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What is a chargeback ratio?

Do you pay enough attention to chargebacks and know precisely what an acceptable chargeback ratio is? Do you know how to calculate the chargeback ratio?
Answering these questions is very important because an increase in this number of payments will negatively impact your entire business and bottom line.
In this article, we will talk about chargebacks and why it’s essential to know how to calculate your chargeback ratio and what information it can provide you.

Why is the chargeback ratio so important?

You can’t just say it in two sentences, but being familiarized with this ratio can benefit your company and provide a lot of valuable insight.
Firstly, you will learn the real reason why your customers are trying to get their money back. Worry about your customers and what they are concerned about. You will quickly fix the situation instead of dealing with the harrowing consequences for the company.
Secondly, you will feel the importance of a detailed data analysis that you have not paid enough attention to before.
You may not know the PayPal chargeback ratio. That’s not a problem because now we’re going to give you a methodology that allows you to analyze the information intelligently and get the most out of it. And you’ll be able to calculate your average chargeback ratio, which is very important:

  1. Get data on your chargebacks for a certain period and categorize them according to a specific characteristic. For example, such a characteristic might be the source of advertising or the bank that issued the customer’s card;
  2. For each of these characteristics, you will need to determine the ratio of chargebacks to transactions that customers have completed. Also, use a particular feature to calculate it. For example, you can calculate such a ratio for your clients from a specific country;
  3. By identifying 5-10 variables with the highest coefficient, you can find common causes and start to correct the situation. For example, you can change your advertising settings or remove products from your product line that customers will most likely return to you.

A mistake that many companies make

Most companies make the mistake of focusing solely on the number of returns. For example, for one product, the number of chargebacks was 30, and the other was only 5. In this case, they believe that a company should remove the first product with the highest number of such payments from the range, but they ignore the profit obtained from the sale of this product.
To avoid this mistake, you need to focus on the ratio of chargebacks to successful transactions, not just the number of chargebacks. Analyze in detail all the factors that influence your sales statistics and business performance in one way or another.
Even if a specific product has brought you the highest conversion rate, but the number of chargebacks is off the charts, it is hazardous and can damage your firm reputation. Thus, it is wrong to pay attention only to the profit received or the number of failures. It is vital to analyze everything as a whole.

The risk of denial of service

By not paying attention to the chargeback ratio, you run the risk of getting into a situation where your business will be classified as high risk. In this case, companies such as Visa or MasterCard will refuse to partner with you, or your business will fall under more scrutiny from their side with all the unpleasant consequences.
The fact is that each payment system has a specific threshold value, and if the number of chargebacks is too high, the number will exceed this value, and then your company will be charged higher fees, which will harm your bottom line.
We also recommend that you track the ratio of chargebacks to successful transactions, not only in terms of numbers but also in terms of dollars, which will give you a more realistic picture of your net profits.
Remember that you must constantly monitor any risks that could damage your reputation in the pursuit of high profits. Exceeding the chargeback threshold is one such risk.

Fraudulent transactions are the main causes of chargebacks. PayOp has the most advanced software for timely detection of any threats. In addition, in the case of a chargeback, our specialists will make every effort to resolve the dispute in favor of the merchant.

You can find out more about our services here. To register a free account – please follow this link.

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