Chargebacks are becoming an existential threat to e-commerce business owners. The actual cost of chargebacks cannot be easily put into monetary value because of the reasons we’ll discuss in this article.
You may have heard that the cost of Chargebacks ranges from $20 to $240 in extreme cases.
And that’s true.
But what is left unsaid is the ancillary expenses involved in fighting chargebacks and the opportunity forgone.
Business death by chargebacks is not just a term salespeople made up to scare e-commerce merchants. It is a reality.
For clarity, we have defined chargebacks as when a customer disputes a transaction charge to their credit or debit card. When a customer files a chargeback, the customer’s bank will forcefully deduct the transaction from your account, and you will have to go through lengthy processes to invalidate the deduction.
In the end, if you succeeded in meeting the established criteria for proving the validity of the transaction, you might recoup the money.
Generally, customers file disputes after making a purchase when: a) the product received does not match the description, b) the vendor did not fulfil a customer's order, and c) the merchant is not available to address the customer’s concerns satisfactorily.
But, of course, there are many other fraudulent reasons, as we’ll find out in the case study below.
A case study on the true cost of Chargebacks to your business
Merchants have compared chargebacks to sharks in clear waters. And just like Sharks bites, the cost of chargebacks can take you out without warning.
Here’s a case study, as shared by Andrew Chapin on Hackernoon. It’s a long story, but your patience to read it will pay off a great deal:
“We were putting the finishing touches on a great year at Benja, the e-commerce company I started with Tommy Goode in 2014.
All of our charts were up and to the right: our mobile app had 10x’d its user-base, our e-mail list had maintained a 25% open-rate through its growth to 15,000 subscribers (beating the industry average by 9%), and we successfully launched our second product, an interactive online display ad unit, that was practically printing cash.
I started preparing the annual wrap-up for our investors, where I would lay out the plan to grow from a revenue run-rate of $1 million to $5 million. A core component of our 2017 growth plan was the move from offering personalized shopping to experiences where you could shop for another person.
We added gift mode to our shopping app and worked up other ways to encourage our users to spread the love. We thought to offer benjamin gift cards with the holiday season upon us — we would offer 1,000 gift cards for 10% off, which would boost our cash position before the end of the year.
Plus, those who purchased gift cards would gift them or have to complete a future transaction with us — all good things. The campaign went live in our app, and we scheduled an e-mail to promote the offer. We sold out quickly: more than $50,000 in gift cards went out in just a few days.
Things were humming along. I planned to take Thanksgiving week off to go to a friend’s wedding and tour India. This would be my first week off since starting the company two and a half years prior.
I rolled out of bed and walked to the kitchen. I opened my phone. 637 e-mails. And all of them were from our payment processor, notifying us of 637 chargebacks. At the top of the screen, our payment processor balance read -$59,555.
I clicked into the Disputes tab. There they were: 637 transactions, most tagged “fraudulent” by the bank…It was pretty clear that we were the victims of a carding attack.
Each time there’s a chargeback filed, our payment processor takes the transaction amount plus a $15 fee for each chargeback, regardless of the dispute’s outcome. That means that we were on the hook for $9,555 in fees, no matter what.
After a week or two of receiving no assistance as we slogged through the pile of chargebacks, they dropped the bomb: Benja had to find a new payment processor within five days.”
Can you do anything to prevent the cost of Chargebacks from killing your business?
Research puts the market opportunity cost of Chargebacks at $40 billion. “For every $100 in chargebacks, your true chargeback cost is $240 in wasted time, expensive fees, penalties, or additional losses of goods and services.”
As the vendor in the case study above found, neither your payment processor nor bank will lift a finger to help you fight a chargeback. You are on your own.
So it’s incredibly vital that you take the issue of chargebacks seriously because your business’s sustainability depends on it. Just like Andrew realized the hard way.
If you don’t have processes to guard your business, you should work on that even now. You should get reliable fraud prevention tools that can help you avoid a sorry “death by chargebacks” story, as we saw above.
That's where chargeflow comes in.
With Chargeflow’s industry-first Dispute and Chargebacks automation system, you will NEVER have to worry about the cost of chargebacks again.
- We do the work; you get the wins.
Our approach to winning disputes is simple, albeit extremely hard and time-consuming to execute. We combine more than 50 different data points across your eCommerce platform, payment processor, logistics company, and past data to create a super extensive and detailed dispute response — designed to help you recover more money.
- We give you tools that can help you to predict the future.
With our proprietary technology tools, you can gain deeper insights and forecast your business cash flow by having projections into how much money you are expected to recover from ongoing disputes. After analyzing millions of disputes and using our proprietary Machine Learning and Artificial Intelligence algorithms, ChargeScore® predicts with high accuracy the likelihood of recovering every one of your disputes.
Don’t let the cost of chargebacks sink your business
The bottom line is, regardless of how careful you are, chargebacks will still happen. It is becoming a necessary evil for many businesses. But you have to craft a strategy to defend your business. If we told you that you could recover $35,022 more and save 150 hours each month with Chargeflow, wouldn’t that sound like a fantastic deal?
Chargeflow is the world’s first, fully managed dispute and chargeback automation service, designed specifically for eCommerce merchants.
Our system automatically works out-of-the-box, creates customized templates based on your store’s needs, generates the world’s most comprehensive dispute responses, and submits them on your behalf.
All of that is done with the sole purpose of helping you recover more money. Sign up with our 2-click process today and enjoy the Chargeflow exceptionalism!
How do chargebacks impact my business's reputation and customer trust?
Chargebacks can harm your business's reputation by indicating to customers that there is a problem with your products or services. It also creates a negative perception of your business as customers may see it as an unreliable and untrustworthy vendor. Moreover, excessive chargebacks can lead to a decline in customer trust, leading to lost sales and long-term damage to your brand.
How can I track and monitor chargebacks to minimize their impact on my business?
To track and monitor chargebacks, it is important to regularly review your processing statements and transaction logs for chargeback notifications. You can also use chargeback management software to automate this process and provide detailed reports on chargeback trends and causes. This information can help you identify areas for improvement and take proactive steps to minimize the frequency and impact of chargebacks on your business.