Enter the total number of first chargebacks in the month and the previous months number of sales transactions into the calculator to determine the Chargeback Threshold.

Chargeback Threshold Ratio Formula

The following formula is used to calculate a Chargeback Threshold. 

CT = TC / TST *100
  • Where CT is the Chargeback Threshold (%)
  • TC is the total number of chargebacks for the month
  • TST is the total number of sales transactions for the previous month

To calculate the Chargeback Threshold, divide the number of chargebacks by the total number of sales transactions.

What is a Chargeback Threshold Ratio?

Definition:

A chargeback threshold ratio is the maximum amount of chargebacks a merchant is allowed. The chargeback ratio is the number of chargebacks per sales transactions.

How to calculate Chargeback Threshold Ratio?

Example Problem:

The following example outlines how to calculate a chargeback threshold ratio.

First, determine the total number of chargebacks for the period. In this example, there are a total of 100 chargebacks.

Next, determine the total number of sales transactions in the same period. For this problem, there were 10,000 sales transactions.

Finally, calculate the chargeback ratio using the formula above:

CT = TC / TST *100

CT = 100/1000 *100

CT = 1%

FAQ

What factors can influence the Chargeback Threshold Ratio?

The Chargeback Threshold Ratio can be influenced by several factors including the volume of transactions, the type of products or services sold, the quality of customer service, the clarity of the merchant’s return policy, and the security measures in place to prevent fraudulent transactions.

How can merchants reduce their Chargeback Threshold Ratio?

Merchants can reduce their Chargeback Threshold Ratio by implementing clear communication and return policies, improving customer service, using fraud prevention tools, and ensuring that their product or service descriptions are accurate and transparent. Regularly monitoring transactions and quickly resolving disputes can also help.

What are the consequences of exceeding the Chargeback Threshold Ratio?

Exceeding the Chargeback Threshold Ratio can lead to higher processing fees, holds on merchant accounts, or even the termination of the ability to process payments. It can also damage a merchant’s reputation with both customers and payment processors.