2021 Chargeback Fees - The True Cost of Your Chargebacks

The True Cost of Chargebacks_Blog Image

Table of Contents

  1. What is a chargeback fee?
  2. How much is a chargeback fee?
  3. Are chargebacks the same as refunds?
  4. Why do merchants get chargeback fees?
  5. Chargebacks Aren’t a Cost of Doing Business
  6. Conclusion

Chargebacks are serious business for today’s merchants.  Not only can they threaten your reputation – as well as the very merchant accounts you use to do business – but they can also result in serious financial loss time and time again.

You see, chargebacks don’t just mean a lost sale or some unreturned merchandise.  Once all is said and done, the true cost of chargebacks is significantly higher than that.

There are extra fees, your costs to stock, store, pick, pack and ship the order, and dozens of other expenses along the way – and that’s just for one disputed charge.  If those chargebacks keep growing?  Those costs grow, too.

What is a chargeback fee?

A chargeback fee is imposed by banks in an effort to recover incurred costs while handling consumer chargebacks and disputes associated with your account.

How much is a chargeback fee?

Chargeback fees tend to range from $20 to $100 but with operation and customer acquisition costs, companies often lose 2 to 3 times the transaction amount.

Chargebacks also come with these expenses that merchants often don’t think about – or even know exist – until it’s much too late:

  • Transaction fees – Payment processors typically charge 3.5 to 4% of the transaction value just to process a purchase. If that transaction results in a chargeback, it means serious cash wasted, especially on large purchases.
  • Operational costs – There’s a lot that goes into processing an order – picking, packing and shipping it, managing the warehouse and inventory, arranging logistics and transportation, and dozens of other factors. These costs typically amount to about 20% of merchant revenue – revenue that’s lost when a charge is reversed.
  • Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyMarketing and acquisition costs – More than likely, that sale didn’t come for free. You probably put lots of hard-earned marketing and advertising dollars into winning that business, and you might even be paying full-time sales and marketing reps to do it around the clock.  Most merchants spend about 30 to 40% of their revenue in marketing – money that’s wasted and lost when those sales end in chargebacks.
  • Chargeback fees – Finally, chargebacks also come with penalty fees from your bank – usually anywhere from 15 to 40% of the transaction value.

As an example, let’s look at a chargeback on a $100 purchase.

Transaction value


Transaction fee (4%)


Product costs (23%)


Marketing costs (35%)


Operational costs (20%)


Chargeback fee ($25)





In the end, the chargeback doesn’t just mean the loss of $100.  In fact, once all the extra expenses and fees are added in, it easily equates to more than double the lost sale: over $200 lost on a $100 transaction.

And this is the norm.

New call-to-actionIf you, as the merchant, know you’ve met your obligations as the seller – provided the product, shipped it on time and delivered on quality and customer care – you shouldn’t have to eat these expenses as a “cost of doing business.”  You reserve the right to fight back, defend your business and recover your financial losses.

Are chargebacks the same as refunds?

No. The fact that chargebacks have fees in the first place should signal that.

A refund is initiated by the merchant on behalf of a customer complaint. That is, the customer has a problem and the merchant gives the customer a full or partial refund of their money, perhaps as part of a return of the product. 

A chargeback is a forced reversal of the transaction by the issuing bank. Because the transaction is forced, and because the bank and the credit network need to get involved with the process, they charge chargeback fees. 

In the end, a chargeback will end up costing you much more than a refund. There are the fees, of course, but also the hit to your chargeback ratio and your reputation. 

Why do merchants get chargeback fees?

Simple: it costs money to processes and manage chargebacks.

When an issuing bank handles a chargeback, they have to refund the cardholder's money out of their own funds. This is why the funds are pulled from your acquiring bank: to recoup the issuing bank. 

In the meantime, employees at the banks, the card network, and elsewhere have gotten involved managing this process, which costs money. Between managing a chargeback and handling money, customers, and potential issues with security, the bank passes off some of that cost to the merchant. Additionally, fees can be used to discourage chargebacks in lieu of refunds. 

Chargebacks Aren’t a Cost of Doing Business

Despite what many believe, chargebacks aren’t just a cost of doing business.  They come with serious and significant financial costs – about 2.5 times the sale price – and they pose a threat to your reputation, your bottom line and your business model as a whole.

Fighting them – and better yet, preventing them – needs to be a high priority for all merchants, no matter what industry they’re in.


Part of preventing and fighting chargebacks lies in understanding the causes behind them.  What reason codes are coming back with each chargeback?  What underlying problems do they point to in your sales, marketing, operational or back offices?  What can be done to prevent these issues from occurring in the first place?

To start understanding what’s causing your chargebacks and how you can begin to fight back, check out the Chargebacks 101 eGuide.

Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes