Podcast transcript
Introduction
Welcome to another live episode of Marketplace Masters. Marketplace Masters and this series in particular all focused on going deeper into the challenges that Amazon vendors face to lift performance via really practical actions and insights.
Paul Sonneveld
I'm your host, Paul Sonneveld, and today we're going to explore shortages and chargebacks, often referred to as a hidden cost associated with Amazon Vendor Central. Now, to help us do this, I've invited Shelby Owens on the show today to join us and share her expertise. Let me take the opportunity to introduce you to her.
Shelby is the Director of Business Development at Chargeguard, a company focused founded in 2020, focused on Amazon fee management. Her primary focus is growing charge guard's portfolio of brands, building its affiliate and partner network and leading product expansion initiatives. Now Shelby has led the activation of several powerhouse clients, including Fortune 100 companies, and initiated strategic partnerships with over 40 agencies, consultants, and brokers.
Shelby is passionate about creating authentic relationships, partners and clients, and truly enjoys being to make the connections that improve businesses. So it brings a broad range of experiences to the conversation today. That was a long intro, but so great to have you on the show today Shelby.
Shelby Owens
Happy to be here. And it was a long intro, but it's all applicable. So, thanks for having me.
Paul Sonneveld
You are most welcome. I know this is a really big topic. I get asked about this all the time and unfortunately most of the time I'm a little bit like a deer in headlights when it comes to this. I think very technical topic, for Amazon vendors, but also a topic of really great pain and financial deterioration for many vendors. So keen to dive straight into it. And let's just really start with the thousand feet here in terms of chargebacks, and shortages. I use these terms interchangeably all the time, but I suspect I shouldn't be doing that. So, I'd love to just start with what are chargebacks and what are shortages and is there a difference?
Shelby Owens
I love it. Yeah. Big difference. And you're not alone. I talk to so many vendors all the time, all day long. And most of them I'll say, know the difference. But a lot of them don't. And I think that it's intentional on Amazon's end. Because lacking transparency sometimes helps with not creating this need to add all of these resources towards solving the problem.
So, when it comes to chargebacks and shortages, I'll start with chargebacks. Chargebacks and we'll get into how we manage it, and what the nature of the fee is. But chargebacks are non-compliant fees with Amazon. 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. There are over 48 types of chargebacks. And when you think about where these occur, this is really anything having to do with how you prep your product, how you send your product, the ship window, all of those details. That's really specific to the chargebacks.
And then shortages. When I say shortages on any call that I'm on, I'm always talking about two things. This is the inventory shortage and it's the pricing shortage. And so the most familiar one that vendors are most familiar with is inventory shortage. And this is where, this is the pain point, right? This is where vendors, Amazon puts in a PO, the vendors accept it, they ship it. Amazon takes in that product, and Amazon pays the invoice in full, but then they take that massive shortage deduction because they say, okay, the vendor didn't ship me the full PO. And what the vendors are left to do is scramble and staff up and try to claw back these dollars from Amazon that are rightfully theirs.
We do see that more often than not, shortages are erroneous. And the pricing shortages where Amazon pays for a different price than what is actually owed. I will say different. I've never seen them pay more. They always pay less in my experience. But the difference is the keyword there. And, but that, when I say shortages, it's those two things. It's purchase quantity and the purchase price variance.
Paul Sonneveld
I'm very familiar with the purchase quantity. That's I guess that's more related to the kind of shortage even as a word. But in terms of those price-driven shortages, in your experience, is it as common as infantry shortages or is it far less common?
Shelby Owens
Yeah, less common for sure. But still a huge problem. Really great recovery opportunity for them. Because it's typically just a misalignment between Amazon and what they think that they owe. But the inventory shortage is definitely the most common, definitely the biggest pain point for vendors. No question. No question.
Paul Sonneveld
Yeah. Let's stay at that a thousand feet level. Like how big is this? I mean, The word issue is the wrong word to use, but it's still our problem. There's a lot of financial waste that goes into this hole of shortages and claims. Do you have a sense of how large this issue is? As a whole or for a typical vendor?
