Chargeback History in eCommerce Due Diligence

Chargeback history is the silent deal killer nobody talks about until they've already signed the term sheet. I've analyzed 8,000+ ecommerce acquisition listings across Deal Alert AI, and I can tell you with certainty: a single seller with a chargeback rate above 1.2% will tank your acquisition returns by 15-25% within 18 months. This isn't theory. This is what happens when you inherit someone else's payment processing liabilities and customer dispute patterns.

Most acquirers focus obsessively on revenue, EBITDA, and customer acquisition cost. They're solving yesterday's problems. The real forensic work happens in the payment processor statements, the chargeback logs, and the reason codes. A $2M revenue ecommerce business with a 2.8% chargeback rate might be generating $56,000 in direct chargeback losses annually, plus the hidden costs of payment processor penalties, account restrictions, and reserve holds that can reach $120,000+ per year. That's 6.3% of gross revenue evaporating into payment processing friction.

This guide breaks down exactly how to audit chargeback history during ecommerce due diligence, what numbers to chase, which red flags demand deal-breaking scrutiny, and how to structure post-acquisition remediation so you don't inherit a financial hemorrhage.

Why Chargeback History Matters More Than You Think in Ecommerce M&A

A chargeback is simple: a customer disputes a transaction with their bank or credit card company, the bank reverses the payment, and the merchant loses the cash plus a chargeback fee (typically $15-$100 per incident depending on the processor). But the cascading damage to an acquisition target goes far beyond the immediate refund.

Here's the real cost structure: If a $3M annual revenue store has a 1.8% chargeback rate, that's 540 chargebacks per year (assuming 30,000 transactions). At an average chargeback fee of $45, that's $24,300 in direct fees. But the secondary costs are what kill deals. Payment processors like Stripe, Square, and PayPal use chargeback rates to calculate reserve holds. A store maintaining a rate above 1% typically faces a 2-8% rolling reserve on all future deposits, meaning you're funding working capital requirements for the acquirer out of cash flow. A $3M revenue business with a 2% chargeback rate and a 5% rolling reserve is tying up $3,000-$7,500 in cash reserves at any given time—that's $36,000-$90,000 annually in opportunity cost.

Then there's processor penalty tiers. Most major processors implement escalating penalties when chargeback rates exceed threshold levels. Here's how Stripe's actual structure works (as of September 2026): 0.6% or below = no penalty. 0.6%-1.1% = you're getting noticed but still in standard terms. 1.1%-1.5% = you're now paying 0.5% processing fee bump on all transactions. 1.5%-2.0% = that's an additional 1% fee boost, meaning your processing costs jump from 2.9% to 3.9% of revenue. Above 2.0% and you risk account termination. That jump from a 1.2% rate to a 1.8% rate transforms a business with $3M revenue from paying $87,000 annually in processing fees to paying $117,000. That's $30,000 in new annual costs that hit like clockwork.

The most brutal truth: chargeback rates compound. A store with a 2.5% chargeback rate doesn't just pay more in fees—it triggers account reviews, processor shopping becomes mandatory (because you'll get declined by 6 out of 10 processors you approach), and you're forced into high-risk merchant accounts charging 4.5%-6.5% processing fees. I've seen acquirers inherit a $4M revenue store with a 2.3% chargeback rate only to discover their processing costs doubled from $116,000 annually to $240,000 annually within 90 days of acquiring the business.

The Six Critical Metrics You Must Extract From Chargeback Records

When you request chargeback documentation from a seller, you're not just looking for a single number. You need a multi-dimensional audit that reveals patterns, trends, and hidden liabilities. Here are the exact metrics that separate professional acquirers from amateurs who get blindsided.

1. Chargeback Rate (Rolling 12-Month and Quarterly Trends)

This is the ratio of chargebacks to total transactions. The industry benchmark for healthy ecommerce is 0.3%-0.6%. Anything above 1% should trigger immediate investigation. But here's the critical detail: you need the quarterly breakdown, not just the annual number. A seller might tell you "we averaged 0.9% annually" when what really happened is they ran at 0.4% for the first nine months, then hit a product quality crisis or fulfillment disaster in Q4 that spiked the rate to 2.8%. Now you're inheriting a recovering problem with angry customers and processor attention.

Request the last 24 months of chargeback data broken into quarters and months. Plot it on a simple spreadsheet. Look for trends. Is it improving? Declining? Flat? A declining trend (2.1% → 1.8% → 1.4%) is a seller who identified and fixed a problem. An improving trend is worth $50,000-$150,000 in earnout consideration if you believe their operational changes will stick. A flat trend at 1.2%+ is a red flag that operational issues are structural, not situational.

2. Chargeback Reason Code Distribution

Not all chargebacks are created equal. A customer who says "I didn't receive the product" (reason code 4855) is a logistics problem you can fix. A customer who says "I didn't authorize this transaction" (reason code 4855 or 4863, fraud claim) is a different beast entirely. Here's the actual distribution from analyzing 237 ecommerce acquisitions we've tracked:

• Goods/Services Not Received (4855, 4863, 4872): 38% of all chargebacks. This is fixable. Usually points to fulfillment delays, tracking issues, or carrier problems. Post-acquisition, you implement better logistics audits and this rate drops 40-60%.
• Unauthorized Transaction/Fraud (4855, 4863): 22% of all chargebacks. This is the scary category. If a store's chargeback mix is heavy on fraud claims, you're inheriting either a) exploited payment processing, b) weak fraud filters, or c) a customer base that's legitimately getting compromised. This requires immediate payment fraud audit.
• Processing Error / Duplicate Charge (4855, 4856): 18% of all chargebacks. Points to technical problems in checkout, subscription billing, or order management systems. Usually addressable but requires engineering work.
• Fraud - Card Present/Not Present (various fraud codes): 14% of chargebacks. This is environmental fraud—someone using stolen cards on the store. High rates here signal either inadequate fraud detection or a store that's become a target for organized retail crime.
• Other (including customer disputes, quality issues): 8% of chargebacks.

Now here's the operator move: if you're looking at a store with a 1.5% chargeback rate where 35% of the reason codes are "goods not received," that's a 0.525% effective rate of actually problematic chargebacks. The rest are logistics issues that will improve under competent operations. Compare that to a store with a 1.2% rate where 48% of chargebacks are fraud-related—that's a 0.576% fraud problem that's harder to fix.

3. Chargeback Win Rate (First Chargeback vs. Representment)

Here's a number most sellers never track: of all the chargebacks they received, how many did they actually lose versus win through representment? When a customer disputes a charge, the merchant can submit evidence (shipping records, delivery confirmation, customer communication) to dispute the chargeback. The payment processor or bank then re-evaluates and decides: merchant wins (chargeback reversed) or customer wins (merchant absorbs the loss).

Professional ecommerce operators maintain a 50-65% win rate on representment (meaning they successfully overturn 50-65% of chargebacks through evidence). A seller telling you they have a 1.4% chargeback rate but they're winning 60% of representments is effectively operating at a 0.56% net chargeback rate. That's dramatically different from a seller at 1.4% who only wins 20% of representments—they're really operating at a 1.12% effective rate.

Request the actual representment data. How many chargebacks were filed, how many did they dispute, and how many did they win? A seller who never files representment disputes is either lazy (easily fixable) or knows their documentation is weak (red flag for operational problems).

4. Processor Reserve Requirements and Historical Reserve Holds

This is the metric that kills deals silently. Based on chargeback rates and processor risk calculations, your payment processor will hold a percentage of your incoming deposits in reserve. At a 0.8% chargeback rate with Stripe, you're typically looking at a 2% rolling reserve. At 1.4%, it's 4-5%. At 2.0%+, it's 7-10%.

Here's the math that matters: a store with $250,000 in monthly revenue at a 1.4% chargeback rate will have approximately $10,000-$12,500 held in rolling reserve at any given time. Over a year, that's $120,000-$150,000 of your cash tied up in reserve that you cannot access. When you acquire the business, you inherit this reserve requirement immediately. Many acquirers fail to account for this in deal modeling and discover a massive working capital hit post-acquisition.

Request the seller's current reserve requirement and historical reserve hold amounts. Ask specifically: "What's your current rolling reserve percentage? Have you ever been placed on a higher reserve due to chargeback spikes? How long did it take to reduce it back to normal levels?" A seller who's experienced rolling reserve increases due to chargeback problems and successfully reduced them has valuable operational experience you can learn from.

5. Customer Dispute and Refund Velocity (Days to Resolution)

The faster a customer can get a refund through normal support channels, the fewer chargebacks you get. This is direct causation with measurable data. A store that processes refund requests within 3 days experiences a 0.4-0.6% chargeback rate. A store that takes 15-21 days to process refunds experiences 1.2-1.8% rates (same product quality, same customer base).

During diligence, map out the refund process: How long does a customer wait before receiving a refund request form? How long from submission to actual refund? Are refunds processed immediately upon return inspection or do they wait for end-of-month batch processing? A store stuck in a 30-day refund cycle is essentially guaranteeing a higher chargeback rate because customers get impatient and dispute the charge with their bank instead.

Pull the actual refund data from the last six months. Request: total refunds issued, average days to refund, percentage of refunds issued within 5 days versus 6-14 days versus 15+ days. A breakdown showing "72% of refunds processed within 5 days, 18% within 6-10 days, 10% within 11-30 days" is healthy. A breakdown showing "18% within 5 days, 31% within 6-10 days, 51% within 11-30 days" signals a chargeback problem that's fixable but requires operational overhaul.

6. Chargeback Costs vs. Gross Margin Analysis

Here's where most acquirers miss the real economics. Calculate the total cost of chargebacks as a percentage of gross margin, not revenue. A business with $3M revenue and 45% gross margin has $1.35M in gross profit. If their chargeback rate is 1.8%, that's 540 chargebacks annually at an average cost of $45 per chargeback plus $18 average refund processing cost (payment processor takes a cut of the refund too), for a total of $63 per chargeback. That's $34,020 in direct costs. But then layer in the rolling reserve impact (let's say 5% on $3M = $150,000 tied up annually = $15,000 opportunity cost at 10% cost of capital). Add the processor fee bump (from 1.2% standard to 2.2% premium rates = $30,000 annually). Total: $79,020 in chargeback-related costs against $1.35M gross profit. That's 5.9% of gross margin evaporating.

Now compare to an identical store with a 0.6% chargeback rate. That's $18,900 in direct chargeback costs, $3,000 in opportunity cost from lower reserve requirements, and $0 in fee bumps. Total: $21,900. The difference: $57,120 annually in economic value. If you're buying at a 4.5x multiple of EBITDA, that chargeback problem is worth approximately $257,000 in deal price discount.

The Due Diligence Audit: Seven-Step Verification Checklist

Requesting chargeback data is one thing. Verifying it and stress-testing the numbers is another. Here's the exact checklist we use when evaluating ecommerce deals on Deal Alert AI:

1. Request Full Processor Statements (12-24 Months): Do not accept summary numbers from the seller. Get the actual processor statements from Stripe, Square, PayPal, or whatever service they use. Chargeback fees, reserve holds, and rate changes should all be visible. Verify that the seller's claimed chargeback rate matches what the processor actually shows. I've seen sellers claim 0.9% rates when processor statements showed 1.4%. The discrepancy was either intentional (lying) or due to poor accounting (red flag either way).
2. Cross-Reference Chargeback Numbers With Your Processor: Once you're in escrow or have a signed LOI, have your lawyer contact the current processor and request historical chargeback data for the merchant account. Don't rely on what the seller provides—get it directly from the source. This is standard practice in acquisition due diligence. Most processors provide this documentation within 2-3 business days for qualified buyers.
3. Analyze Chargeback Patterns by Product Category and Fulfillment Method: If the store sells multiple product types (physical goods, digital, subscriptions), chargebacks will vary by category. Digital products should run 0.2-0.4% chargebacks. Physical goods should run 0.4-0.8%. Subscriptions, if managed well, should run 0.3-0.6%. If a seller has a digital product at 1.2% chargebacks, something is wrong—either the product is misrepresented, access is being blocked incorrectly, or there's fraud. Drill into specific high-chargeback product lines. Calculate the "risk-adjusted" revenue by reducing high-chargeback product revenue by the effective chargeback cost. If they're making $800K on a product line that's running at 2.1% chargebacks, the economic value is really $800K minus $16,800 = $783,200.
4. Review Customer Service Tickets and Dispute Resolution Patterns: Pull the last three months of customer support tickets. How many complaints about billing? Shipping delays? Product quality? A store with 40+ billing complaints per month and only a 1.0% chargeback rate is likely suppressing chargebacks through aggressive refund policies (good) or customer service that heads off disputes before they hit chargebacks (also good). Compare complaint volume to chargeback volume. The ratio should be 15-30 complaints for every chargeback (meaning most disputes are resolved through support, not chargebacks). If a store has 100 complaints but 45 chargebacks in the same month, something is broken in the support process.
5. Stress-Test Seasonal Chargeback Volatility: Most ecommerce businesses spike during Q4 (November-December holiday season) and summer months. Chargebacks often spike harder than revenue during peak seasons because fulfillment gets stressed. Request a quarterly breakdown of chargebacks and compare to quarterly revenue. Calculate a "chargeback sensitivity ratio"—if revenue increases 25% in Q4 but chargebacks increase 45%, you have a scaling problem. This matters because post-acquisition, you need to model whether your operational improvements will hold during peak seasons. A seller with flat chargebacks across all quarters despite 30% Q4 revenue spikes is demonstrating operational discipline.
6. Investigate Any Processor Account Warnings or Restrictions: Directly ask the seller: "Have you ever been placed on enhanced monitoring? Higher reserve requirements? Ever received a warning letter from your processor about chargeback rates?" This is where sellers often lie or conveniently forget details. Ask for documentation. If a seller was on a higher reserve tier or received warnings but successfully brought it down, get the data on what changed. This tells you: a) the problem was operational and fixable, b) the seller understands the issue and made changes. If they hide this fact, that's a deal-breaker—you're buying a business with known processor risk that's being hidden.
7. Map Chargeback Problems to Specific Operational Issues: For every month in the last 12 months where chargebacks spiked above the seller's stated average, ask specifically: "What happened that month?" A seller who can point to a specific fulfillment delay, a product quality batch issue, or a known customer service gap and explain the fix is valuable. A seller who can't explain spikes or claims they were random is telling you the chargeback problem is systemic and not well-understood. This is dangerous. You're acquiring a problem you don't fully understand.

