What is a Chargeback Win Rate?
A chargeback win rate is one of the primary key performance indicators (KPIs) used to gauge a merchant’s effectiveness at managing chargebacks. With the exception of the merchant’s chargeback-to-transaction ratio (also referred to as a chargeback ratio), no other KPI is so central to this objective.
Some merchants tend to confuse the two, or misunderstand what these figures represent. They are closely related, but the measure to very different stats:
- Chargeback Ratio: measures the number of chargebacks filed by consumers as a percentage of total transactions.
- Chargeback Win Rate: measures the merchant’s effectiveness at fighting invalid chargeback issuances.
It’s important for merchants to understand these figures, and to know how well their business performs according to these KPIs. Despite that fact, roughly one in four merchants do not know their win rate, and a significant portion of the remaining merchants calculate their win rate incorrectly.
Real Vs. Inflated Win Rates
Merchants should calculate their win rates based on the number of chargeback disputes they fight and manage to reverse, as a share of total disputes filed against the business each month. Instead, many merchants mistakenly calculate their win rate by looking as total reversal as a share of chargebacks fought.
To illustrate, assume a merchant sees 100 chargeback issuances in a month. The merchant decides to fight 40 of those chargebacks, and wins 20 reversals. If calculated as a portion of chargebacks fought, this would give the merchant the impression that they achieved a win rate of 50%.
As mentioned above, though, the merchant’s win rate measures success based on total issuances reversed, not disputes fought. Thus, the merchant’s true win rate is only 20%, rather than 50%.
This seems like a minor and, ultimately, unimportant distinction. However, having an accurate chargeback win rate is just as important as ensuring accuracy for any other KPI.
Problems Caused by and Inaccurate Win Rate KPI
Industry data suggests that between 60-80% of all disputes are probable cases of friendly fraud. Merchants may not pick up on this fact, though, due to inaccurate win rate measurements.
Merchants with an overinflated win rate tend to believe they’re more successful at chargeback management than they are. As a result, disputes that could be overturned go unchallenged.
Merchants should not limit their concerns on this topic to individual transactions. Over time, merchants with miscalculated KPIs fall into a feedback loop, as they rely on historical data to develop strategies for how to allocate resources to fight fraud and chargebacks going forward. Bad transaction data leads to misallocated fraud-fighting resources. And as time progresses, increasingly-inaccurate information makes it more and more difficult to plan for the future.
Merchants with an inaccurate impression of their win rate may be leaving significant amounts of recoverable revenue on the table. This is why it’s important for merchants to calculate their win rate as a portion of total chargebacks, not just as a portion of a predetermined subset.
Last Update: May 13, 2020
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