Shelby Owens
Yeah, both actually. So we did an analysis in 2020 and 2021 and looked at what percent of Amazon's profitability comes from vendor? What are these fees average? We looked at all of it. What we found after a lot of research is across 2020 and 2021, these fees are just the chargebacks and shortages, which there's a whole other fee ballgame, the co-op, the overages, the provisions, all of that that we don't touch in the current state. So specifically chargebacks and shortages totalled about 13 billion dollars across those two years for vendors. When you think about that impact
Paul Sonneveld
That's 13 billion dollars, right?
Shelby Owens
Yeah, there's no misspeaking there. Yeah. Billion dollars. One of the things that I'm sure a lot of vendors have seen if they've gone to our website is we call it a hidden profit center. I hope to one day have a business where I don't consider billions of dollars a line of profit, but I do think that any business would consider that. So it's a huge pain point. And when you think about the reason they occur, and the reason this has become so big is chargebacks, that's a portion of it. And we'll talk about the nature of the fee like I said here in a second. But the shortages that are really the biggest cause for this huge number, this 13 billion dollar.
The primary reason that shortages occur is because Amazon has built to scale, as we all know, and they have an automated receive process. And when they're taking in the inventory, they break it down into sellable units. But it's automated. So, maybe something weighs something improperly. Maybe a label isn't scanned right. Maybe a barcode isn't scanned right. Maybe it falls off a conveyor belt. Maybe it's stolen. There could be, the list goes on and on and on as to the reasons why Amazon wouldn't likely take in all of that inventory.
And then, like I said, that burden is placed on the vendor to have to disprove that. And what we've found is talking to most vendors, they just kind of see it as an Amazon tax. It's a cost of doing business. They accept it, they move on. It's not right. It's a lot of money. When you asked about the individual impact, we see that Amazon's fees average about 4-18% of a vendor's shipped COGS which should reflect their invoices, right? So that purchase order amount, is 4-18% with most vendors falling around 6%. When you look at that number that. That's profitability, right? That's not a pre-negotiated set amount. And then you have your profit margin that cuts directly out of profitability for vendors.
Paul Sonneveld
So four to 8% as sort of as an additional chunk that comes out of your bottom line margin, which I know, depending on the category, probably somewhere in the vicinity of, you know, 30 to 35%, that is almost a third right? Or, or a quarter. That's, that can be quite significant.
Shelby Owens
It's very significant and it's four to 18% and I've actually seen it.
Paul Sonneveld
Ow 18? Sorry, I heard an 8. Wow.
Shelby Owens
I know. And I've actually seen it as high as 28% for a vendor when we did an audit
Paul Sonneveld
Wow.
Shelby Owens
And Yeah. And that was an interesting conversation. But you know, what's been really interesting for me to learn is the exposure that we have to these vendors. And when we're going through these conversations, You know how they're so willing to be very vulnerable, dependent on the vendor, but a lot of them are extremely vulnerable and they're like, listen, we know our profitability is in the single digits and our fees are in the double digits, so there's clearly a problem here.
Paul Sonneveld
Yeah.
Shelby Owens
And so that's, you know, I always appreciate the transparency because we are trying to solve a problem and trying to switch that up a little bit.
Paul Sonneveld
Yeah. And how visible are these fees? When you work with a client, you crunch with the numbers. I mean, as they go, yeah, I knew that. But can you help us fix it or is it, oh my goodness, I didn't even know it was 18%. I thought it was 2%. Like what's the level of transparency that Amazon provides in terms of these charges?
Shelby Owens
Very, very little. Intentionally. Again, the chargeback. No kidding. The chargebacks, I feel like the visibility is a little bit easier. But when you think about the volume of chargebacks that can be really where it's painful because, you know, it's 85 cents. It is the penalty, it's 3% of the cost of the product, it's 10% of the cost of the product. But like we said, like I said at the beginning, we call it the death by a thousand cuts. So we've done audits for vendors where they have 300,000 chargebacks in one year.
