The eBay Defect Rate: What It Is, Penalties, and Management Strategies

Your eBay defect rate is the single most important metric you have to worry about as a seller. If it gets bad, you can expect search penalties, selling limitations, eBay Store downgrades, and even higher fees. Knowing how to keep yours as low as possible is one of the most important survival skills a seller can have.

Last updated 1/6/2020.

What Is a Defect or Defective Transaction?

“I’m pretty sure the listing for the basketball hoop said it would, in fact, include a hoop somewhere.”

eBay states that there are three kinds of defect:

1. Transactions canceled by the seller.
2. eBay Money Back Guarantee cases where eBay decided in favor of the buyer.
3. PayPal Purchase Protection cases where PayPal decided in favor of the buyer.

Any one of these will count as a defect. It takes as little as two defects for your account to start getting hit with penalties, so let’s look at the three ways you can get one:

1. Seller-Canceled Transactions

This is perhaps the most common cause of defects for honest sellers. If you have to cancel the transaction for any reason—for example, if you run out of stock—it counts. (Problems that are completely the buyer’s fault, like them failing to pay, don’t count.)

2. eBay Money Back Guarantee Claims

The eBay Money Back Guarantee comes into play under either of two circumstances:

1. The item you sent to the buyer doesn’t match your description.
2. The buyer doesn’t receive the item.

The buyer also has to meet several conditions, including reporting the issue within a time limit (generally 30 days of receiving / not receiving the item) and contacting you first. You have plenty of chances to resolve the problem. But if you don’t, and eBay decides in favor of the buyer as they usually do, it counts as a defect.

See our eBay seller protection guide for a quick overview of when you should be safe from a defect.

3. PayPal Purchase Protection Claims

PayPal Purchase Protection applies to the same situations as the eBay Money Back Guarantee: when the item isn’t received or isn’t as described. However, PayPal has less demanding requirements for the buyer than eBay. They also have a deadline of 180 days rather than 30.

Just like with eBay, the buyer needs to reach out to you for resolution first. Settling with the buyer directly will allow you to avoid the risk of a defect.

What Is the eBay Defect Rate?

Your eBay defect rate consists of the number of defects you’ve had (as described above) divided by your total transactions. If you had three defects after selling 100 items, your defect rate would be 3%.

When Does My Defect Rate Become a Problem?

“As soon as I get to the bottom of the escalator.”

Quickly. Exactly when it affects your account depends on several conditions.

An important qualifier to note here is the “evaluation period” or "lookback period":

• If you’ve sold less than 400 items in the last three months, your evaluation period is the last 12 months.
• If you’ve sold at least 400 items in the last three months, your evaluation period is those three months.

Everything listed below is dependent on your evaluation period. If something happened before your current evaluation period began, it doesn’t count.

A Top Rated Seller will lose Top Rated status if either of the following happens:

• Their defect rate is higher than 0.5%
• They have defects from at least three different buyers.

All sellers will be penalized for non-performance if any of the following happens:

• They have defects from at least four different buyers.
• Their defect rate is higher than 2%.
• At least two eBay Money Back Guarantee and/or PayPal Purchase Protection claims are decided against them, and these cases exceed 0.3% of the seller's transactions for the evaluation period. The two claims can be from the same buyer.

Examples

1. No Penalty

Top Rated Seller Anna has cancelled transactions with five buyers within the last year, two of them within the last three months. Since she sold 500 items in the last three months, only the two most recent defects count. That means she's safe! Her defect rate is only 0.4% and she has not had to cancel for at least three different buyers.

2. Non-Performance Penalty

Sarah’s also had five defects within the last year, but she only managed to sell 398 items in the last three months. All five defective transactions now count toward her defect rate. Even though she sold 1200 items over the last year and her defect rate is only 0.42%, the defects with five unique buyers are enough to get her penalized for non-performance.

3. Loss of Top Rated Seller Status

Top Rated Seller Hakim’s 500^th sale for the last three months also turned out to be his third defect with a unique buyer. That puts his defect rate at 0.6% and costs him his Top Rated Seller status. On the plus side, he doesn't have to worry about seller non-performance penalties as long as he doesn't get a defect with a fourth unique buyer during this evaluation period.

4. From Top Rated Seller to Non-Performing in One Defect

Top Rated Seller Steve has sold 850 items in the last three months. He’s just been hit by his third defect in that period—and unfortunately, all three of them were eBay Money Back Guarantee and PayPal Purchase Protection claims that were decided against him.

Steve's rate of lost Guarantee/Protection claims has now hit 0.35%. Not only does this mean he is stripped of Top Rated status, he has also lapsed into seller non-performance and eBay will decide how it wants to punish him.

How Do I Keep My Defect Rate Down?

“I thought by ‘down’ you meant lie down ON the couch, not off it.”

Defects are clearly a huge threat to any seller. Since a tiny handful of defects can be enough to get even the biggest sellers slapped hard, you have to do everything in your power to prevent them.

Keep Customer Service Efficient

Slow responses dramatically increase the chances of a customer getting upset, and if you don’t respond to a buyer within three business days, then the case qualifies for the eBay Money Back Guarantee.

If you ever reach the point when it takes you more than three days to respond to all of your eBay messages, then things are way too bogged down. You need to start responding faster before your feedback score and defect rate are irreparably damaged.

Connecting eBay with a helpdesk is the best way to speed things up. Helpdesks give you access to powerful tools like canned responses, saving you from having to retype common answers and letting you automatically fill in details like the customer’s name. They also let you have multiple users answering your eBay messages at once.

Professional helpdesks Zendesk, Freshdesk, Help Scout and Gorgias can all be made compatible with eBay.

Accept Returns Readily

Accepting eBay returns costs time and money, so you can’t be blamed for wanting to turn down some, especially when they seem unreasonable. And you absolutely should if the buyer is completely out of their rights. But the more readily you accept returns, the better for your defect rate.

A buyer who has returned an item and gotten a refund from you has no grounds for claiming you did not resolve the situation. If you always offer to accept a return, you will be virtually immune to Money Back Guarantee and Purchase Protection claims.

Improve Inventory Management

The last step is making sure you don’t have to cancel any transactions. If you always know exactly how much you have of every product, then cancellations should pose no problem.

A number of software solutions are available to track your inventory automatically. Ecomdash is an affordable option for larger sellers, and TradeGecko works great as well, offering competitive prices for small businesses. Either will make sure you never get caught selling an out-of-stock product again.

My eBay Defect Rate Is Under Control. Now What?

Now you can get back to selling! Learn how to compete on eBay to keep your profits growing and leverage your streamlined operation.