Ask HN: SaaS peeps, what's your charge approval rate?

[ahoyhere]

I run a time tracking service (http://letsfreckle.com) and I've been digging into our statistics lately, since a surge of traffic has doubled the number of paying accounts (yippee!)

I noticed that the approval percentage for charges -- that is, actual monthly billing -- is only 84-86% (varies by card type).

On the other hand, we've had 0 charge backs. But we only have about 250 paying accounts at the moment.

What's your experience?

Is that approval percentage normal, or is it low? It seems low to me but I've got no prior SaaS experience.

[jacquesm]

Before you start making stats you need to take in to account the time that it can take before chargebacks and credits start to come back to you. This can be up to 6 months depending on the IPSP and the processor as well as the card company.

So unless you are already operating for a long time you really shouldn't say that you have '0' charge backs. If you manage to keep that up though you have a very good thing going.

The approval percentage is fine, it is basically a function of how much fraud you would be seeing, if you continue to see '0' chargebacks in the long term then you could think about relaxing your conditions for approval a bit. But don't make any drastic changes there, change, and observe over some longer period.

That's because if you do mess up on the approval side and there are a bunch of chargebacks in the pipeline you could easily go over the maximum chargeback rate that will terminate your account (typically 1%, but this varies as well).

Another thing to keep an eye at it credits, these are usually higher than chargebacks but strongly correlated. So more credits -> more chargebacks. If you also have '0' credits then you should count yourself very lucky and hope the situation persists.

Personally I think 250 signups (which is about two months worth on my site) is a little low before making the claim of 0 chargebacks. I'd think you need at a minimum 8 months worth of data and a thousand or so running accounts before you can do the stats.

[ahoyhere → jacquesm]

I didn't say 250 signups, I said 250 paying accounts ;)

About 170 of those have been around for over 3 mos. We have been growing very slowly (on purpose). We've been billing >100 customers a month for over 10 months.

I'm not saying there will never be chargebacks, but I suspect a lot of the initial accounts are people who know me from my blogging, speaking, etc., and so are a lot less likely to initiate a chargeback. Yay, social ties.

If we have a 15% charge failure rate (to put the approval rate backwards), that's normal, you think?

Historically speaking, how many of your charge failures have been due to things that get fixed -- expired cards, maxed out lmit -- and how many are signs of a fake/worthless account?

[jacquesm → ahoyhere]

So as long as your growth rate is that low you'll do fine. It's when your growth rate increases that you have to be careful.

> If we have a 15% charge failure rate (to put the approval rate backwards), that's normal, you think?

That's fine, really. Pretty much on par of where I am, completely different service but all the same mechanisms apply.

> Historically speaking, how many of your charge failures have been due to things that get fixed -- expired cards, maxed out lmit

Expired cards are the 'killer' of most accounts, especially if you charge a low amount, the sweet spot is about $20 /mo, so we charge (deviously) $19.95, that way we extend the total $volume per account at the expense of our short term income. 619.95 > 3$24.95.

Maxed out limits only happen around Christmas, and our IPSP takes care of that by retrying on the charge a few weeks later.

> and how many are signs of a fake/worthless account?

Hardly any. Those chargebacks we do get usually are attributable to identity theft and outright fraud. That sucks because as a merchant you have very little tools to combat this. VBV sure helps though.