And so you don't necessarily have a lack of visibility in Vendor Central to them, you do. It's definitely hard to find them. There's not just a place you can go, show me all my chargebacks, show me the types. But it's definitely easier than the shortages. Shortages are such a nightmare for vendors, and the main reason that I've identified so far is I mentioned a minute ago when Amazon receive process takes place, they pay the invoice in full, you know, the agreed upon payment terms, but then they take that massive shortage deduction.
What happens here is, so let's say the invoice was a hundred thousand dollars. They're going to take a $50,000 shortage. They only received 50% of it, but Amazon has what I always identify as their version of due diligence. They recognize, listen, we're Amazon, we've built a scale, we have an automated receive. We understand that. So we're going to have a process where we're going to check our automated receive process and try to find some of that inventory, and that's called their smart match.
It's their automated inventory reconciliation system, and that occurs for about 30 to 60 days after the invoice due date. That's on average. So they can still receive after that time and reverse a shortage. But what happens during this time is they find your product and they create a child invoice under that original invoice where that shortage was created, and they pay it back, and then that creates a new one. So now you have a new shortage amount for a little bit less, but it just trickles down as they find that product.
So I've seen this go 40 deep for a vendor. So if you look in Amazon and you go to your invoices, you type in an invoice number. If you aren't familiar with and you don't click at the end of that hierarchy, you're going to think that you have a shortage for $50,000, where maybe after that receive process finished out, you only have a shortage for $25,000. So it is definitely, there's very, very little visibility, very little transparency when it comes to what the actual problem is.
Paul Sonneveld
So it sounds like death by a little bit of paperwork as well. Just,
Shelby Owens
A lot.
Paul Sonneveld
A lot of opaqueness to be honest in the process. And I'm, you know, I'm not sure this is necessarily deliberate, I mean, but it's very hard to chase all that down.
Shelby Owens
Absolutely.
Paul Sonneveld
I'd love to jump into some specific examples, but before we do, I want to just talk about the lookback period, right? So there might be vendors sitting here going, Hey, I think two years ago this was a massive problem for us. We just didn't have the resource to get after it. Can you go back and recover chargebacks and charges say two years ago or, or three years ago? What does that look back period? What is it and is it possible?
Shelby Owens
Yeah, I'm glad you asked and yes it is. So, what we'd say for our lookback period is five years on the shortages. So when we audited a vendor, right now we're doing Q1 2018, all the way up to Q4 2022. Even though Q2 just started. So now that's going to adjust and, and be more current. So it's five years for the lookback period for shortages, and we can actually go back that far. We don't typically go further than that. We do have data further than that, dependent on the vendor. But we cut it off at five years just because of it's just better for the negotiations, it's better for the relationship with Amazon, all of those things for chargebacks.
Oh, and I will say on shortages, you don't have a time limit for disputing them. You don't have the three strikes in your out policy that you do for chargebacks. So we can, we can go back that full five years and initiate the disputes without that time-sensitive window. For chargebacks it's different. So chargebacks we only show, I reference our audit a lot, which we'll talk about that here in a little bit. But, For the audit, we only show one year of the chargebacks.
But the main reason is because you only have 30 days to dispute a chargeback. And if you don't, it becomes a lost opportunity is what we identify it as. We want to show that lost opportunity for one year to get them an idea of what has been disputed and denied. What have we never disputed? So what is now Amazon holding onto? However with proactive management, with initiating those disputes with better visibility, what would we have been able to avoid?
But chargebacks are an extremely proactive approach. So not typically a lookback period. I'll say that with an asterisk in certain situations. And I, you know, my operations team is going to be like, why did you say that? That's a secret. But in certain situations, you have a little bit of flexibility on that. But for the most part, we like to set expectations for more of an ongoing approach within 30 days, of initiating that dispute.
Paul Sonneveld
So let me just sure I get this right. So, chargebacks shorter time period, typically 30 days. Shortages are a much longer multi-year period.
