selling digital products with PayPal, you can use a service such as PayLoadz to handle your downloads. PayLoadz also offers a free account to get you started. For some of the reasons I've explained, PayPal is a great way to get started in e-commerce. For some features, PayPal's ordering system matches the quality found in the better shopping carts. Stay tuned.

Recommended instructors

Find instructors for your goals & budget.