How is chargeback ratio calculated?

Chargeback ratio is a key metric used by payment processors and merchants to evaluate the proportion of transactions that result in chargebacks. The correct calculation involves taking the total number of chargebacks and dividing it by the total number of sales transactions. This ratio provides insight into the health of a business's payment processing and customer satisfaction. A lower chargeback ratio suggests fewer disputes and a more satisfactory customer experience, while a higher ratio may indicate potential issues with the product, service, or fraud.

Total chargebacks divided by total sales transactions allows businesses to monitor trends over time, helping them to identify and address underlying issues that could contribute to chargebacks. By focusing on this metric, merchants can work to reduce their chargeback ratios through better customer service, clearer communication, or enhanced fraud prevention measures. Understanding this ratio is vital for compliance with payment processing agreements and for maintaining a sustainable business model.