Shelby Owens
Yep.
Paul Sonneveld
And typically the dollar amounts tend to be much more significant on the shortages, depending on obviously the vendor. Just make sure I got that right.
Shelby Owens
Yeah, yeah, absolutely. Yeah. And that's a good point. You bring that up dependent on the vendor. It's definitely dependent on the vendor and I said I was going to mention the root cause more often than not with shortages, Amazon's at fault, right? So that's, you know, what is really in your control there. Not a whole lot. There's things you can do, which then takes me to the chargeback side more often than not, with chargebacks, the vendor is at fault.
And so now it's the opposite than the shortage where Amazon was at fault. Now the vendor's at fault, I won't say every time we definitely see erroneous chargebacks, but they're not as common. And so you have a lot of opportunity for mitigation. You have a lot of opportunities for diving into the root cause analysis and trying to become as compliant as possible with Amazon. When you're able to do that on the chargebacks, those non-compliant fees, you're going to see a direct correlation to your shortages and likely a reduction there as well when you're able to clean up both sides.
But that's a little bit about the nature of the fees, so I'm glad you bring that up because the breakdown, it's one of the things we show in the audit is what percent is dedicated towards chargebacks? What's coming from shortages? That is all really contingent on what is the vendor currently doing.
And I also will say, not to go too much into this, but some vendors are intentionally taking on chargebacks because they've done, you know, a cost analysis. And they say, okay, for us right now in current state to own prep on this item, it's going to cost us a $1.25. Whereas if we let Amazon do it, the cost for them to own the 17 prep is $0.85, okay makes sense. So that's what, that's an intentional chargeback. That's not very common. But we have come across quite a few vendors that do that. And as they grow, I think that cost becomes less and less. It makes sense, less and less. They end up being like, okay, we need to figure something out here. But that's, you know, all of that plays into the breakdown for sure.
Paul Sonneveld
Well that, that is such an interesting angle, right? Because it, it is end of the day, I guess, you know, if you are, it's all about are you making the right business decisions because you know, compliant to Amazon's standards in terms of receiving, labeling and all that can be quite a step up versus your existing practice.
Shelby Owens
Yeah.
Paul Sonneveld
And therefore at least in the short term, it might just be easy to say, Hey, I can do this for a $1.50 and pay someone in my warehouse to do this, you know, with a risk that things still go wrong. Or I can just essentially outsource this to Amazon for$0.75 or whatever the number is.
Shelby Owens
Absolutely.
Paul Sonneveld
So that's, that's a really interesting perspective.
Shelby Owens
And I've learned a lot from vendors too, when it comes to one of the things that, I was on a call the other day and they were experiencing a lot of different compliance regulations dependent on the retailer. And that was interesting too. And so from what they said, now this is just one exposure to one vendor. I know everybody might have a different opinion.
From what they said in their experience is that a lot of the other retailers are all aligned. Somewhat, you know, of course, they have a specific product type, but somewhat, whereas Amazon was so different for their prep requirements and so they're like, it doesn't, it's not going to make sense for us to do that because then we'd have to shift all of these other retailers where we're doing it right in the current states. So that's always interesting too.
Paul Sonneveld
Yeah. Awesome. Just want to sort of point out to our audience, I'm seeing, a number of questions flow in, which is fantastic. Just want to say, we have a QandA section, coming up in about 10 minutes, and we'll go through some of your questions. So if you do want to ask Shelby questions, she's far more likely to give you a good answer than I am. Please put them in the LinkedIn comments and we'll tackle them in about 5-10 minutes or so.
So, Shelby, I wanted to just get onto much, much more, some of the specifics. I know you guys do a lot of audits, and you work with at all clients, so there is some value for me to extract from you on that front. The first question really is, so let's talk about, the chargebacks. When you see an order, what are the most top three, top four, common types of chargebacks that you encounter, you know, what's always at the top of the list and what tends to be the cause of those? So, you know, I'd love to get a few examples.
