Obviously any business owner wants to avoid chargebacks as often as possible - they can erode your profits and create all sorts of headaches. 

But in some cases, acquiring too many chargebacks can lead to more serious implications, such as higher financial penalties, reputational damage, and account termination. 

This is why understanding the acceptable chargeback ratio and taking steps to stay within the safe range is so important. While standards vary from industry to industry, the goal is to stay under 1% - meaning for every 100 orders you receive, you’re only dealing with 1 chargeback.

From improving customer service and communication to putting fraud prevention measures in place, there are so many ways to reduce your chargeback ratio. The best way, though, is by partnering with the #1 chargeback company in the industry, Disputifier. 

Learn more about how we can help you avoid up to 99% of disputes in the first place without you having to lift a finger!

What is an Acceptable Chargeback Ratio?

Let’s dig deeper into what is deemed an acceptable ratio for chargebacks across different types of businesses - and more importantly, what happens if you start to exceed this ratio.

Industry Standards for Different Businesses

We mentioned already that the general standard for an acceptable chargeback ratio is 1%, meaning that for every 100 transactions, no more than one should result in a chargeback. This is common for most e-commerce stores along with physical retail storefronts. 

However, travel and hospitality in particular is known for facing more frequent chargebacks due to cancellations and disputes over service quality. The ratio may be a bit higher for these companies.

The same is true of those with a subscription-based business model - like streaming services, subscription boxes, monthly agency services, etc. Recurring billing disputes are very common.

Implications of Exceeding the Ratio

So, what happens if you lose a chargeback too frequently and end up exceeding the acceptable ratio for chargeback occurrences? Beyond paying more in fees for the disputes themselves, here are some other likely outcomes:

• Financial Penalties: Payment processors and card brands may impose fines on businesses that surpass the acceptable chargeback threshold, negatively impacting profit margins.
• Increased Processing Fees: Merchants with high chargeback rates might face increased transaction fees that make payment processing more expensive.
• Account Termination: If after being put in remediation programs you fail to reduce your ratio, a financial institution may cancel your account. This means you can no longer process credit card payments - effectively placing your business on pause.
• Difficulty Obtaining Merchant Services: Similarly, you may struggle to obtain merchant accounts in the future. Payment processors will view you as high-risk and may deny services or impose stricter terms.

The stakes are high - but the good news is you don’t need to stress too much, even if you’re currently struggling to reduce chargeback ratio. We’ll show you how to prevent chargebacks in a few moments. Let’s look at how to calculate chargeback ratio first.

How to Calculate Chargeback Ratio

Effectively calculating the rate at which you deal with chargebacks can help you take proactive steps to address the issue before it spirals out of control. The formula is simple:

Chargeback Rate = (Number of Chargebacks / Total Number of Transactions) x 100

You’ll be left with a percentage, hopefully below 1%. Let’s look at an example below.

1. First, decide on the period for which you want to calculate the chargeback rate. This could be a month, a quarter, or a year.
2. Next, identify the total number of chargebacks received during this period. For example, assume you received 5 chargebacks in one month.
3. Then, calculate the total number of transactions processed in the same period. Let’s say you processed 2,000 transactions in that month.
4. Simply plug the numbers into the formula above and you’ll see that you have a chargeback rate of 0.25% - this is really good!

You should get in the habit of monitoring your ratio and running this calculation regularly. You can monitor trends and see if the rate is slipping in the wrong direction or if the measures you’ve put in place are proving effective. 

Running the numbers monthly is the best practice. But, you should also do calculations annually to get a broader view of your chargeback performance over a longer period. 

Steps to Reduce Chargeback Ratio

Even if you don’t believe your chargeback rate is approaching a dangerous range, it’s worth taking steps to reduce it. After all, chargebacks can erode your profits and have other problematic implications. Here are some effective strategies.

Improving Customer Service and Communication

Many chargebacks are simply the result of miscommunication or poor customer service. 

Start by making sure you have clear return, refund, and cancellation policies on your website so customers can set their expectations before placing an order. 

This will also help customers get in touch with you to solve a dispute one-on-one before getting in touch with their bank to initiate a chargeback.

Speaking of getting in touch with you, it’s important to offer customer service through multiple channels, including phone, email, and live chat. This will make it easier for you to resolve issues for your customers before they end up turning to their bank for assistance.

You should also get in the habit of following up with customers after purchase to confirm satisfaction and address any issues proactively. If you expect delays with their order, make sure you’re letting them know. You may end up dealing with frustrated responses and cancellations, but you won’t deal with as many chargebacks.

On that note, companies with a high chargeback rate should default to refunding customers when possible rather than letting a dispute escalate into a chargeback. 

As far as your product and services go, consider if you’re falling short of customer expectations. So many businesses overpromise and underdeliver - which will earn you the sale, but could lead to disputes upon delivery.

