Transaction Success Rate: What It Is and Why It Rarely Matters

If you own or work for a subscription business, you know the importance of metrics to your success. And “transaction success rate” sounds like a pretty important metric, right?

At first glance, transaction success rates are important, because they measure how many of your payments are approved. Obviously, getting paid is extremely important for your business! But peeking below the surface, we see that your transaction success rate may not matter as much as you’d think.

What is “transaction success rate” and how is it calculated?

First off, let’s start with a quick definition: 

Your transaction success rate (TSR) is calculated by dividing the total number of successful (approved) transactions by the total number of attempted transactions over a given time period. For example, if you ran 100 transactions, and 93% were successful, your TSR would be .93, or 93%.

Why it rarely matters:

Consider this scenario: Your business just ran 100 payments of $100 each, and 80 of those were approved, while 20 failed. That means that your transaction success rate was 80 percent. That could be better, right?

So, you decide to retry the 20 failed transactions. Of those 20 retries, five are successful.

That means a few things:

  1. Your transaction rate started at 80%
  2. After your retries, you had tried a total of 120 transactions, with a total of 85 of those being successful
  3. Because of the retries, your transaction success rate dropped to 70.83% (85 successful transactions/120 attempted transactions)
  4. Even though your transaction success rate dropped, your revenues increased – by $500!

In this scenario, if your primary metric for measuring success was your transaction success rate, you would have missed out on significant additional revenues. In the world of big data, metrics without context can confuse or overwhelm you into the wrong decision. Don’t let your TSR get you down!

When is transaction success rate important?

All of that said, there are select instances when measuring your TSR can be useful. Here are a few:

Split testing two gateways

It could be useful to see if there’s a drastic difference in your TSR between multiple payment gateways. However, even in this scenario, other metrics may be more important — like the cart completion/purchase success rate. (You can read more about testing and optimizing your prices here.)

Assessing customer segments

If you’re assessing your customer segments, consider evaluating each segment on their collective transaction success rate. If a specific customer segment has an extremely low or 0% TSR, it might make sense to eliminate that segment from your marketing efforts. (Read more about customer and lead segments and how to use them to optimize your marketing here.)

Merchant account providers

Some merchant account providers will penalize for low transaction success rates, with sliding-scale fees based on very low TSRs. If you have an extremely low transaction success rate, they may think your business is being used for “carding,” where fraudsters test stolen credit cards on your checkout form.

When it’s all said and done, TSR can be useful as a metric in specific circumstances. But, like most metrics, it shouldn’t be the sole factor in business decisions. The nuanced nature of metrics is the reason that Rebilly lets you track multiple KPIs and see them all in a single dashboard, so you can see the full picture of your subscription business.

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