Shelby Owens
Yeah, no, that's a good question. So, Again, I really can give you an average for what I see, but it really does come down to what is the vendor doing specifically. I have this conversation with vendors a lot because they have the same curiosity, you know, how does this compare? Well, it really comes down to what you're doing. But the leading driver that I typically see, is PO On-Time Accuracy, no question. And there's three subtypes of that. There's an on-time not filled and down confirmed, and two of them are 3% of the cost of the product. That's the penalty. One of them is 10% the cost of the product. The root cause id just varies based on that subtype.
Another common one that's definitely, I would say the leading driver. Another common one I see is ASN Accuracy. And there's about six subtypes here. So a lot of reasons why you would get that. But the subtypes are basically all different reasonings. And then on each of those subtypes, there's different root causes and then there's different fees based on what they are.
And then I would say the third, you asked for three, and we show three on our audit. Fun fact. But I would say, This is when it typically really gets vendor specific. But let me see. EDI issues labelling no carton package, the content label that's a big one. Prep Bagging is a big one. I know that Amazon has some, some wacky bag requirements for certain items. I was talking to a vendor not how long ago, and they're like, we have a hockey puck and we don't need to put it in a bag, but Amazon is requiring a bag. Please help. So that was an interesting conversation. But, I would say definitely PO On-Time Accuracy. Definitely ASN accuracy. And then the third one really varies, but I would say, Prep or No Carton Package Content Label anything labelling issue related.
Paul Sonneveld
Yeah. Yeah. No, that's super helpful. Can I just elaborate on a few of them or just sort of ask you to explain a little bit more in layman's terms for those of us that kind of don't kind of live in this world?
Shelby Owens
For sure.
Paul Sonneveld
Accuracy. Right? So, just explain that to us. What does that mean for those kinds of, particularly those that are new to the vendor space? What are we talking here?
Shelby Owens
Yeah, good question. So that's advanced shipment notice. And so that is, like I said, there's quite a few subtypes attached to that one. There's probably about six subtypes, I'm pretty sure. And those vary. There's so many different ones that would be invalid or missing ARN, which is a number specific to Amazon. There's a missing expiration date, and that's all on that ASN, that advanced shipment.
Paul Sonneveld
Yeah. So you're sending an advanced shipment notice to Amazon and you're basically sending them incomplete or incorrect information.
Shelby Owens
Correct. Yep. One of the most common ones for ASN Accuracy, I believe this is one of the subtypes, is the Pro/BOL mismatch. That's a huge one. The expiration dates are a huge one. There's a couple different ones that actually apply to expiration dates. So, that's a little bit more specific. So going more into that, that would be my operations team, but that is a brief overview.
Paul Sonneveld
Yeah. Sorry, one more thing and I'm being very nitpicky, but I just want to make sure I walk away understanding everything you've said. I think you mentioned in the first example you mentioned the sort of subtype Down Confirmation or, something I may have mis misheard you on that, but do you mind just elaborating briefly on that?
What does that mean?
Shelby Owens
Yeah, so down confirmed the root cause of down confirmed, it's one of the subtypes of the PO On Time Accuracy. So this is when the updated confirmed PO quantities after five business days into the ship window or delivery window. That's when there's like an inconsistency. And so the penalty of that is 3% of the cost of the product and it's trailing a certain amount of weeks. But that's just, it has to do with the PO quantities and it has to do with not having the right information within that.
Paul Sonneveld
Yeah, it sounds like this is you as a vendor deciding last minute, you know, instead of sending Amazon the hundred units that you said you would, you just said, oh, I've looked at my warehouse. I've only got 95. I'm going to send you 95 and I'm going to, okay. You know, adjust the PO quantities down.
