What are Chargebacks REALLY Costing You?

Avg. Number of Chargebacks Per Month:

Avg. Transaction Value:

Annual Revenue Lost:

+ Chargeback Fees:

+ Admin Fees:

+ Cost of Goods & Shipping:

Total Annual Chargeback Cost:

What Most Merchants Get Wrong About Chargeback Costs

Chargebacks are costly. Every time a customer or fraudster disputes a purchase, you miss out on the sale, lose the inventory you shipped, and get hit with a chargeback fee.

But those are just the direct costs. Hidden in the shadows of every chargeback is a host of other costs, ranging from the time and money spent responding to a single dispute to the longer-term impact of fraud on your bottom line.

Did You Know?

According to LexisNexis Risk Solutions, every $1 of fraud ultimately costs US eCommerce merchants $4.61 to identify, investigate, and resolve — that’s the “true cost” of fraud.

To tell the truth, you’re probably underestimating the true cost of chargebacks. That’s a big mistake. It can lead you to put essential solutions on the back burner.

Even a Small Number of Chargebacks Can Mean Big Losses

Even if only a small percentage of completed orders wind up as chargebacks, you could be leaving hundreds of thousands — even millions — of dollars on the table every year.

Even a small number of chargebacks can result in huge losses

Which leads to

1 year:

$276,600

in losses

2 years:

$553,200

in losses

3 years:

$829,800

in losses

Chargebacks are not just another “cost of doing business,” and they’re not inevitable. They’re a largely preventable problem that should be dealt with head-on, rather than accepted as an unavoidable expense.

There are good reasons to act sooner, rather than later. Curbing your chargeback risks now means that you can fix your chargeback ratio well before you veer into high-risk territory. By contrast, reactively waiting until you experience excessive chargebacks can fracture relationships with both customers and acquirers; once lost, this trust is difficult, if not impossible, to regain.

Ignoring chargeback risks and pretending that everything is business-as-usual can also make your business an easy target for fraud rings and professional fraudsters, who may hijack user accounts, leak sensitive data, or use your checkout environment to test stolen cards.

Calculate Your True Chargeback Cost

To get an idea of how much your company is losing each year to chargebacks, try our easy-to-use calculator:

To determine what chargebacks are really costing your business, you’ll need to gather several key inputs:

Monthly Sales Volume

You can usually find this aggregate figure on the main dashboard of your payment processor or gateway (e.g. Stripe, PayPal, Authorize.net, etc.), or on your monthly statement.

If you use specific accounting software like QuickBooks or Xero, you can find this figure by running a standard “Profit and Loss” report.

Average Order Value (AOV)

Your AOV tells you how much an average customer buys from you in a single transaction. If your eCommerce dashboard does not automatically track this metric, you can calculate it by dividing your total revenue over a set period by the total number of orders received over that same timeframe.

Fee Structure

Everytime you get a chargeback, your processor will hit you with a fee to cover their administration costs. Reference your full schedule of fees and/or payment processing agreement for this information.

Representment Costs

Do you handle chargeback responses in-house? This is the loaded hourly rate for whoever handles disputes (salary + benefits + overhead, divided by working hours).

Acquisition Costs

How much do you spend to acquire your average customer? If you’re not sure, this is something you can talk to your head of Marketing about.

What Your Results Mean (& What to Do Next)

What you should do next depends on how big of a bite chargebacks are taking out of your bottom line:

Under $10,000 Annual Loss

While your current risk level appears manageable, complacency at this stage can lead to unscalable habits that create vulnerabilities as your transaction volume grows.

Focus on low-lift, high-impact optimizations. Ensure your billing descriptors are clear to prevent “transaction not recognized” claims. Implement tools like Address Verification Service (AVS) and card verification value (CVV) validation at checkout, and enforce a flexible refund policy that provides customers with an avenue to get their money back without encouraging return abuse.

$10,000–$50,000 Annual Loss

At this volume, the time your team spends manually investigating and disputing claims is likely costing you more in labor than the actual fraud itself.

For this reason, you’ll need to shift from reactive fighting to proactive blocking by implementing automated prevention tools. Consider deploying 3-D Secure 2.0 technology for high-risk transactions, and subscribing to a chargeback alert service that allows you to refund a transaction and stop fulfillment before a buyer has a chance to file a formal chargeback.

Over $50,000 Annual Loss

If your annual losses are in this range, a professional chargeback management solution will likely cost less than the revenue you are currently bleeding.

To be sure, conduct an ROI analysis immediately. If a managed solution can recover just 30% of these funds or slash your chargeback volume by half, the service will effectively pay for itself.

How Chargebacks911 Can Help

As the first end-to-end chargeback management solution on the market, Chargebacks911® fully-customizable, multi-tiered dispute prevention, response, and intelligence platform is built with eCommerce merchants in mind.

Backed by an industry-leading performance-based ROI guarantee, Chargebacks911® can help you block disputes, fight fraud, and recover revenue.

Interested in learning more? Get in touch with a chargeback expert for a no-risk ROI analysis today.