Take better pictures of physical products and don’t make lofty claims you can’t back up. If you do this, you’ll find yourself stressing a lot less about how to protect against chargebacks for item not as described.

Implementing Fraud Prevention Measures

We have an entire guide on how to fight fraud chargebacks, but you’re far better off preventing these issues in the first place. 

There are so many great AI-powered fraud scanners that can alert you to sketchy orders before you actually accept funds and fulfill the order. In fact, this is part of our service offering here at Disputifier. Ours in particular is designed to accept more orders and reduce false positives.

Always use AVS to verify that the billing address provided by the customer matches the address on file with the card issuer. Require the CVV for card-not-present transactions to verify that the customer has the physical card. These are simple steps you can take to reduce chargeback ratio.

You may even decide to implement 3D Secure authentication (Visa Secure or Mastercard Identity Check) to add an extra layer of security. This protocol requires customers to enter a password or code sent to their phone to complete the transaction.

Maintaining Thorough Documentation

Even if you take all the measures in the world to reduce chargeback rates, you’ll still face them from time to time. That’s why you need to know how to win a chargeback as a merchant - disputes settled in your favor will not impact your ratio.

Keeping detailed records of all transactions is a must so you can prepare the most compelling chargeback representment possible. This includes order confirmations, shipping details, and customer communications.

Use trackable shipping methods and require delivery confirmation for high-value items. This evidence can be the difference in successfully disputing chargebacks related to non-receipt claims. We talk about this in our guide on chargeback for services not rendered.

Effective Dispute Management

When the time comes to fight a dispute, set yourself up for success with a tried-and-true strategy. Respond to chargeback notifications as soon as possible with the evidence we mentioned above to make your case.

How long does a merchant have to respond to a chargeback, though? It can vary depending on the financial institution in question, but generally speaking, it’s around 20 to 45 days. But what if merchant does not respond to dispute? You automatically lose - so time is of the essence.

Clearly articulate your case when responding to chargebacks. Craft professional rebuttal letters that address the chargeback reason code and clearly present your evidence. A well-organized letter that directly addresses the customer's claims can be the difference between a win or loss.

If necessary, go through the pre-arbitration chargeback process. This is essentially the second attempt after the initial dispute is settled in the customer's favor. Here, you can provide additional evidence if it’s available. 

Sometimes you may need to go through with arbitration, which is costly and time-consuming. But if it’s the difference between maintaining an acceptable chargeback ratio and falling into the poor graces of financial institutions, it may be your only option.

Prevent 99% of Chargebacks on Autopilot With Disputifier!

Given the implications of your chargeback rate exceeding the acceptable range, it’s essential to put measures in place to prevent these issues in the first place. Of all the best chargeback prevention companies, Disputifier is the #1 choice.

We use chargeback alerts from Verifi and Ethoca so that you can refund up to 95% of chargebacks before they have a chance to actually go through and count against your rate. It’s 100% hands-off, so you don’t have to even think about it.

The system also features tools that prevent chargebacks associated with orders not being received, reducing these disputes by up to 80%. This also maintains customer trust and builds good faith.

The AI-powered fraud scanning system monitors hundreds of data points to ensure you’re not overturning legitimate orders, effectively eliminating false positives while stopping up to 99% of fraud.

These measures work in synergy to keep your chargeback rate as low as possible - but when a dispute does slip through the cracks, you can rest assured we’ll fight it on your behalf without you having to do anything.

We fight thousands of chargebacks monthly and have A/B testing in place so that we can continuously improve our win rates. Every response is customized based on the specific chargeback at hand. 

The management of your chargebacks is 100% automated and guaranteed to improve your win rate - in fact, some of our customers see a 67% improvement! How often do merchants win chargebacks on average? Just 10-30%.

But don’t just take our word for it. You only pay when we win a chargeback for you. So, stop stressing about having to reduce chargeback ratio. We’ll do it for you on autopilot!

Wrapping Up Our Guide to the Acceptable Chargeback Ratio

Maintaining an acceptable chargeback ratio is essential for protecting your business's financial health and reputation. Across most industries, the sweet spot is 1% - any more and you’re at risk of being put in a remediation program, facing higher fees, or losing your account altogether.

Fortunately, we’ve equipped you with proven strategies like improving customer service, implementing fraud prevention measures, and maintaining thorough documentation.

Learn more in our blog, with resources like merchant chargeback insurance, compliance chargeback, chargeback vs dispute, how do chargebacks affect a business, and chargeback email to customer. We’re here to help you feel confident optimizing your chargeback prevention and management processes.

But with the #1 solution just a few clicks away, why bother doing it yourself? Leave it to the experts at Disputifier to bring your chargeback rate down to an acceptable range, safeguarding your revenue and reputation while shielding against the implications of excessive chargebacks!