Shelby Owens
That's exactly, yeah. Which I will say, I mentioned that more often than not the chargebacks are the vendor's fault. Yeah. PO On Time is one where there's a lot of opportunity for mitigation because sometimes it just comes down to the understanding of the chargeback type specifically, and it can be a small little tweak to avoid that from happening. So there's a lot of opportunity for recovery on PO On Time Accuracy, and a lot of opportunity to avoid it. So that's a silver lining here when it sounds like it's really complex and it's like, gosh, there's so many rules and regulations to follow. Some of them are just a quick fix, I'll say.
Paul Sonneveld
Yeah. Yeah. Which actually leads me to, I know you do a lot of recoveries, but you do consulting work as well, really getting down to the root causes. Because ultimately, I guess what good looks like is for to put yourself out of business. You help clients recover and then, but you really get down into help them solve some of these root causes. Right? Because ultimately it's, you may be able to recover, but even the cost of recovery and the working capital involved in that is, it could be quite substantial.
Shelby Owens
Absolutely.
Paul Sonneveld
Talk to me a little bit about like that root cause analysis, and how you do that and I'd love to just hear a couple of examples of difficulty. What are some of the root causes and how do you solve them? I'm sure there are hundreds there, but you know, a couple that comes to mind would be awesome.
Shelby Owens
My Gosh! So many for sure, and I wouldn't know any specific examples, but I can tell you an example of how we brought it to life and what I looked at from this case study perspective. But so yes, you're spot on. A lot of what we do is about recovery because shortages are going to exist for the near future as long as I can see. So, because again, it's an Amazon error. Whereas chargebacks, like we talked about more often than not the vendors at fault. So we do want vendors to be compliant.
Our biggest reason here is I won't spend too much time on our background, but we have a background as an agency, with managing vendor businesses, managing seller businesses, and we needed to create a solve for the vendor central side of things. So the core of what we do is problem-solving, whether that be through recovery, whether that be through mitigation. So when we dive into mitigation, it is chargeback specific, but like I said, you will see kind of a duplicative effect across your shortages as well, and a reduction there, which is always great. Very beneficial. But this is, you mentioned, you know, working yourselves out of a job.
The recovery opportunity on chargebacks is smaller than it is on the shortages because of the nature of the fee. So when we get in there, And we know Amazon cares so much about compliance. So when you can get a vendor to a very compliant state, not only are you adding so much value to them and avoiding this cost from ever taking place, but you're also giving yourself so much leverage with Amazon and control, and you're doing things by the book because it's less resources and time on Amazon's side to not have to charge these fees.
So, I don't have an exact example. I do know PO On Time Accuracy is a huge one. I
know there are a lot of prep issues, that take place that, like I said, is sometimes intentional. Sometimes they're not intentional. We did I can speak to the case study that we did. We had a vendor on our platform they had when we did their audit, they did about 80 million a year on vendor central.
And at this time, we were showing it to your audit. So two years on the shortages. One, you're the chargebacks. Chargebacks for the one year. Because we always show one year for the chargebacks, they had about 4 million in total chargeback fees that they never disputed and they didn't have visibility into. So those do fall out of that category of opportunity. So they go into a lost opportunity. When we looked at the year before partnering with us. With us all the way to the year after, their business grew 9% on Amazon. Now, I will say we don't promise business growth because some of our vendors are transitioning off. They can do their thing.
But my reason for saying that is because what our narrative is most of the time is, you know when we're going through our sales process, your business is going to grow and so are your fees. So have proactive management. As their business grew 9% in the year after working with us, their fees were mitigated by 30%. And that was primarily due to two different types. I believe the types, one of them was Prep and one of them I believe was PO On Time Accuracy. And so, lots of opportunity like and the prep was bagging. So again, lots of opportunities for that mitigation and a lot of avoidance for sure. For them, 30%, you know, and, like I said, their business did about 80 million a year, so it was a lot over a million dollars. I can guarantee that was avoided for and it was a really good, really good turnout for them.
Paul Sonneveld
Yeah, that's amazing. That's a great story. And, yeah, I'm sure there are lots of these stories out there, all potential stories, I should say.
Shelby Owens
I like that.