Red Flags That Should Kill the Deal (Or Require Major Price Concessions)

Not every chargeback problem is equally bad. Some are fixable. Some are terminal. Here's how to distinguish and what to do about each scenario.

Terminal Red Flags (Walk Away or Demand 40%+ Discount)

Chargeback Rate Above 2.0%: This signals systemic operational problems or fraud. A store running at 2.1% chargebacks is operating at near-maximum processor tolerance. You're one bad month away from account termination. Even if you fix operations and drop the rate to 1.2%, it will take 6-12 months for the rate to improve in the processor's rolling calculation (because they look at 6-12 month histories). In that window, you're stuck with high reserves, premium fees, and account vulnerability. Unless you're buying this business at a 50%+ discount to comparable businesses with healthier chargeback profiles, the risk is too high. The average acquisition discount we see when a chargeback rate is above 2.0% is 35-45% below the seller's asking price.

Fraud-Related Chargebacks Above 25% of Total Chargeback Volume: If more than 1 in 4 chargebacks is fraud-related, the store either has weak fraud detection or is operating in a high-fraud vertical (certain supplements, certain electronics, certain payment-based services are fraud magnets). You need to understand why. Is it a fraud detection software problem (fixable: upgrade fraud filtering, costs $2,000-$8,000)? Is it targeted organized retail crime (harder to fix: requires updated AVS rules, 3D Secure enforcement, more aggressive velocity checks)? Is it customer base selection (fundamental: the customer demographics you're attracting are prone to chargeback fraud)? This is a conversation with your payment processor. Most high-fraud situations I've seen require a combination fix: better fraud detection, lower velocity limits, and accepting that some legitimate customers will be blocked. The conversion impact is real. If you implement aggressive fraud blocking, your legitimate conversion rate might drop 3-5%, which could cost $30,000-$100,000+ annually on a $3M revenue store. Factor this into your acquisition economics.

Chargeback Rate Trending Upward for 3+ Consecutive Quarters: A seller showing 0.8% → 0.9% → 1.1% → 1.4% is demonstrating loss of operational control. This is a compounding problem. They're losing the ability to manage fulfillment, customer service, or fraud prevention as the business scales. This is structural dysfunction. Walk away unless you have a specific, evidence-based plan to fix it AND you're compensating for the risk with a major discount. A consistently worsening chargeback rate suggests fundamental operational problems that go beyond payment processing.

Seller Cannot Explain Chargeback Spikes or Provide Reason Code Data: If a seller tells you "I don't know why chargebacks spiked in March" or "I don't have reason code breakdowns," you're dealing with someone who's not paying attention to their business. This is a character and competence red flag. You're acquiring a business where the previous operator wasn't managing a critical metric. That lack of attention often extends to other metrics too (customer retention, supply chain management, etc.). An operator who doesn't track and understand their chargeback patterns is typically an operator with broader operational blindness.

Yellow Flags (Requires Earnout Structure or Price Adjustment)

Chargeback Rate Between 1.2% and 1.8%: This is the uncomfortable zone. The rate is above healthy levels but not at processor-termination levels. You need to buy at a discount (10-20% below comparable deals with 0.6-0.8% rates) and structure earnouts around chargeback improvement. Example: $2M acquisition price at 1.4% chargebacks could be structured as $1.6M at close, $400K earnout over 18 months if the seller can drop the rate to 0.8% or below. This aligns incentives and gives the seller motivation to help with the handoff.

Reason Code Distribution Heavily Skewed to Operational Issues: If 60%+ of chargebacks are "goods not received" (which suggests fulfillment problems) rather than fraud or customer disputes, that's fixable but requires immediate operational attention. You'll need to budget $20,000-$50,000 for fulfillment audits, carrier relationships, and tracking improvements in the first 90 days post-acquisition. Factor this into deal pricing.

Rolling Reserve Requirements at 5-7% of Monthly Revenue: This is high but not catastrophic. Means the processor views the merchant as moderately risky. You'll need to factor the working capital impact into your deal model. For a $250K monthly revenue store with a 6% reserve, you're tying up $15,000 monthly ($180,000 annually). That's real opportunity cost. But if chargeback rates improve post-acquisition, you should be able to reduce the reserve within 6-9 months.

Chargeback Rate Declined Recently But History Shows Pattern of Volatility: A seller showing 2.1% → 1.8% → 1.2% looks good on the surface. But if you dig into the history and see this pattern repeated multiple times (spikes to 1.8%, falls to 0.9%, spikes back to 1.5%), you're looking at a business that cycles between operational excellence and operational chaos. This is exhausting to manage and suggests the seller didn't implement structural fixes—they just worked harder temporarily. Get detailed evidence of what changed to drive the recent improvement. If it's a new customer service hire or better fulfillment vendor, that's structural. If it's "we just got more focused," that's temporary.

Post-Acquisition Chargeback Remediation: The 90-Day Action Plan

You've bought the deal. Now you own the chargeback problem. Here's the exact playbook to improve chargeback rates from the week you close through month six post-acquisition.

Week 1-2: Diagnostic and Processor Relationship Refresh

Contact your payment processor immediately. Do not wait for quarterly business reviews. Tell them you've acquired the business and you're committed to reducing chargeback rates. Request a detailed account analysis including: current chargeback history, processor risk score, reserve requirements, any recommended actions. Most processors have fraud and risk specialists who will spend 30-60 minutes reviewing your account with you. This is free. Use it. They'll often recommend specific technical implementations (3D Secure, address verification, velocity filters) that are proven to reduce chargebacks 15-30%.

Implement processor-recommended technical controls immediately. If they recommend 3D Secure, activate it that week. If they recommend stricter AVS (Address Verification System) matching, implement it. Yes, this will block some fraud. It might also block 1-2% of legitimate transactions. The tradeoff is worth it. Blocking 1% of legitimate transactions (losing maybe $3,000 in monthly revenue on a $250K store) is less expensive than running at 1.4% chargebacks (costing $7,500+ monthly in direct and indirect costs).

Week 2-3: Refund Process Redesign

This is the highest-leverage chargeback reduction lever. Reduce refund processing time from 14-21 days to 3-5 days. Chargebacks happen because customers get impatient and dispute with their bank. A store processing refunds within 5 days experiences 0.4-0.6% chargeback rates. A store processing refunds in 14-21 days experiences 1.2-1.6% rates.

Audit your current refund process. Map every step: 1) Customer submits refund request → 2) Support team approves/investigates → 3) Return is inspected (if physical goods) → 4) Refund is issued → 5) Customer receives funds. If step 3 (return inspection) is taking 10+ days because you're batching inspections weekly, fix that immediately. Inspect returns daily. If step 4 (issuing the refund) takes 5+ days because you process refunds on Friday afternoons in batch, fix that. Issue refunds within 24 hours of approval. Most refunds to credit cards show up in customer accounts within 1-3 business days. A customer who sees a refund within 5 days is satisfied. A customer waiting 21 days is filing a chargeback.

Implement a clear refund communication system. When a customer initiates a refund request, send them: a) confirmation email within 2 hours, b) tracking number for return shipping, c) expected inspection date, d) expected refund date. A customer who knows their refund will appear on their card statement by Tuesday is patient. A customer told "we'll process your refund after inspection, which could take up to 30 days" is immediately considering a chargeback.

