Time for a Refresh: When to Leave an Internal Solution

When is it time to ditch your internal solution and outsource your fight against chargebacks to a chargeback mitigation company?
by Ronen Shnidman
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Published: April 22, 2021
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When is it time to ditch your internal solution and outsource your fight against chargebacks

When is it time to ditch your internal solution and outsource your fight against chargebacks to a chargeback mitigation company? That is a question that every merchant with manpower dedicated to fighting payment reversals should be asking itself on a regular basis.

It’s easy to be dragged by inertia into ignoring the costs and missed opportunities of a failure to review your payments process. However, regular review of questions like this is what separates efficient data-driven businesses from gut-based operations with unpredictable performance. Let us at Justt walk you through it.

Quantifying your solution’s net benefits

To start you must quantify the costs and benefits of using your existing solution and process. This includes not only actual costs but also the opportunity costs of what you could be doing with the same resources. To break it down:

  • Cost of maintaining the internal solution
  • Cost of overhead to run the internal solution
  • The expense of training new employees to use the solution
  • The lost added value of what else you could be doing with your team’s resources

If you already have an internal solution, then the cost of building it is no longer relevant since it is a sunk cost. However, if you are considering building a new solution, add the development costs to the pile.
The benefits of your internal solution are simply the dollar amount of chargebacks successfully reversed.

Internal chargeback mitigation solution

Then you calculate the net benefits of your solution:

Total Benefits−Total Costs = Net Benefits

To provide an example, let’s say that:

  • The annual cost of maintaining an internal solution is $10,000
  • Annual team overhead is $80,000 for two dedicated employees
  • Training costs are $2,000 for both employees
  • There is nothing better you could be doing with team resources

On the other hand:

  • Your solution reversed 1,800 chargebacks with an average value of $80

Your net benefit calculation would be this:
$144,000 – $92,000 = $52,000

Congratulations, your internal solution saves you $52,000 a year! But don’t stop your analysis there.

Comparing with external chargeback defense

After determining your current net benefits, you should compare it with the anticipated net benefits from possible external solutions. The costs you need to consider for external solutions may include:

  • Set-up fee
  • Annual or monthly minimum fees
  • Per transaction costs multiplied by your chargeback volume
  • Overhead costs if you need to use your own staff with the solution
  • Development costs for integration of the solution with your systems

The benefits of the external solution are simply the anticipated dollar amount of chargebacks reversed. This figure is calculated based on the percentage of chargebacks contested multiplied by the number of chargebacks per year multiplied by the success rate multiplied by the average chargeback amount.

An important caveat: the number of chargebacks contested is an important factor distinguishing your internal solution from outsourced providers. Outsourced providers typically challenge significantly more chargebacks than in-house teams.

For the sake of an example, let’s say:

  • There is no set-up fee
  • There is an annual minimum fee of $30,000
  • The cost per chargeback is $10 and the solution would fight 3,000 chargebacks
  • Because the (self-serve) solution makes you more efficient you would only need one full-time chargeback employee at an annual cost of $40,000
  • You spent $10,000 in development costs integrating the solution into your systems

On the other hand:

  • The chargeback solution has an average win rate in your industry of 75% of chargebacks fought and your average chargeback value is $80

Your net benefit calculation would be this:
$180,000-$110,000 = $70,000

The external solution saves you more money per year than your internal one.

Plugging in Justt’s simple pricing formula

You should switch chargeback mitigation solutions based on the numbers above. But before you do, consider the same example using Justt’s hands-free chargeback mitigation solution and win-win pricing.

Using our solution, your only cost is 35% of the chargebacks we win and we have an average success rate of 83%. You also would not require any employees to fight chargebacks since we would handle everything for you. Let’s make the same assumptions as the other solution, i.e. that we fought 3,000 chargebacks for you and the average chargeback value was $80.

Your resulting cost-benefit equation would be
$199,200 – $69,720 = $129,480

With the three examples given the winner is clear. Justt returns more than double the amount saved by the internal solution, turning chargebacks from the cost of doing business into significant revenue recovered.

Whatever the specific numbers, when you compare specific cost-benefit analyses side by side it should give you a clear idea if it’s financially worthwhile outsourcing your chargeback defense and leaving your internal solution behind.

Be aware of non-financial factors

There are also other hard to quantify issues that you will face managing your own internal solution as compared with an outsourced provider:

  • Maintaining privacy regulatory compliance with customer data
  • Ensuring the data security of your internal solution
  • Scaling of your solution to grow as you do

You should keep in mind the added operational complexity these issues will cause and the distraction to your mission they will entail. It may be worth jettisoning your internal solution for an outsourced one even in cases where the net benefit only borders on improvement based on these factors.

Conduct your cost-benefit analysis with Justt

Justt provides the perfect solution for merchants looking to decrease the operations creep that comes with managing chargebacks on your own. We offer a tailored chargeback mitigation solution that combines technology with human-powered know-how to achieve the highest success rates in the industry. Justt will dramatically increase the number of chargebacks you successfully fight. We can also scale our solution to grow as you do. Reach out if your cost-benefit analysis makes sense and if you don’t know contact us and we’ll help you figure it out.

Contact us to find out more

You may also be interested in: Learning the ABCs of Chargeback Fees.

Written by
Ronen Shnidman
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by PYMNTS.com
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