Maximizing Profitability: Strategies to Minimize Chargebacks and Shortages
Defining Chargebacks and Shortages
The guest speaker, Shelby defined that Chargebacks are noncompliant fees imposed by Amazon, often referred to as the "death by a thousand cuts." These fees encompass various types, such as PO on-time accuracy, ASN accuracy, and carton package content label discrepancies. On the other hand, shortages refer to inventory and pricing discrepancies between what vendors shipped and what Amazon received. These shortages can result in significant deductions from vendor payments.
“We call this the death by a thousand cuts here at Chargeguard. So these are the PO On-Time Accuracy, the ASN accuracy, and the no-carton package content label.” - Shelby Owens, Director of Business Development, Chargeguard
Common Types of Chargebacks
- PO On-Time Accuracy: This chargeback type includes subtypes such as on-time, not filled, and down confirmed. Vendors may incur penalties of 3% or 10% of the product cost for failing to meet Amazon's specified PO quantities and timelines.
- ASN Accuracy: Advanced Shipment Notice (ASN) accuracy chargebacks encompass various subtypes, including invalid or missing ARN, missing expiration dates, and pro/BOL mismatches. These chargebacks arise from incomplete or incorrect information provided in the ASN.
- Prep and Labeling Issues: Chargebacks related to prep, bagging, and carton package content labels are common. Vendors may face penalties for failing to meet Amazon's specific requirements, such as improper bagging or missing labels.
The Magnitude of the Problem
Chargebacks and shortages pose a substantial financial burden on Amazon vendors. According to research conducted by Chargeguard, these fees totalled approximately $13 billion over a two-year period. For vendors, these fees can account for 4% to 18% of their shipped cost of goods sold (COGS), directly impacting profitability.
Recovery Rates and Engagement with Chargeguard
The root causes of chargebacks and shortages can vary depending on vendor practices. However, proactive management and compliance can significantly reduce these costs. By addressing issues such as PO on-time accuracy, ASN accuracy, and proper labelling, vendors can mitigate chargebacks. Chargeguard's expertise in identifying and resolving these root causes can help vendors achieve compliance and reduce fees.
“Tina's asking, what is chargeguard’s fee structure for engagement? What's the average duration?... how do you work with clients?”- Paul Sonneveld, Co-Founder, MerchantSpring
Chargeguard offers comprehensive audits to identify chargebacks and shortages, providing vendors with visibility into their fees. The average recovery rate for an in-depth audit is approximately 70%, with Chargeguard's two-phase commission structure. The engagement fee is $7,500, followed by a 25% commission on the first $250,000 recovered and a 15% commission thereafter. Chargeguard's goal is to help vendors recover fees while also assisting in mitigating future costs through compliance and process improvements.
How MerchantSpring Can Assist
MerchantSpring, a leading provider of Amazon seller tools, can complement Chargeguard's services by offering comprehensive analytics and insights into vendor performance. By leveraging MerchantSpring's tools, vendors can gain a deeper understanding of their Amazon business, identify areas for improvement, and optimize their operations to minimize chargebacks and shortages.
Chargebacks and shortages pose significant financial challenges for Amazon vendors. However, with the right expertise and proactive management, vendors can mitigate these costs and improve profitability. Chargeguard's comprehensive audit and recovery services, coupled with MerchantSpring's analytics tools, provide vendors with the necessary tools to navigate the complexities of Amazon Vendor Central. By addressing root causes, achieving compliance, and leveraging data-driven insights, vendors can optimize their operations and minimize the impact of chargebacks and shortages on their business.