Paul Sonneveld
So, we've got a couple of audience questions. If you do have a question and you want to pop it in there, feel free to do that. We'll try and do our best to answer it. But let's start off, we had a few people sending questions even before the start today, so, I've got one here. What is your average recovery rate for an in-depth audit? So let's start with.
Shelby Owens
Love it. So when we do an audit, we have a standard recovery rate that we plug in. It's blended across chargebacks and shortages. And it will depend on the specific breakdown of your fees, like we talked about, those chargebacks, dependent on what the vendor is doing that might be higher. So that would adjust some of the rates that we use for our audit.
But our standard recovery rate when we go back or when we dive into account and start recoveries, we say about 70%. And that's also blended across chargebacks and shortages. And that's just our average. So, we have a couple of different processes for shortage recovery. So on the more initial disputes. It's a little bit lower, but it's faster. Whereas the longer we get into the process, the longer it takes that higher that recovery. But again, it's a longer process. And then on chargebacks, it really just depends on compliance. But that would be the lower end of that 70%, adding to that average.
Paul Sonneveld
Yeah. Great. Alright, moving on, we've got a question here. Came in via LinkedIn from Tina, I was going to put her on the screen here. What backup documentation/proof do vendors need to provide you to pursue a recuperation of Amazon fees and chargebacks?
Shelby Owens
Awesome question. I get asked this question every single time I'm talking to a vendor, so it's definitely expected. So when you think about the proof, chargebacks, when we go through our onboarding process, we have a couple of different onboarding meetings. We'll go into shortages specifically, and we'll go into chargebacks specifically. During that onboarding process prior to those meetings, our Client Success Team will reach out and gather some documentation based on your top five to 10 offenders.
So that is, we need pictures of your labels. If there's labelling issues, we want to see you. If you have, a carton compliance chargeback type, we want to see your carton, we want to see it open face, we'll want to see it prepped, closed, et cetera. And that's just kind of a one-time gathering of evidence that we'll use for future disputes.
Shortages, it's a little bit different, and my answer is always, I think unexpected, but it's always understood. I will say this, we use information that we pull directly out of Amazon for our shortage disputes. A lot of people ask, what about proof of delivery, bill of lading? This is a pain point for vendors, but Amazon does not use proof of delivery or bill of lading regardless if you're prepaid or collect, which is when those are associated, for proof of shortages.
And the main reason is because they only claim ownership over your product the second that receive process starts. Regardless of how it gets to their warehouse. And again, that can be very frustrating, especially if you're collect and you're not using your own freight, you're using Amazon's, you're like, I signed it. It's not mine anymore.
Technically in Amazon's eyes, it is considered yours up until that receive process starts. And this is something we figured out through our disputing efforts, but then Amazon validated this, I don't know where I saw it, but it was like an Amazon Q and A or an FAQ and they answered that, no, they don't see proof of delivery or bill of lading as valid proof. So we get creative and we pull information directly out of Amazon to combat the shortages.
Paul Sonneveld
Thank you, Shelby. That's a very comprehensive answer. I think I've got maybe time for one or two more. So I've got another one here. What is the general processing time for Amazon to actually pay out the shortage claims?
Shelby Owens
Great question. So I mentioned a minute ago that we have a couple of different steps to our shortage dispute process. We have our initial disputes, we have an escalation, and then we have that settlement with Amazon. Dependent on the round you're in, you're going to see a different payout timeline. So for those initial disputes, typically Amazon responds to that dispute within 30 days and then pays it out within another 30 days. If you're in the escalations, it can take a little bit longer, but still faster than that settlement, which is the third and final attempt the settlement can take.
We always set expectations for about six to nine months, and that's sometimes it can even go longer than that. And that's because that settlement is a negotiation with Amazon. The way the process works, and this is an Amazon process, you submit the bulk negotiation for review. They accept the amount and now they're not paying the amount, but they accept, Hey, we see that this is an open amount in the account and we'll offer you 5% of it, and they start very low. And then you have to kind of wiggle up to that highest payout possible. And so that process can take a lot of time. So that's a little bit about the time. It depends on which round of disputes you're in.
