How is the chargeback ratio calculated?

The chargeback ratio is an important metric used to assess the performance of a merchant with regard to chargebacks. It is calculated by taking the total number of chargebacks and dividing it by the total number of sales transactions. This gives a clear indication of the rate at which chargebacks are occurring in relation to total sales, helping merchants understand their risk exposure and the effectiveness of their transaction processes.

This method allows for a straightforward analysis, as it directly relates the incidents of chargebacks—transactions that have been disputed by customers to the card issuer—back to the overall volume of transactions they are processing. Understanding this ratio helps in evaluating trends in customer behavior and transaction security.

The other options do not accurately represent the method for calculating the chargeback ratio. For instance, dividing total transactions by total sales does not yield meaningful insights about chargebacks specifically. Similarly, adding chargebacks and charge-offs does not reflect the performance of sales transactions in relation to chargebacks. Lastly, assessing total sales against refunds issued may give information about customer returns but does not provide the same critical perspective on chargebacks as the correct method does.