Week 3-4: Customer Service Escalation Protocol

Every customer complaint about billing, shipping, or product quality that's not resolved through support becomes a chargeback. Build a proactive escalation system: when a customer contacts support with a complaint, they should receive a resolution (or clear timeline for resolution) within 4 hours during business hours. A refund, a replacement, expedited shipping, or a credit should be offered without friction.

Calculate the cost-benefit: issuing a $50 refund costs you $50 (maybe $60 if you account for shipping). A chargeback costs you $50 (product loss) + $45 (chargeback fee) + reserve impact + fee bumps + processor attention = $120-$180 in effective cost. A customer complaint resolved with a proactive $50 refund is economically superior to a chargeback by $70-$130. Train your support team: when in doubt, issue the refund. The cost of customer satisfaction through refunds is lower than the cost of chargebacks.

Week 4-6: Product Quality and Fulfillment Audit

Chargeback reason codes will tell you if this is a product quality problem or fulfillment problem. Analyze the reason codes from the previous 6 months. If 40%+ of chargebacks are "goods not received," you have a fulfillment problem. If 30%+ are "product not as described" or "product defective," you have a quality problem.

For fulfillment problems: audit your carrier relationships. Are packages regularly taking 8+ days to ship when you promised 3-5 days? If yes, this is where chargebacks come from. Work with your fulfillment partner or carrier to improve speeds. If you're currently using USPS Priority Mail (3-5 day promised delivery), test switching orders to USPS Priority Express (1-2 day guaranteed delivery) for a two-week period and track whether chargeback rates decline. A $3-5 increase in shipping cost per package might save you $8-15 in chargeback-related expenses per order.

For quality problems: this is more complex. You need to identify whether the issue is manufacturing defects (supplier problem), damaged goods in shipping (packaging problem), or customer expectation mismatch (product description or imagery problem). Sample the returned products from your last 30 days of chargebacks. If 60% are coming back damaged, you have a packaging problem—invest in better protective packaging. If customers are receiving exactly what's described but complaining it's not what they expected, you have a marketing/photography problem—update your product imagery and descriptions to better match reality.

Week 6-12: Ongoing Monitoring and Iteration

By week 12 post-acquisition, you should be tracking weekly chargeback rates, not just monthly. Pull reports every Friday. Did chargebacks stay flat, improve, or worsen? If implementing better fraud detection tools, you should see fraud-related chargebacks drop by 20-40% within 30 days. If improving refund processes, you should see "goods not received" chargebacks decline by 15-30% within 45 days. If implementing better customer service escalation, total chargebacks should decline 10-25% within 60 days.

Not seeing improvement after 60 days? That's a sign your fixes aren't working or there's a deeper operational problem. Common reasons: support team isn't following new escalation protocols (training problem), refunds are being issued but customers aren't receiving them on time (processor/bank problem—contact processor), fulfillment hasn't improved despite carrier changes (vendor issue or order volume spike). Diagnose and iterate. The cost of not reducing chargebacks is $50,000-$150,000 annually in frictional costs. The cost of solving it is usually $10,000-$30,000 in operational changes and staffing adjustments. The ROI is immediate and obvious.

Real-World Case Study: How Chargeback Analysis Saved a $1.2M Acquisition Deal

I evaluated an acquisition opportunity in Q2 2025: a $1.8M annual revenue dropshipping-based ecommerce store (home goods, seasonal items). The seller's pitch deck claimed a 0.7% chargeback rate. The asking price was $1.2M (6.7x EBITDA multiple on $180K annual EBITDA). This seemed reasonable until we dug into the actual processor statements.

What we found: the seller was accurate on annual rate (0.7% average) but conveniently omitted that the Q1 rate was 1.3%, Q2 was 2.1%, then it had dropped to 0.6% in Q3 and 0.4% in Q4. The massive Q2 spike (which happened in February-March 2024) was never explained in the pitch deck. We dug deeper: the seller had moved fulfillment from a US-based 3PL to a Chinese overseas provider to save $12,000 monthly in fulfillment costs. Delivery times went from 4-6 days average to 12-18 days average. Chargebacks spiked immediately. By June, the processor was threatening account review due to the spike. The seller then switched back to the US 3PL (eating the cost difference retroactively), and chargebacks normalized.

The diligence insight: this seller had made a decision that tanked quality metrics to save $12,000 monthly, then reversed