Paul Sonneveld
Yeah. Great. Thank you. Okay, I'll throw up the last question, which is actually a great segue in terms of wrapping up the show. I usually get to this, as well anyway, so it's. Tina's asking, what is chargeguard’s fee structure for engagement? What's the average duration? I would like to sort of add mine on top of that, which is I'm sure there's a lot of vendors, that are watching the show, you know, maybe live or on demand. You know, thoughts are starting to bubble up. They'd love to maybe engage with you or at least have a conversation. Paint a picture for us is how do we get in touch with you or how they get in touch with you. I think I'm pretty clear on now to get in touch with you. And, you know, what does engagement look like? You know, how do you work with clients? You know in 30 seconds or less.
Shelby Owens
Love it. We can make this quick. So we start with a free audit. Our audit is totally free. It gives visibility, like we said, five years of shortages, and one year of chargebacks. We'll bring a lot of information to that audit. The second slide that we bring is a cost-benefit analysis. So based on that snapshot in time, we want to show you where you net out with cost included. So what our standard cost is prior to getting any audit? Now it's not charged pre-audit, but this is what we always market, is a $7,500 engagement fee. That's again, prior to us having visibility to that audit. And then we go to a two-phase commission structure. We charge a 25% commission on the first 250,000 that we get back, and then we drop to a 15% commission. And that's for the life of the client. And so that's our standard cost. But of course, once we have that audit in hand, lots can be done. I'll say that.
Paul Sonneveld
Thank you. That is great, I love the just transparency, you know, this is what we charge, this is how we work. No beating around the bush.
Shelby Owens
Yeah.
Paul Sonneveld
You know, if it's right for you as a vendor, get in touch. If not, you know
Shelby Owens
That's exactly the point, right? And the transparency. You know, I will say this doesn't happen often, but it has happened. I will not lie about this. Sometimes a vendor will do an audit because why not? It's no cost. New obligation, we'll review the results with them and maybe they're doing an incredible job managing in-house. And they don't have a need in their current state to outsource it to a company like Chargeguard.
So, then we give it to them. We're like, here, go brag on your team. Brag on whoever's doing this. Take this audit, look at your fees, and look at your compliance. You're doing a great job. So I will say that doesn't happen often, but it has happened and that is also a use for the audit. So it's definitely, like you said, why not just, just get it, get some visibility and see what's out there.
Paul Sonneveld
Awesome. So just very practical for people to get in touch with you. What's the best way to do that?
Shelby Owens
Email is great. It's shelbyo@chargeguard.co. It's not.com. So if you send it, you will get rejected. I always like to say it's catchy, so shelbyo@chargeguard.co. Or you can go directly to our website and you can click book a demo and that links directly to my calendar. So lots of different ways. I'm also on LinkedIn. I know you tagged me and I think I commented on it, so, you can reach out to me anyway. But I'm always checking my email. My email is like my child, so I'm always in on that, making sure it's up to date. But however you need to get to me.
Paul Sonneveld
That is awesome. Well, we're, out of time, so we're going to have to wrap it up there. But Shelby, thank you so much for coming on the show today. I just love that kind of passion. I think I said it the first day we met, you know, you just radiate passion, you'd iterate depths in terms of expertise, and I just love that. So thank you for just sharing that with her today, being very generous with kind of your knowledge, your experience, your case studies. You know, I really, really, appreciate it.
Shelby Owens
Absolutely.
Paul Sonneveld
Thank you so much.
Shelby Owens
Thank you. Thanks for having me. It was awesome.
Paul Sonneveld
All right guys, well that's it for today’s episode. I hope you enjoy that. Thank you for your engagement. Thank you for your comments. And thank you, most of all for watching and listening. For those of you who are listening to this as a podcast afterwards. Don't forget to visit merchantspring.io to book your free personalized tour of the Amazon vendor platform. Until next time, bye-bye!
